2 October 1997 External T.I. 9702425 - FAMILY FARM CORP WITH PARTNERSHIP INTERESTS

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:

family farm corp - whether a proportionate share of the assets of a partnership, in which a corp holds an interest, can be added to that of the corporation for the purpose of determining the % of assets used in a farming business

Position:

no, but effective for 1992, the def'n of ffc is such that it is not necessary that the corp use the assets itself in a farming business, provided the FMV of the property owned by the corp is attributable to the assets used in a farming business.

Reasons:

since the fmv of a partnership interest will normally be attributable to the activities of the partnership, the FMV of a corp's asset that is an interest in a partnership will likely be attributable to property used by the family farm partnership.

970242
XXXXXXXXXX A. Humenuk

Attention: XXXXXXXXXX

October 2, 1997

Dear Sirs:

Re: Share of the Capital Stock of a Family Farm Corporation

We are replying to your letter of December 2, 1996, in which you ask whether the shares of XXXXXXXXXX qualify as shares of the capital stock of a family farm corporation as defined in subsection 70(10) of the Income Tax Act (the "Act") in the hands of its present shareholders, with the result that subsection 73(4) of the Act will apply in the event that an inter-vivos intergenerational transfer takes place. We apologize for the delay in our response.

As discussed with you by telephone on July 23, 1997 (XXXXXXXXXX/Humenuk), the confirmation of the tax consequences of a specific transaction is only given by way of an advance income tax ruling, as described in Information Circular 70-6R3 "Advance Income Tax Rulings" dated December 30, 1996, and is restricted to proposed transactions. The following comments are therefore of a general nature.

Your concern is whether the assets of a limited partnership, an interest in which is held by a corporation, can be added to that of the corporation for the purpose of determining whether all or substantially all of the fair market value of the corporation's assets are attributable to property which is used by any person or partnership described in subparagraph (a)(i) to (iv) of the definition of "share of the capital stock of a family farm corporation".

It is a question of fact as to whether all or substantially all of the fair market value of a family farm corporation's assets are attributable to property described in (a), (b) or (c) of the definition of "share of the capital stock of a family farm corporation" in subsection 70(10) of the Act. Although there is no provision in the Act by which the assets of a partnership can be considered to be that of the corporation which holds an interest therein, the fair market value of a corporation's asset which consists of a partnership interest will ordinarily be attributable to the property used by the partnership in its business. Accordingly, where a corporation holds an interest in a partnership that carries on the business of farming, the fair market value of that partnership interest will likely be attributable to the use by the partnership of its assets in the business of farming. Provided the interest in the partnership is an "interest in a family farm partnership", within the meaning of subsection 70(10) of the Act, of the shareholder or spouse, child or parent of the shareholder and that the partnership has used its property principally in the course of carrying on the business of farming in Canada in which the shareholder or spouse, child or parent of the shareholder has been actively engaged on a regular and continuous basis, the shares of the corporation may qualify as shares of the capital stock of a family farm corporation.

While we trust that our comments will be of assistance, we caution you that they do not constitute an advance income tax ruling and are, accordingly, not binding upon the Department with respect to any particular transaction.

Yours truly,

C. Chouinard
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch