28 February 2001 External T.I. 2000-0054275 - QUALIFIED FARM PROPERTY

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 a specific farmland can be considered a "qualifying farm property" for the purposes of claiming the capital gains deduction under subsection 110.6(2) of the Act.

Position:

Likely, yes.

Reasons:

According to the information provided, it appears the farmland was last acquired before June 18, 1987 and was used principally in a farming business for more than five years by the parents of the taxpayer while they owned the property, as required by clause (a)(vii)(B) of the definition of qualified farm property in subsection 110.6(1) of the Act.

XXXXXXXXXX 	2000-005427
		Patrick Massicotte
February 28, 2001

Dear XXXXXXXXXX:

Re: Whether Land Constitutes "Qualified Farm Property"

We are writing in response to your letter of inquiry of October 25, 2000 in which you requested our views on whether XXXXXXXXXX acres of land (the "Land") you own in Saskatchewan could be considered "qualified farm property" for the purposes of claiming the capital gains deduction under subsection 110.6(2) of the Income Tax Act (the "Act").

Our Comments

The particular circumstances in your letter on which you have asked for our views relate to a specific transaction. As explained in Information Circular 70-6R4 dated January 29, 2001, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Where the particular transactions are completed, all relevant facts and documentation should be submitted to the appropriate taxation services office for their views. However, we have set out some general comments that may be of assistance.

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 for those purposes depends on whether the property was last acquired, or deemed acquired, on or before June 17, 1987 or after that date. According to the facts provided with your request, it seems the Land was gifted to you from your parents in the 1970's. While your letter was not specific, for the purpose of this reply, we have assumed that no capital gains election was made under subsection 110.6(19) of the Act for property owned on February 22, 1994 and that you last acquired the Land before June 18, 1987.

Real property last acquired by an individual before June 18, 1987 will be considered to be used in the course of carrying on the business of farming in Canada pursuant to subparagraph 110.6(1)(a)(vii) of the Act and, therefore, will be considered as "qualified farm property" provided it was used by, inter alia, the person claiming the capital gains exemption, or a spouse, child or parent of such a person principally in the course of carrying on the business of farming in Canada, either in the year the property is disposed of, or in at least five years during which it was owned by a person referred to above.

Since it appears that both your mother and father farmed the Land for at least five years while they owned it, provided that they in fact used the Land principally in carrying on a farming business during this period, in our opinion, while owned by you, the Land could be considered "qualified farm property" under these provisions.

The determination of whether real property is used principally by a taxpayer in carrying on a farming business is 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 our view, when determining whether assets will meet the more than 50% requirement, the test has to be applied on a property by property basis. Therefore, in your situation, if the Land comprises more than one property, each one will have to meet the test on its own.

Furthermore, it is also a question of fact whether a particular farming operation constitutes a farming business at any particular time. Some of the criteria which should be considered in making this determination are set out in Interpretation Bulletin IT-322R. In addition, the Canada Customs and Revenue Agency's general position with respect to the meaning of a farming business is outlined in paragraph 8 of Interpretation Bulletin IT-433R and paragraph 9 of Interpretation Bulletin IT-145R (Consolidated). We have enclosed a copy of these interpretation bulletins for your information.

We trust our comments will be of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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