8 April 2005 External T.I. 2004-0107501E5 - 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.

Principal Issues: A taxpayer files an election under ITA 110.6(19) in respect of farmland that was QFP under the pre-June 18, 1987, rules of the definition of QFP in ITA 110.6(1). At issue is whether the deemed reacquisition of the farmland pursuant to ITA 110.6(19)(a)(ii) results in the farmland still qualifying as QFP under the pre-June18, 1987, rules in relation to a subsequent disposition.

Position: No

Reasons: The deemed reacquisition of the farmland under the ITA 110.6(19)(a)(ii) occurs on February 23, 1994. Thus, for purposes of the QFP definition, the farmland was property last acquired after June 17, 1987, and the post-June 17, 1987, rules of the definition of QFP would have to be met before the farmland can be considered QFP upon a subsequent disposition.

XXXXXXXXXX 2004-010750
S. Parnanzone
April 8, 2005

Dear XXXXXXXXXX:

Re: Technical Interpretation Request: Qualified Farm Property

We are replying to your letter of December 10, 2004 regarding the above-noted subject.

Our understanding of the situation you have in mind is as follows:

Mr. A owns farmland, which he purchased prior to June 17, 1987. Mr. A filed a valid capital gains election under subsection 110.6(19) of the Income Tax Act ("Act") in respect of the farmland. At the time of the deemed disposition on February 22, 1994, pursuant to subparagraph 110.6(19)(a)(i), the farmland was qualified farm property ("QFP") according to subparagraph (a)(vii) of the definition ("Definition") of this expression in subsection 110.6(1) of the Act.

At issue is whether the farmland has to meet the conditions in subparagraph (a)(vi) or the conditions in subparagraph (a)(vii) of the Definition in order for it to qualify as QFP after its deemed reacquisition on February 23, 1994, pursuant to subparagraph 110.6(19)(a)(ii) of the Act.

Our comments

When a valid capital gains election is filed in respect of capital property, the property is deemed, pursuant to subparagraph 110.6(19)(a)(ii) of the Act, to have been "reacquired" by the elector immediately after February 22, 1994. Therefore, in our opinion, if the capital gains election is filed in respect of QFP, the property will be considered to have been "last acquired" after June 17, 1987. In our view, the reference to "last acquired" in subparagraph (a)(vii) of the Definition is broad enough to include a reacquisition. Accordingly, in determining whether such property would be considered QFP upon a subsequent disposition, the taxpayer would be required to meet the post-June 17, 1987, gross revenue and use tests outlined in subparagraph 110.6(1)(a)(vi) of the Definition.

Subparagraph (a)(vii) of the Definition applies, using its wording, "where the property is a property last acquired by the individual or partnership before June 18, 1987, or after June 17, 1987 under an agreement in writing entered into before that date..." Farm property in respect of which a valid capital gains election under subsection 110.6(19) was filed is deemed to be reacquired on February 23, 1994, pursuant to subparagraph 110.6(19)(a)(ii), and therefore, does not meet the requirement of subparagraph (a)(vii) of the Definition that it be last acquired before June 18, 1987. In addition, the said farm property does not meet the requirement in subparagraph (a)(vii) of the Definition that it be last acquired after June 17, 1987, under an agreement in writing referred to in the quoted wording above because the election under subsection 110.6(19) cannot reasonably be regarded as such an agreement in writing.

We hope that the foregoing comments are of assistance.

Yours truly,

Milled Azzi, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch

??