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: Whether certain farm property can be transferred on a tax deferral basis per subsection 73(3) and (3.1) in a situation where a parent transfers farm property to an adult child and the parent is leasing the farm property to a corporation of which the adult child is the shareholder?
Position: Yes the transfer can be made on a tax deferral basis provided that the conditions in the definition of "share of the capital stock of a family farm corporation" in subsection 70(10) and the deeming conditions in subsection 70(9.8) of the Act are met.
Reasons: 70(9.8) and 70(10)
XXXXXXXXXX
2011-043003
S. D'Angelo
February 16, 2012
Dear XXXXXXXXXX :
Re: Inter Vivos Transfer of Farm Property
This is in response to your correspondence of December 2, 2011 concerning the income tax treatment under the Income Tax Act (the "Act") arising from a transfer of certain property used in a farming business.
In particular, you indicate that a parent leases certain property to a corporation that is owned by the parent's adult child. The leased property is used by the child's corporation in a farming business that is carried on in Canada. The parent's adult child is resident in Canada. If the parent transfers the leased property to his/her adult child you have asked for our views on whether the transfer will meet the requirements of subsections 73(3) and 73(3.1) of the Act.
Our Comments
Interpretation Bulletin IT-268R4, Inter Vivos Transfer of Farm Property to Child provides the Canada Revenue Agency's views on the provisions of the Act dealing with the inter vivos transfer of farm property to a child. As indicated in paragraph 2 of IT-268R4, subsection 73(3) of the Act can apply to an inter vivos transfer of farm property that is owned and used by a parent in a farming business carried on in Canada to the parent's child. Farm property for the purposes of subsection 73(3) of the Act is property that is used in the business of farming carried on in Canada that is land in Canada, depreciable property of a prescribed class in Canada, or eligible capital property of a farming business that is carried on in Canada. As also indicated in paragraph 25 of that Interpretation Bulletin, where a person (i.e. the "lessor") leases property that is used by another person in a farming business, such property is generally not considered as farm property to the lessor. This is because such property is considered to generate income from property in the hands of the lessor.
However, subsection 70(9.8) of the Act provides an exception to the above general rule on leased farm property for the purposes of, inter alia, subsection 73(3) of the Act where such property is used, principally in the course of carrying on a farming business in Canada, by a corporation, a share of the capital stock of which is "a share of the capital stock of a family farm corporation", as that term is defined in subsection 70(10) of the Act, and the shares of which, are owned by the individual (the "taxpayer"), the taxpayer's spouse or common-law partner, or any of the taxpayer's children or a parent of the taxpayer.
We trust our comments will be of assistance.
Yours truly
Michael Cooke
Manager
Capital Transactions Section
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012
Email this Content