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: (1) Who reports the rental income from farm land that was purchased by a husband and wife?
(2) Who reports the proceeds of disposition of property that was purchased by a husband and wife?
Position: (1) Depends on the source of funds used to purchase the farm land.
(2) Depends on the source of funds used to purchase the property.
Reasons: (1) Attribution rules would apply if source of funds is from spouse.
(2) Attribution rules would apply if source of funds is from spouse.
XXXXXXXXXX 2000-001679
J. E. Grisé
May 5, 2000
Dear XXXXXXXXXX:
This is in reply to your fax of March 27, 2000, requesting our opinion concerning farm land and buildings purchased by a husband and wife.
In the situation you have outlined, the purchase was financed through Farm Credit Corporation and a private mortgage, both loans in the name of the husband. The husband farmed the land for approximately 15 years as a proprietorship. The interest cost of financing was recorded as an expense of the proprietorship. The municipal taxes, in the name of the husband and wife, were expensed to the proprietorship. The annual Ontario Farm Tax rebate was applied for and received in the name of the husband and recorded in the proprietorship farming income. The husband stops farming and rents the land for a cash rent.
The particular circumstances in your letter on which you have asked for our opinion appear to be a factual situation involving completed transactions of specific taxpayers. As explained in paragraph 22 of Information Circular 70-6R3, it is this Directorate's practice to only comment on proposed transactions involving specific taxpayers in the form of an advance income tax ruling. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Agency.
Your first query relates to the reporting of the rental income when the husband stops farming and rents the land for a cash rent. The rental income should be reported by the husband and wife in proportion to the funds that they each contributed towards the purchase of the land. Any loan payments, or portions thereof, that were made with farming income are considered to be capital contributions by the husband to acquire the land since he was the only one who carried on the farming business and reported all of the income therefrom. If the wife contributed part of the down payment on the land, only her down payment is relevant in determining her capital contribution to acquire the property. While the income attribution rules in subsection 74.1(1) of the Income Tax Act apply to the rental income, they do not apply to income from a business so that none of the farming income will be attributed to her.
Your second query relates to the reporting of the capital gain or loss when the property is sold. When spouses own a property jointly but have provided the financing for its acquisition disproportionately, it is our view that the attribution rules in subsection 74.2(1) of the Income Tax Act will apply to determine the reporting of a capital gain or loss on the disposition of the property. As a result of these rules, each spouse would report a share of the capital gain or loss on the basis of his or her respective contribution of capital to acquire the property. The comments in the previous paragraph relating to loan repayments while the property was being used in the farming business, also apply for purposes of determining the respective contribution of capital by each spouse. Although subsection 74.2(1) is applicable for transfers of property made after May 22, 1985, the results will generally be identical for transfers of property on or before this date, pursuant to the rules in former subsection 74(2).
We hope our comments are helpful.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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