22 September 1999 External T.I. 9912865 - CALC. OF GROSS FARMING REVENUE

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:

The price paid to producers by CWB for grain is adjusted to account for freight costs. Should gross farming revenue include the freight cost?

Position:

Gross revenue should be based on the gross price shown on cash purchase tickets. Producer can claim the freight as a deduction.

Reasons:

Position taken in other cases. In particular, position adopted for deferred cash purchase tickets..

Sheldon Friesen
NISA Administration
P.O Box 6100					Wayne Antle
Winnipeg, MB					5-991286
R3C 4L5

September 22, 1999

Dear Mr. Friesen:

Re: Calculation of Gross Farming Revenue

We are writing in response to your letter dated May 10, 1999 in which you ask for a ruling on whether transportation costs incurred by a grain company should be included in the calculation of gross farming revenue by a producer.

A producer delivers his grain to a primary grain elevator for delivery to the Canadian Wheat Board (the "CWB"). The grain company, as agent for the CWB, issues a cash ticket to the producer which reflects the amount payable by the grain company to the producer for his grain. When the grain is delivered to the elevator, and the cash purchase ticket is issued, ownership of the grain transfers to the CWB. The price paid by the grain company is determined based upon the port price,. and deductions are made for freight and storage costs, as well as certain mandatory levies. The grain company arranges and pays for the transportation involved. Your question concerns whether the producer should report, as commodity sales, the gross price shown on the ticket, or the net amount after deductions are made for the above charges.

Since the subject matter of your request relates to a number of completed transactions we are unable to respond, except by general comment. Traditionally, the Department has accepted that the producer must include in gross revenue the gross price quoted on the cash purchase ticket. The farmer can claim the deductions for freight, storage, and mandatory levies as expenses in the year paid or payable depending on whether he is using the cash or accrual basis for computing income. Our position in this regard is outlined in paragraphs 8 and 9 of Interpretation Bulletin IT184R entitled Deferred Cash Purchase Tickets Issued for Grain, which we have enclosed for your information. While the bulletin only refers to deductions for levies under the Western Grain Stabilization Act, we consider deductions for freight and storage charges to be similar in nature. Therefore, the farmer is considered to have received the gross price shown on the cash purchase ticket, and to have paid the freight and storage charges when the ticket is issued. As noted in the bulletin, if the farmer is using the cash basis to report income and is issued a deferred cash purchase ticket upon delivery of the grain to the elevator, the farmer can defer reporting the gross amount shown on the ticket until the immediately following year pursuant to subsection 76(4) of the Act. However, the freight and storage charges could be claimed in the year the ticket is issued.

We are unable to comment on the method that should be used in calculating net eligible commodity sales for the purposes of the Net Income Stabilization Account ("NISA") program since this determination is relevant only for the administration of the NISA program.

We trust that our comments will be of assistance to you.

Yours truly

R. Albert, C.A.

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