15 December 2000 External T.I. 2000-0042945 - INTERACTION OF SECTIONS OF THE ACT69(11)

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:

Where subsections 73(3) or (4) are first used to transfer (on a rollover basis) farm property to an adult child (e.g. to get multiple use of the capital gains exemption) and the farm property is then sold within a three year period, does subsection 69(11) apply?

Position TAKEN:

Yes.

Reasons:

Under the definition of "affiliated persons" in section 251.1 of the Act, children and their parents are not affiliated. Accordingly, where the farm property is subsequently disposed of or arrangements for the subsequent disposition are made, before the day that is 3 years after the transfer of the farm property from the parent to the child, subsection 69(11) of the Act may apply (subject to the "one of the main purposes" test).

XXXXXXXXXX 	2000-004294
		Jim Wilson
December 15, 2000

Dear XXXXXXXXXX:

Re: Subsection 69(11) of the Income Tax Act ("Act")

We are writing in reply to your letter of August 17, 2000 wherein you requested our comments regarding the application of the above-noted provision. You have described a situation where subsections 73(3) or (4) are first used to transfer farm property to an adult child (i.e. on a partial rollover basis) and the farm property is then sold within a three year period resulting in the use of the qualified farm property capital gains exemption of the adult child. You indicate that the purpose of the transfer to the child was to get multiple use of the capital gains exemption. You have told us that you are aware that such tax planning is generally acceptable as long as, among other criteria, legal and beneficial ownership of the farm property has passed to the adult child and that the sale of the farm property to a third party was not already anticipated or in the process before the transfer to the child. Your concern, however, is whether the amendments to subsection 69(11) of the Act (i.e. change from the concept of "related persons" to "affiliated persons") will have an impact on this type of arrangement.

Under the definition of "affiliated persons" in section 251.1 of the Act, children and their parents are not affiliated. Accordingly, we do confirm that in the above scenario where the farm property is subsequently disposed of or arrangements for the subsequent disposition are made, before the day that is 3 years after the transfer of the farm property from the parent to the child, subsection 69(11) of the Act would apply, notwithstanding subsections 73(3) or (4) of the Act, to deem the parent to have disposed of the farm property to the adult child at fair market value.

We trust our comments will be of some assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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