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.
May 5, 1992
Draft
1992 VANCOUVER ROUND TABLE
Question 15
We refer to Question 43 of the 1989 Round Table from the Annual Conference. The facts are the same as in the question asked but instead of shares of a family farm corporation being transferred, the actual farm property will be transferred. Will Revenue Canada, Taxation apply the General Anti-Avoidance Rule if the children claim the $500,000 capital gains exemption on the subsequent disposition of the farm property in their hands, assuming that the farm property qualifies for the enhanced capital gains exemption?
Answer
The question asked in 1989 was, in essence, "Would GAAR apply where an individual gives shares of a Family Farm Corporation to his children under section 73(4) and immediately thereafter the children sell the shares to a non-related party and claim the enhanced capital gain exemption?" Our answer, based on the simple facts presented, was "No. GAAR would not ordinarily apply to these transactions in and by themselves." We then went on to give some reasons.
Our answer to the current question, based solely on the information given would be the same assuming, in both cases, that there is a change in beneficial ownership or that subsection 75.1(1) is not applicable. However, if the father has agreed to sell the farm property or shares of a Family Farm Corporation to a third party but before doing so transfers the property/shares to his children under subsection 73(3) or subsection 73(4) and they immediately sell to the third party, the children could be considered to be agents of their father. Thus, the gain would be a gain of the father rather than the children. Alternatively, GAAR could be relevant if the transfer to the children was entered into merely as an avoidance transaction. Depending on the facts, it is also possible to consider the sale by the children of the farm property/shares to be on account of income rather than capital in which case the deduction under 110.6(2) would not be available.
921352.1
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