24 April 1995 External T.I. 9419855 - MILK QUOTA

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:

Whether milk quota, part of which does not meet the holding period requirement, can be considered a "qualified farm property" within the meaning of subsection 110.6(1).

Position TAKEN:

Yes, however, only the milk quota that has been held for at least 24 months will be eligible for the capital gains exemption as "qualified farm property".

Reasons FOR POSITION TAKEN:

previous postion

		941985
XXXXXXXXXX	B. Kerr

Attention: XXXXXXXXXX

April 24, 1995

Dear Sirs:

Re: Qualified Farm Property

This is in response to your letter of August 2, 1994, wherein you disagree with the comments in our previous letter of July 22, 1994 (file # 5-940671), concerning the disposition of a milk quota a portion of which was held for more than 24 months (the "qualifying milk quota") and the remaining portion held for less than 24 months.

Our Comments

As stated in our previous letter, since milk quota is fungible property it is not possible to trace the recently acquired portion.

In our previous letter we outlined an administrative position to allow the taxable capital gain to be pro-rated between the portion that qualifies as qualified farm property and the portion that does not. The portion of the gain that would qualify as "qualified farm property" would be calculated by multiplying the gain by the proportion that the qualifying milk quota is of the total milk quota.

This is a fair and reasonable interpretation, since subparagraph 110.6(1)(d)(i) of the definition of the term "qualified farm property" requires that all the conditions set out in subparagraph (a)(vi) or (a)(vii) be met. Specifically an eligible capital property acquired after June 17, 1987, must have been owned by a person throughout the period of at least 24 months immediately preceding the disposition of the property. Therefore, the recently acquired milk quota would not qualify.

To treat the disposition on a FIFO basis, as you have suggested, would require an amendment to the Act to, inter alia, insert an ordering rule for eligible capital property, similar to that found in paragraph 110.6(14)(a) for shares of a qualified small business corporation, which falls under the responsibility of the Department of Finance ("Finance"). We have since reviewed our position in light of the recent amendment to suparagraph 14(1)(a)(v) and continue to feel that it is fair and equitable. However, should you wish to pursue this matter we would suggest that you write to Finance at the following address:

Tax Policy & Legislation Branch
Department of Finance
140 O'Connor Street
L'Esplanade Laurier
17th Floor, East Tower
Ottawa, Ontario
K1A 0G5

Although the recently acquired milk quota does not qualify as "qualified farm property", subject to the limits imposed in section 110.6, it may qualify as other property for the purposes of subsection 110.6(3) of the Act.

We trust that these comments will be of assistance.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch