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: Whether the Prince Edward Island Department of Environment, Energy and Forestry must issue information slips to recipients under the Alternative Land Use Services (ALUS) Program.
Position: Yes, the payments appear to meet the definition of "farm support payment" defined in subsection 234(2) of the Regulations.
Reasons: The law.
Mr. John Oatway
Charlottetown TSO
161 St. Peters Road 2008-029915
Charlottetown PE C1A 8L3 James Atkinson CGA
(519) 457-4832
December 2, 2008
Dear Mr. Oatway:
Re: Alternative Land Use Services ("ALUS") Program
This is in response to your email dated October 6, 2008 concerning the above-named program. In your email, you requested our opinion on whether a payment under the above-noted program would qualify as a "farm support payment" (defined in subsection 234(2) of the Income Tax Regulations) and whether the payor, the Department of Environment, Energy and Forestry ("EEF") of Prince Edward Island (PEI) was obligated to issue AGR-1 tax forms in respect of payments made to participants in the above-named program.
Our understanding of this program is based on the information you have provided, which included a Backgrounder, Program Guide and Funding Application supplied by the EEF.
Based on the information provided, it is our understanding that the ALUS Program is a voluntary environmental program for PEI's agricultural landscape. The intent of the ALUS Program is to provide incentives for landowners/farmers who want to deliver ecological goods and services that are above and beyond those provided through regulation. The program focuses on ecological goods and services - the benefits society derives from healthy ecosystems. It includes things such as the value of wetlands in purifying water; the value of riparian buffer zones in filtering soil and other contaminates from run-off entering watercourses; and the value of natural areas in providing fish and wildlife habitat. Through the ALUS Program, farms will be eligible for financial incentives to continue with their improved land management efforts.
ALUS Program funding is specifically directed at landowners in PEI, of which farmers represent the single largest group. Landowners/farmers interested in the ALUS Program must be able to commit to a contract length of five years. Incentives, providing certain conditions are met, will be payable at a specified rate per hectare per year. Conditions for eligibility vary; but, generally require that any area of land so considered must be currently in active annual crop production since the year 2000, or currently in a rotation that contains row crops. Land under soil conservation structures may also qualify if certain other conditions are met.
Our Comments:
The payments made to participants in the ALUS Program are in the nature of government assistance, a term that generally includes all payments received as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax or allowance. Useful comments in respect of the tax treatment of government assistance can be found in Interpretation Bulletin IT-273R2, Government Assistance - General Comments.
Part II of the Income Tax Regulations ("Regulations") imposes an obligation on persons who make certain payments to file information returns. These provisions can apply to a wide variety of payments, including certain forms of government assistance. Whether the EEF is obligated to issue tax forms in respect of payments made to participants in the ALUS Program rests substantially upon the determination whether such payments are included in any of the provisions listed in Part II of the Regulations.
Pursuant to subsection 234(1) of the Regulations, every government, municipality or municipal or other public body or producer organization or association that makes a payment of an amount that is a "farm support payment" ("FSP") to a person or partnership is required to make an information return in prescribed form in respect of the amount (AGR-1).
A FSP is defined in subsection 234(2) of the Regulations to include a payment that is computed with respect to an area of farm land; a payment that is made in respect of a unit of farm commodity grown or disposed of or a farm animal raised or disposed of; and a rebate of, or compensation for, all or a portion of cost or capital cost incurred in respect of farming, or, unsowed or unplanted land or crops, or destroyed crops, farm animals or other farm output.
Since the incentives under the ALUS program are payable at a specified rate per hectare per year, payments made in respect of farm land would qualify as FSP because they appear to fit squarely within the description of a "payment that is computed with respect to an area of farm land." Moreover, the inclusion of the wording "rebates or compensation for, all or a portion of, a cost or capital cost incurred in respect of farming" in the definition of FSP generally results in the characterization as a FSP of most forms of government assistance payable to persons carrying on a "farming" business.
Whether or not a payment under the ALUS Program qualifies as a FSP in respect of which an AGR-1 slip, and information return, must be prepared is a question of fact. However, based on the foregoing, the payments under the ALUS Program will be made substantially, if not all, to persons either owning farm land, or carrying on a farming business. The amounts meet the definition of a FSP. Therefore, in our view, there would be an obligation upon the EEF to file AGR-1 slips and an information return in respect of payments made under that program.
We trust that these comments will be of assistance.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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