12 November 2009 External T.I. 2009-0333721E5 - Farming Activity

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Is horse boarding, the rental of farm land, and the production and sale of exotic animal by-products considered farming for purposes of the Act?

Position: Likely no unless the activities are incidental to other farming income.

Reasons: Horse boarding, in and of itself, is either rental or business income. The rental of farm land and manufacturing and processing activities are generally not considered farming.

								2009-033372
XXXXXXXXXX 							James Atkinson CGA
(519) 457-4832
November 12, 2009

Dear XXXXXXXXXX :

Re: Farming Activity

This is in response to your e-mail of July 23, 2009, and further to our telephone conversation of October 19, 2009 (Atkinson/XXXXXXXXXX ), concerning the definition of "farming" for purposes of the Income Tax Act (the "Act").

You described the Farm Property Class Tax Rate Eligibility Program (the "Program"). Under the Program, a farm property which satisfies certain requirements is given a reduced residential property tax rate. For example, the property must be part of a farming business with over $7,000 of gross farming income reported to the Canada Revenue Agency ("CRA").

You enquired as to whether the following activities are considered farming under the Act:

• horse boarding;
• the rental of property that is being farmed by a tenant and not by the property owner; and
• the production and sale of wool products, accessories and socks from alpacas, llamas and/or sheep.

Our Comments

Whether income from a particular activity is farming income, business income from an activity other than farming, or property income under the Act is a question that can only be resolved after a complete review of the facts and circumstances of the case.

The definition of "farming" in subsection 248(1) of the Act includes the "tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees." This list is not exhaustive. The courts have held that farming generally includes the whole commercial production of any crop or plant that has economic value.

Activities involving the provision of services and the rental of farm land generally are not considered farming unless the activities are incidental to an activity that otherwise qualifies as farming and the income generated by these activities is not material in relation to the taxpayer's other farming income. The expression "incidental" is not defined in the Act, but implies a subordinate relationship or "having a minor role in relation to". Factors that may be relevant in the determination of whether a particular activity is incidental to another would include the income generated and the capital or labour invested in each activity.

The raising of livestock such as alpaca, llamas and/or sheep for commercial purposes would be considered farming. However, farming generally does not include the manufacturing or processing of agricultural products unless the activities are incidental to the farming activity. For more information, see Interpretation Bulletin IT-145R, Canadian Manufacturing and Processing Profits - Reduced Rate of Corporate Tax, available on the CRA website at www.cra-arc.gc.ca/E/pub/tp/it145r-consolid/README.html.

In and of themselves, the activities you described would not, in our opinion, be considered farming under the Act.

We trust these comments are of assistance.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch