7 June 1991 Income Tax Severed Letter - Fish Farming

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: Fish Farming

This is in reply to your letter of April 16, 1991, wherein you request the department's position in respect of a fish farming operation and a fish processing operation. The following hypothetical fact situation is given:

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Your questions are as follows:

• 1. Is a partnership interest in a partnership carrying on the business of fish farming considered to be qualified farm property for the purposes of the Capital Gains exemption, provided it meets the gross revenue test, asset test, and the partners are engaged on a regular and continuous basis in the business (assuming the business commenced prior to 1987)?
• 2. Does the processing of fish taint the interest in the partnership from becoming qualified farm property? (assuming that the processing activity and the assets associated, i.e. the processing building is more than 10% of the total assets of the partnership, but less than 50% of the fair market value of all the assets owned by the partnership).

Our Comments

Although you have asked for a technical interpretation, it would appear that a proposed transaction by a particular taxpayer is involved. Thus this matter would appear to be more appropriately the subject of an Advance Income Tax Ruling. We are, however, prepared to provide some general comments.

Generally, where fish are stocked, raised and harvested in a controlled environment such as a pond owned by a farmer, it is our view that the activities related to the raising of fish could be considered farming for the purposes of the Income Tax Act. As stated in paragraph 7 of Interpretation Bulletin IT-433 entitled Farming-Use of Cash Method, "... in certain factual circumstances it is considered that farming includes raising fish ...". In our view, it is entirely a question of fact whether the cultivation of fish can be considered to be "farming" for the purposes of the definition in subsection 248(1) of the Act.

Factors which have been considered in this regard include: (i) the method of holding or containing the fish during their natural period of growth; (ii) extent of feeding; (iii) extent of medication and fertilization; (iv) method and extent of monitoring of fish during the growing period; (v) method of harvesting when the crop is fully grown; (vi) manpower and expertise required during monitoring and harvesting period.

In answer to your first question, a property consisting of an interest in a family farm partnership carrying on the business of fish farming could be considered to be qualified farm property pursuant to subsection 110.6(1) of the Act, provided it meets all the other requirements of the definition.

In our opinion, once the fish enter the fish processing plan, any activities carried out to prepare the fish for market, such as filleting, shelling, icing, canning, freezing, smoking, salting, cooking and pickling are considered processing activities. Although we generally regard the activities of a business, where there is no delineation of income from each business, as one rather than two separate businesses, too much weight should not be given to the possible merging of the results into one statement at the year-end for tax or other reporting purposes. When determining whether business operations are of the same king, the principal factor to be considered is the type of business the taxpayer is in. See Interpretation Bulletin IT-206R for a fuller discussion of these and other factors to be considered. In answer to your second question, the assets used in the fish processing activities may not be assets used in the curse of carrying on the business of farming and could taint the interest in the partnership from becoming qualified farm property. Your letter describes a situation in which the fish processing activities could perhaps be considered an integral part of a fish farming business, but whether this is the case is a question of fact best resolved by officials of your local District Taxation Office, who are in a better position to appreciate all of the relevant circumstances.

The above comments are expressions of opinion only and as such should not be construed as advance income tax rulings, nor are they binding on the Department. Should you require an advance ruling with respect to a specific proposed transaction, please follow the procedure described in Information Circular IC 70-6R2 [Information Circular 70-6R2].

We hope that our comments will be of assistance to you.