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: Subsection 56(4.1) of the Income Tax Act (the Act)
This is in reply to your letter of January 10, 1991, wherein you requested our views with respect to the applicability of subsection 56(4.1) of the Act in the following hypothetical situation.
- 1. Father sells a piece of farm land to son and takes back as consideration a non-interest bearing note payable.
- 2. Son actively farms the land and this results in farm income being earned from the land.
Your concern is whether subsection 56(4.1) of the Act would apply to the above situation.
It is a question of fact whether one of the main purposes for the loan was to reduce or avoid tax. In addition paragraph 56(4.1) only applies to income from property and it will be a question of fact whether the farm land yields income from property or from a business. Consequently, all the facts in the circumstances of a particular situation have to be examined before such a determination can be made.
We should also mention that the fair market value of the note may be less than the face value if it is non-interest bearing and not payable for a considerable time.
We trust our comments will be of assistance to you.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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