29 October 1997 External T.I. 9714495 - PARAGRAPH 212(1)(D) AND SUBSECTION 214(1)

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:

What is the amount in the Cash Tickets for a non-resident crop-sharer: the gross amount representing the in-store export terminal price or the price net of certain deductions?

Position:

Depending on the situation, it is likely the net price.

Reasons:

The deductions probably represent expenses of the grain elevator, not expenses of the crop-sharer

	                                    	971449
XXXXXXXXXX                                   	S. Leung

Attention: XXXXXXXXXX

October 29, 1997

Dear Sirs:

Re: Paragraph 212(1)(d) and 214(1) of the Income Tax Act (the "Act")

We are writing in reply to your facsimile of May 30, 1997 in which you requested our interpretation of paragraph 212(1)(d) of the Act with respect to the situation described below.

.Xco is a corporation resident in Canada. Its business includes, among other things, purchase of grain from producers at its country elevators for processing and resale. In this regard, Xco acts as an agent of the Canadian Wheat Board in terms of accepting deliveries of and making payments to the producers for certain Canadian Wheat Broad crops (i.e., wheat and barley).

.A non-resident person of Canada ("Non-Resident") rents farmland located in Canada to a resident of Canada ("Resident") pursuant to a crop-share arrangement under which the Non-Resident receives one-third of the proceeds from sale of grain grown on the farmland as rent.

.When the Resident delivers the grain to Xco for sale, Xco makes payment by issuing two cash tickets, one payable to the Resident and the other payable to the Non-Resident.

.The amount of the cash tickets is calculated by Xco as the in-store export terminal price (i.e., the Canadian Wheat Board Initial Price) less deductions for such items as:

-country elevation charges and removal of dockage charges
-transportation charges to the nearest export terminal
-cleaning, drying, weighing and inspection charges

.At the time the grain is delivered to the country elevators of Xco and the cash tickets are issued, title to the grain passes to the Canadian Wheat Board or their agents.

.Cash tickets issued by Xco separately indicate the in-store export terminal price, the deductions referred to in 4 above and the net amount (the net price).

7.The deductions referred to in 4 above have no GST implications as they do not constitute supplies made by Xco to the Non-Resident or the Resident.

You requested our view as to whether the amount paid or credited to the Non-Resident subject to withholding tax under Part XIII of the Act is the in-store export terminal price or the net price.

Our Comments

The situation outlined in your letter relates to an actual situation involving identifiable taxpayers. Accordingly, the applicable District Taxation Office should be consulted with respect to the income tax liabilities of such taxpayers. However, we can offer the following general comments.

It is not clear from the information you provided whether the charges referred to in 4 above are expenses that Xco incurred on behalf of the producers (i.e., whether they are expenses of the producers, not expenses of Xco and whether the charges are actual amounts paid by Xco to be reimbursed by the producers or just estimated amounts such that if they are less than the actual amount the shortfall could be recovered from the producers). In preparing our comments in the following paragraph, we assume that the charges are in respect of expenses of Xco (not of the producers) and they represent estimated amounts, not actual amounts of the expenses, determined by Xco. We also assume that the crop-share agreement entered into by the Resident and the Non-Resident makes reference to these charges and establishes that the net price of the grain is the amount that the Non-Resident would receive as rent.

In such a case, it is our opinion that the amount subject to the provision of Part XIII of the Act would be the amount of the net price so calculated and paid or credited to the Non-Resident.

The above comments represent our general views with respect to the subject matter of your letter. These comments do not constitute an advance income tax ruling and therefore, as described in paragraph 22 of Information Circular 70-6R3, are not binding on the Department.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch