Section 28

Subsection 28(1) - Farming or fishing business


Hadler Turkey Farms Inc. v. The Queen, 86 DTC 6013, [1986] 1 CTC 81 (FCTD)

can't change to cash method for particular year once accrual return filed

Jerome, A.C.J. held that although s. 28 should be interpreted as giving to the taxpayer "the open-ended option to switch from the accrual method to the cash method," "once a taxpayer files his return on the accrual basis, the cash option no longer exists for that taxation year".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) 63

Pollon v. The Queen, 84 DTC 6139, [1984] CTC 131 (FCTD)

"There is no requirement whatsoever that the taxpayer be personally engaged in any physical sense in the farming activity. Gentlemen or absentee farmers would benefit from the privilege providing the income in issue is derived from farming ... [A]ctivities may be contracted out by the taxpayer [as was the case here] and the latter will still be considered as engaging in a farming operation."

Administrative Policy

26 November 1992 T.I. 923506 (September 1993 Access Letter, p. 411, ¶C20-1161)

A post-dated cheque received under the Gross Revenue Insurance Program, that is accepted as security for the debt owing to the taxpayer without extinguishing the debt, is brought into income on the date that the cheque is payable. A request by the farmer to have the cheque post-dated in a subsequent year does not alter RC's views.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt 79

26 May 1992 External T.I. 5-920606

An advance received by a cash-basis farmer on the delivery of corn to a private grain elevator will be treated as income rather than as a loan.

11 October 1991 T.I. (Tax Window, No. 11, p. 17, ¶1522)

Where a cash-basis farmer pays for feed prior to the year end, he will be permitted a deduction in the year of payment provided that he obtains title to the feed in that year.

5 March 1991 T.I. (Tax Window, No. 1, p. 17, ¶1133)

Where a cash-basis farm ceases operations, payments made thereafter for accounts payable incurred by the farmer while he was operating the farm will be deductible provided the payments would have been deductible in computing the income of the farming business and the claim is bona fide.

10 September 1990 Memorandum (Tax Window, Prelim. No. 1, p. 8, ¶1010)

Discussion of fiscal period issues respecting a bankrupt farmer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 128 - Subsection 128(1) 10

28 May 1990 T.I. (October 1990 Access Letter, ¶1488)

Where inventory purchased by a farmer is much greater than the requirements of his farming business as would be the case where he consistently sells the excess purchases to other farmers in subsequent fiscal years, RC will consider that he is carrying on a commodities business in addition to a farming business.

19 September 89 T.I. (February 1990 Access Letter, ¶1103)

A crop which has been grown from purchased seed would not be included in purchased inventory for purposes of s. 28(1)(c). However, trees which have been grown from seedlings or one or two-year old trees would be so included.

Paragraph 28(1)(a)

Administrative Policy

21 February 2002 External T.I. 2002-0123905 - ADVANCES RECEIVED BY A CASH BASIS FARMER

amounts deemed to be received under s. 12(1)(a) are income under s. 28(1)(a) whereas loans are excluded

After stating that “we have found that cash advances received for crops are generally income when received” but that “advances received under the Agricultural Marketing Programs Act are loans and income is reported when the crops securing the loans are sold and the proceeds used to repay the loans,” CRA stated that the particular amount received:

was either income from sales on December 1 and 2, 1999, or received in respect of future sales and required to be included in income pursuant to paragraph 12(1)(a) of the Income Tax Act (the "Act"). In either case, the entire amount should be included in income on December 15, 1999, the date the advance was received … [per] paragraph 28(1)(a).

2 April 1998 Roundtable, E9722066 - PROMISSORY NOTE -WHETHER PAYMENT OF DEBT?

promissory note accepted as absolute payment for the transfer of inventory given that no remedy provided for non-payment

Respecting the transfer of inventory by a cattle farmer for a promissory note, CRA stated:

[B]oth the Bill of Sale and the Purchase and Sale Agreement refer to the promissory note as the consideration given for the transfer of the inventory. Since the promissory note was accepted as consideration for the transfer of the inventory, and given that none of the documents provide any remedy for non-payment, it appears that payment could only be enforced under the terms of the promissory note. Therefore, on the basis of the documents submitted, it is our view that the promissory note constitutes absolute payment and … pursuant to subsections 28(1) and 76(1) of the Act, the amount of the promissory note received in respect of the cattle and feed inventory should have been included in the taxpayer's income for the year of the disposition.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Payment & Receipt promissory note accepted as absolute payment for the transfer of s. 28 inventory 85

Paragraph 28(1)(b)

See Also

Tinhorn Creek Vineyards Ltd. v. The Queen, 2005 TCC 693

winemaking an integral part of viticulture operation

The Minister disallowed the taxpayer’s election to use the cash method on the basis that it did not have a farming business but instead was operating a winery with an attached vineyard and was therefore engaged in the business of making and selling wine. In finding that the taxpayer’s winemaking was linked to viticulture and was an integral part of its farming business, Campbell J stated (at paras. 24-26):

