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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether land owned by the taxpayer constitutes "qualified farm property" when the gross revenue test is met by a great-grandparent?
Position: Yes
Reasons: Provided a parent, grandparent or great-grandparent meets the gross revenue test in clause (a)(vi)(A) of the definition of qualified farm property. We have considered this issue before see E9919475.
2000-002738
XXXXXXXXXX Karen Power, C.A.
(613) 957-8953
July 20, 2000
Dear XXXXXXXXXX:
Re: Whether land constitutes "qualified farm property"
We are writing in reply to your letter of May 20, 2000, in which you requested our views on whether land which you owned is considered to be "qualified farm property" for the purpose of claiming the capital gains exemption under subsection 110.6(1) of the Income Tax Act (the "Act").
Our understanding of the facts is as follows:
1. The farm land (the "Property") in question is described XXXXXXXXXX.
2. The Property was purchased in XXXXXXXXXX by Mr. X's grandparents and was registered in the name of Mr. X's grandmother. Mr. X's grandparents farmed the Property for many years with the help of their grown son, who owned a neighbouring farm property.
3. In XXXXXXXXXX, Mr. X's grandparents sold the house which was located on the Property, and since that time the land has been farmed by neighbours. The Property has been under production at all times and was eligible for the farm tax rebate. Based on information provided during a telephone conversation (Power/XXXXXXXXXX), it does not appear that Mr. X or Mr. X's parents ever reported any farming income.
4. Mr. X's grandmother passed away and upon her death Mr. X's mother inherited one third of the Property. When Mr. X's mother died in XXXXXXXXXX, Mr. X inherited one third of his mother's Property.
5. Upon Mr. X's death in XXXXXXXXXX, Mr. X's spouse ("Mrs. X") and three children (the "Children") inherited the Property. The Property was sold on XXXXXXXXXX.
The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a completed transaction. As explained in Information Circular 70-6R3, it is this Directorate's practice to comment on proposed transactions involving specific taxpayers in the form of an advance income tax ruling. Since your situation involves a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments which may be of some assistance to you.
In general terms, subsection 110.6(2) of the Act permits a lifetime capital gains deduction of $500,000 for an individual resident in Canada throughout the year who disposed of "qualified farm property" in the year. One of the conditions that must be met for real property of an individual to be considered a "qualified farm property" within the meaning of subsection 110.6(1) of the Act, is that the property has been used in the course of carrying on the business of farming in Canada.
Whether a property is considered to have been used in the course of carrying on the business of farming is dependent on when the property was last acquired by the individual. In your situation, Mrs. X and the Children acquired their portion of the Property in XXXXXXXXXX, upon Mr. X's death. Consequently, the farm land which Mrs. X and the Children own can be considered to have been used in the course of carrying on the business of farming if the requirements of subparagraph (a)(vi) of the definition of "qualified farm property" in subsection 110.6(1) of the Act are met.
Pursuant to subparagraph (a)(vi) of the definition of "qualified farm property" in subsection 110.6(1) of the Act, real property may be considered to be used in the course of carrying on the business of farming in Canada if it has been owned, by the individual, a spouse, child or parent of such a person, a family farm partnership in which any of the above persons have an interest or a personal trust from which the person acquired the property, throughout the 24 months preceding the sale. In addition, the real property must meet the conditions described in clause (a)(vi)(A) or (a)(vi)(B) of the definition of "qualified farm property" in subsection 110.6(1) of the Act. Clause (a)(vi)(B) of the definition of "qualified farm property" in subsection 110.6(1) of the Act will only apply when the farm land was used by a corporation or a partnership and does not appear to apply in your situation.
Under clause (a)(vi)(A) of the definition of "qualified farm property" in subsection 110.6(1) of the Act, in at least 2 years while the property was owned by the individual, a spouse, child or parent of such a person, a family farm partnership in which any of the above persons have an interest or a personal trust from which the person acquired the property, the gross revenue from the farming business that is carried on by any of these individuals in which the property was principally used, and in which the individual is actively engaged on a regular and continuous basis, must have exceeded the individual's income from all other sources for the year. In our opinion, the person meeting the gross revenue test need not be the person who owns the property and may be the parent, spouse, grandparent or great-grandparent of the individual.
For purposes of the definition of "qualified farm property," "child" has the meaning assigned by subsection 70(10) of the Act. Accordingly, a grandparent or great-grandparent can be considered a "parent" of an individual because of the extended meaning of "child" in paragraphs 70(10)(a) and (b) of the Act, which applies for purposes of section 110.6. Thus, if the grandparents or great-grandparents met the gross revenue test in at least two years while they owned the property, and the property is now owned by the child, the requirements of clause (a)(iv)(A) of the definition of qualified farm property in the Act may be met, even if the child has not farmed the property. Similarly, the term parent includes a parent or grandparent of the taxpayer's spouse by virtue of paragraph 252(2)(iii) of the Act.
The determination of whether real property is used principally by a taxpayer in carrying on a farming business is also a question of fact. Where reference is made to an asset being used "principally" in the business of farming, the asset will meet this requirement if more than 50% of the asset's use is in the business of farming.
In the situation described above, with respect to Mrs. X and the Children, it is a question of fact whether a particular property is a "qualified farm property" as defined in subsection 110.6(1) of the Act and whether it is used principally in the course of carrying on the business of farming in Canada.
However, in our view, it would appear that at the time of disposition, the Property owned by Mrs. X and her Children would likely meet the gross revenue test in clause (vi)(A) of the definition of "qualified farm property", provided that one of Mr. X's grandparents, in at least two years while the property was owned, had gross revenue from the farming business carried on in Canada in which the property was principally used and in which the grandparent was actively engaged on a regular and continuous basis.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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