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.
REVENUE CANADA ROUND TABLE CTF NOV. 1992
Question # 10
CAPITAL GAIN EXEMPTION - FAMILY FARM CORPORATION
The definition of a "share of the capital stock of a family farm corporation" in subsection 110.6(1) requires that throughout any 24 month period ending before the time of determination, more than 50% of the fair market value of the property owned by the corporation be attributable to certain property.
This property must have been property that has been used by certain persons principally in the course of carrying on the business of farming in Canada in which certain individuals were actively engaged on a regular and continuous basis.
We interpret this requirement to mean that the property at some time must have principally been used in the course of carrying on the business of farming in Canada and not that the property must have principally been used throughout the course of its ownership by the corporation.
For example, a corporation owns a quarter section of land. The land is owned for eight years and during this period of time, it is used in the corporation's farming business for one year and rented to an unrelated third party for the remaining seven years. During the year in which the corporation farms the property, one of the qualifying individuals in the definition was actively engaged in the farming business on a regular and continuous basis.
Will this property be eligible property as defined in subparagraph (a)(i) of the definition or would the property be required to be used in the farming business of the corporation for more than four of the eight years that the property was owned by the corporation in order to be eligible?
Answer:
In your example, we assume that, throughout the eight-year period during which the corporation owns the particular piece of land, the corporation carries on a farming business in which one of the qualifying individuals in the definition is actively engaged on a regular and continuous basis and the corporation owns other properties used principally in its farming business.
The requirement of paragraph (a) of the definition of "share of the capital stock of a family farm corporation" is to the effect, inter alia, that throughout any 24-month period ending before the time a share is disposed of, more than 50% of the fair market value of the property owned by the corporation was attributable to property used (or that has been used - per June 1992 Notice of Ways and Means Motion) by a specified taxpayer, principally in the course of carrying on the business of farming in Canada in which any individual referred to in clause (B), (C) or (D) of the definition was actively engaged on a regular and continuous basis.
There is no requirement in the said paragraph that a particular property must be used in the farming business of the corporation throughout any particular period of the time. Therefore, in your example, the particular piece of land would be considered among the eligible properties as far as the 50% test is concerned, during the period it was used in the farming business of the corporation.
However, at the time a share of the corporation is disposed of, the particular piece of land would not qualify as an eligible property for the purpose of the "all or substantially all" test in paragraph (b) of the said definition unless it has been used more than four of the eight years that the property was owned by the corporation in the course of carrying on the business of farming in Canada by the corporation or a person or partnership referred to in subparagraph (a)(i) of the definition.
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