It is… one of only a few licensed estate wineries, making wine exclusively from the grapes it grows. …

If in any year unfavourable weather conditions or pests adversely affect the grapes grown in the vineyard, it will directly affect the amount and type of wine that may be produced and hence the profit is directly dependent upon the grape growing activities. The winemaking is so directly tied to the activities in the vineyard that the Appellant cannot go to outside parties to purchase grapes because it produces "estate bottled wine". …

It is in the vineyard where most of the employees are hired, where most of the equipment is required and used, where the labour expenses are the highest, and where the majority of the acreage is used. …[T]he vineyard activities and operation are an integral part of the operation and the very foundation upon which the winery is able to produce and bottle its estate labelled wine.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a) viticulture and estate winery one business 139

Administrative Policy

22 September 2016 External T.I. 2015-0594721E5 F - Inventory of animal meat

processing meat can form part of a farming business

May a taxpayer include ground or cut meat ("processed meat"), obtained by slaughtering and processing animals raised by it, in inventory of an agricultural business for the purposes of s. 28(1)(b)? CRA responded:

In general, the Canada Revenue Agency does not consider income from certain activities such as processing, which in and of themselves are not farming activities, as being derived from a farming business unless they are not incidental to the farming activity and the income from these activities is not materially significant in relation to the income from farming. …

Tinhorn Creek…concluded that winemaking was linked to viticulture and was an integral part of the taxpayer's farming business.

…[I] f the taxpayer has only one business and that business is a farming business, the processed meat held by the taxpayer… could then be property included in inventory for the purposes of paragraph 28(1)(b).

If…the taxpayer carries on two separate businesses…the income from the processing activity cannot be computed in accordance with the cash method of accounting provided for in section 28, and the processed meat cannot be considered as goods included in inventory in connection with a farming business.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 4 - Subsection 4(1) - Paragraph 4(1)(a) meat processing operation included in farming business if incidental 134

Paragraph 28(1)(c)

Administrative Policy

23 September 2014 External T.I. 2013-0509021E5 F - Rajustement obligatoire

qualification of non-breeding animals as inventory

In the course of confirming its position in 9328315 F, CRA stated (TaxInterpretations translation):

[S]ows or boars which are still in inventory at the end of the fiscal period and which the producer purchased and paid for, could be property held in inventory even if they were not used in the production of piglets.

Likewise, pigs or piglets still in inventory at the end of the year that the producer purchased and paid for could be property held in inventory even if they were not used in the producer’s operation of raising animals.

Words and Phrases

Paragraph 28(1)(f)

Administrative Policy

27 June 2018 External T.I. 2018-0745681E5 F - Wind-up of a partnership

application of s. 28(1)(f) on partnership wind-up

On January 1, X9, the three members of a family farming partnership ("Partnership") transferred their interests in Partnership to a jointly-owned corporation (“Opco”). Subsequently, Partnership was dissolved and Opco continue as sole owner of the business previously carried on by Partnership. Could Partnership deduct an inventory adjustment under s. 28(1)(f) in computing its income for the fiscal year beginning on January 1, X9? CRA responded:

Paragraph 28(1)(f) requires a taxpayer to deduct, in computing farming business income, the total of all amounts each of which is included under paragraph (b) or (c) in computing the taxpayer’s income from the business for the immediately preceding taxation year. …

In the particular situation, Partnership had a taxation year that commenced on January 1, X9 and ended immediately before the time immediately prior to the time it ceased to exist. Thus, Partnership could have taken the deduction provided under paragraph 20(1)(f) in computing its business income its fiscal year commencing on January 1, X9. This deduction would correspond to the total of the amounts added to the income of the farming business of Partnership for the year ended December 31, X8 pursuant to paragraph 28(1)(b) or (c).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 84 - Subsection 84(3) no s. 84(3) dividend on cancellation of preferred shares of Opco held by partnership on its wind-up into Opco 165
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5) s. 98(5) inapplicable on simultaneous dissolving transfer of partnership interests 167

Subsection 28(5)

Administrative Policy

22 October 2002 External T.I. 2002-0162835 F - Recbles Recd. after Disp. of Farm. Bus.

income stabilization amounts that were receivable at the time of s. 85(1) drop-down of cash-method farming business were deemed to be income when subsequently received

Mr. A, who used the "cash method" to compute his income pursuant to an election under s. 28(1) from his farming business, transferred that business at the beginning of 2002 to a newly-incorporated corporation ("Opco") on an s. 85(1) rollover basis. Following the transfer and later in the year, he received, and deposited to Opco, income stabilization and crop insurance benefits ("Insurance Benefits") which had been receivable at the transfer time in relation to his farming business to Opco and were receivables at that time.

CCRA indicated that such amounts were deemed by s. 28(5) to be his income when received.