3 January 2008 External T.I. 2007-0260271E5 - Tree Nursery - Farming

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: Does a tree nursery operation constitute "farming" for purposes of the Act?

Position: Question of fact.

Reasons: While the growing of plants in a greenhouse for a commercial profit generally qualifies as farming, other activities undertaken by a nursery business may not constitute farming.

							2007-026027
XXXXXXXXXX 						James Atkinson CGA
(519) 457-4832
January 3, 2008

Dear XXXXXXXXXX :

Re: Farming Income - Tree Nursery

This is in response to your letter of November 20, 2007, concerning a tree nursery operation, which consists of growing seedlings/trees in a greenhouse for reforestation, afforestation and ornamental use. This also confirms our recent telephone conversations (Atkinson/XXXXXXXXXX) at which time you asked for a written reply to your inquiry.

You have requested our views on whether a tree nursery operation constitutes "farming" as defined in subsection 248(1) of the Income Tax Act ("Act"). You have advised that such a determination may be relevant in determining eligibility under the Canadian Agricultural Income Stabilization (CAIS) Program.

Our Comments:

The particular situation outlined in your letter appears to be a factual one, involving a specific taxpayer. Accordingly, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we offer the following general comments, which we trust will be of assistance.

Whether a taxpayer's business operations in a particular case are considered farming for tax purposes is a question that can only be resolved after a complete review of the facts and circumstances of the case. The definition of "farming" in subsection 248(1) of the Act includes the "tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees." This list is not exhaustive. The courts have held that farming generally involves the whole aspect of commercial production of any crop or plant that has economic value. The courts have also held that farming may include tree farming. As explained in paragraph 8 of IT-433R - Farming or Fishing - Use of Cash Method, in certain factual circumstances, it is considered that farming includes the operation of nurseries and greenhouses. While the activity of producing seedlings and trees for resale would, in and of itself, normally constitute farming, the businesses commonly described as nurseries often include other activities that, taken by themselves, do not constitute farming. These other activities include the resale of goods (e.g., patio stones, mulch, seeds, fertilizer) and the provision of services (e.g., landscaping). Where a taxpayer's nursery business consists of the mentioned types of activities, the taxpayer would not be considered to be carrying on the business of farming if the operation of producing seedlings and trees for resale is simply incidental to the other non-farming activities.

Because your enquiry appears to relate to a question of eligibility to participate in the CAIS program, you may wish to contact the appropriate federal or provincial authority administering the program for further clarification regarding eligibility under the program.

We trust that these comments will be of assistance.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch