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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether two properties currently owned by Mrs. X qualify as "qualified farm property". The hypothetical scenarios are:
1. The first property owned by Mr. and Mrs. X between 1965 and 1988 and farmed by Mr. X for 20 years where the income from farming exceeded annual income from all other sources. Mrs. X became the sole owner of the property in 1988 when Mr. X died.
2. The second property was farmed by Mr. X for 40 years and the income from farming exceeded annual income from all other sources. Mr. X became the owner of the property in 1980 when his mother died. Mrs. X inherited the property when Mr. X died in 1988.
Position TAKEN:
In both scenarios the properties could qualify as "qualified farm property" providing the facts are such to indicate that Mr. X was in the business of farming.
Reasons FOR POSITION TAKEN:
The ownership is met by the persons mentioned under subparagraph 110.6(1)(a)(vi). The gross revenue test is also met as it need not be the person, but any of the persons described in subparagraphs 110.6(1)(a)(i) to (iii).
L. Barrows
XXXXXXXXXX 952356
Attention: XXXXXXXXXX
March 19, 1996
Dear XXXXXXXXXX:
Re: "Qualified Farm Property"
This is in reply to your letter of August 29, 1995 in which you requested our opinion regarding the interpretation of the definition of "qualified farm property" as it relates to hypothetical transactions involving two farm properties under different beneficial ownership scenarios. You have expressed the view that the properties meet the definition of "qualified farm properties" pursuant to subsection 110.6(1) of the Income Tax Act (the "Act") and that the taxpayer is therefore entitled to use the capital gains deduction to defer capital gains tax that might result from the transfer of these properties by way of gift to the taxpayer's children. We apologize for the delay in replying.
The facts pertaining to each situation are summarized as follows:
Case 1
The First Property was owned by Mr. and Mrs. X between 1965 and 1988 as joint tenants. For at least 20 years during this time, the property was used by Mr. X in the business of farming where the annual gross income from the farming business exceeded his annual income from all other sources. When Mr. X died in April, 1988, the property reverted to Mrs. X as sole owner.
Case 2
The Second Property adjoins the First Property. Between 1947 and 1988, this property was used by Mr. X in the business of farming where the annual gross income from the farming business exceeded his annual income from all other sources. Mr. X had a remainder interest in this property until 1980 when his mother died and he became the sole owner. Mrs. X was willed the property by her husband and she became the sole owner of the property on his death in April, 1988.
During a subsequent telephone conversation (XXXXXXXXXX/Barrows), you indicated that the rollover provisions of subsection 73(3) would not apply. Consequently, no hypothetical facts were given for the period following April, 1988.
The hypothetical cases outlined in your letter would appear to relate to specific fact situations for which proposed transactions are contemplated. We wish to advise that confirmation of resulting tax consequences relating to proposed transactions will only be provided in response to a request for an advance income tax ruling as outlined in Information Circular 70-6R2. However, in response to your request, we can provide the following general comments which are not binding on the Department.
The following comments are based on the assumption that at the time of Mr. X's death, subsection 70(6) of the Act would have applied. As a result, in April, 1988, Mrs. X would be deemed to have acquired Mr. X's half interest in the First Property and his 100% interest in the Second Property.
The rules for "qualified farm property", which was last acquired after June 17, 1987 are that:
-the property must have been owned by the taxpayer, the taxpayer's spouse, any of the taxpayer's children or any of the taxpayer's parents throughout the 24 months preceding the sale; and
-in at least 2 years while the property was so owned, the gross revenue from the farming business carried on by any of these individuals must have exceeded their income from all other sources for the year.
In our opinion, the ownership test will have been met by any of the persons, or a combination of any of the persons mentioned in subparagraph 110.6(1)(a)(vi) of the definition of "qualified farm property" during that 24 month period. In addition, the person meeting the gross revenue test need not be the person who owns the property and may be any of the persons described in subparagraphs 110.6(1)(a)(i) to (iii) thereof.
In the hypothetical cases described above, Mrs. X will have owned the First and Second Properties for at least 24 months prior to gifting to the children and the ownership requirement is therefore met. Although it would appear that Mrs. X was never involved in the business of farming and presumably has no income from the business, since the gross revenue of Mr. X from the farming business exceeded his income from all sources in at least 2 years while the First Property was owned by Mr. and Mrs. X and the Second Property was owned by Mr. X, the gross revenue test would also be met.
Therefore, in our view, the properties owned by Mrs. X could qualify as "qualified farm property". However, whether a particular taxpayer's operation is considered to be the carrying on a business of farming is a question of fact that can only be determined after a review of all the facts at a particular time. It is also a question of fact whether a taxpayer is actively engaged on a regular and continuous basis in the operation of a farm business. Questions of fact of this nature are usually resolved by officials of the local taxation services office who are generally in a better position to appreciate all the circumstances of a particular case.
We trust these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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