21 February 1990 Ministerial Letter 59288 F - Inter-Vivos Transfer of Farm Property to Child

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.

Dear   19(1)

We are writing in reply to your letter of December 8, 1989, wherein you requested our views regarding the income tax implications of options tied to an agreement for sale with respect to a non-arm's length sale of farm assets from father to son.

Our understanding of the scenario set out in your letter is as follows:

24(1)

With respect to the five questions posed in your letter, you have requested that we consider the following assumptions:

24(1)

With respect to the basic scenario and related assumptions you gave requested that we also consider the following three alternatives:

24(1)

Our Comments

We will respond to your questions in the order in which they appear in your letter.

1.     Whether or not there is a bonafide transfer of property for income tax purposes, or common law purposes, would involve a finding of fact.  If there is an inter vivos transfer of farm property by a farmer to his son, subsection 73(3) of the Act would apply to deem the farmer to have received proceeds of disposition calculated in accordance with the provisions of that subsection.  Since we are not in possession of sufficient detail regarding the agreement for sale we are unable to comment on the scenario described above.

2.     If it can be established that a bonafide transfer has occurred and provided all of the requirements of section 110.6 are fulfilled, it is our opinion that the father would be able to use the enhanced capital gains deduction provided for in subsection 110.6(2).  However, in the absence of sufficient detail, we are unable to offer a definitive response in this regard.

3&4.      If the repurchase clause in the agreement constitutes a valid option in law, then the rules in section 49 would apply to both father and son.  In this regard, we draw your attention to the comments in paragraph 5 of IT-403R (copy attached) regarding options and non-arm's length transactions.  In view of the repeal of subsection 55(1) the comments in this paragraph should now be read with reference to section 245.

5.     Assuming that the agreement represents an acquisition of the property, in fact and law, by the son from the father it is our opinion that subsection 70(9.6) would permit the roll-over of the property to the father upon the death of the son.

Should the above scenario involve an actual taxpayer and a proposed transaction you may wish to resubmit this matter for a binding advance income tax ruling.  We are enclosing, for your information, a copy of Information Circular 70-6R entitled "Advance Income Tax Rulings".  We wish to draw your attention, in particular, to the comments appearing under the headings "Procedure for Requesting Advance Rulings" and "Distinction Between Advance Rulings and Opinions".

Should the above scenario involve an actual taxpayer and a completed transaction, you may wish to submit all facts and relevant documentation to the appropriate District Taxation Office for their comments.

We trust these comments are of assistance.

Yours truly,

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c.       Reg Johnson Saskatoon District Office