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 Sirs:
Re: Family Farm Corporation Shares
This is in reply to your letter of May 6, 1991 requesting a technical interpretation respecting section 110.6(1) of the Income Tax Act (the "Act") concerning shares of the capital stock of a family farm corporation.
Our reply follows the point order of your questions.
1) It is the Department's view (see pages 570-572 of the 1984 and question 13 of the 1989 Canadian Tax Foundation Round Table discussion questions) that "substantially all of the assets" as used in a number of provisions of the Act normally means at least 90% of all the assets of the corporation. This position is maintained in Interpretation Bulletins IT-63R3, IT-151R3, IT-171R, IT-188R, IT-268R3, IT-349R2, IT-483, IT-486R, IT-497R, and IT-507. Except where the legislation specifies a test such as fair market value, the Department considers that it would be inappropriate to adopt a particular universal base or measuring stick to apply to all circumstances. Accordingly, with regard to the definition of "share of the capital stock of a family farm corporation" in subsection 110.6(1) of the Act the number of assets, their relative sizes, cost, net book value, fair market value of all assets including goodwill, or some other appropriate measurement may be used, depending on the facts of the particular situation. This determination may only be made after a review of all the pertinent information. Such a review is normally made by officials of the local District Taxation Office, who are in a better position to appreciate all the circumstances of the particular case. With respect to farm assets in particular we draw your attention to paragraph 29 of IT-268R3 where it states the Department's view that a farm corporation which has permanently set aside more than 10% in terms of cost of its assets for investment or non-qualified uses will not qualify as a family farm corporation.
2) The answer to your second question, regarding whether a particular residence would be considered to be used in the business of farming, is also set out in paragraph 29 of IT-268R3. A residence owned by a corporation will be regarded as used in the business of farming, if more than 50% of its use is as accommodation for persons who are actively employed in the farming business or their defendants." If that test is not met by a particular farm residence it will be included in the group of assets acquired for investment or non-qualified uses.
We trust our comments will be. of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch
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