31 May 1995 External T.I. 9512995 - CAPITAL GAINS ELECTION - QUALIFIED FARM PROPERTY

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, where the capital gains election is filed in respect of property which qualifies as "qualified farm property", the property will continue to qualify as such.

Position TAKEN:

Question of fact.

Reasons FOR POSITION TAKEN:

If the capital gains election is filed in respect of qualified farm property, the property will be considered to have been last acquired after June 17, 1987. In certain situations, the property may continue to meet the definition of "qualified farm property" notwithstanding the new acquisition date, if, in at least 2 years while the property was owned by one of the persons described in subparagraphs (a)(i) to (iii) of the definition or by a personal trust from which the individual acquired the property, the gross revenue of such a person from the farming business in which the property was principally used and in which the person was actively engaged on a regular and continuous basis exceeded his or her income from all other sources for the year.

		5-951299
XXXXXXXXXX	C. Chouinard

Attention: XXXXXXXXXX

May 31, 1995

Dear Sir:

Re: Capital Gains Election - Qualified Farm Property

We are writing in response to your letter of May 2, 1995, wherein you requested our comments on the capital gains election as it applies to qualified farm property.

In the situation you describe, prior to 1987, an individual acquired farm property from a parent who used the property for several years in carrying on a farming business. However, the individual has not farmed the property since it was acquired prior to 1987. You ask whether, if the capital gains election were filed in respect of this property, the property would continue to qualify as "qualified farm property". In your opinion, if the capital gains election were filed, the property would cease to qualify as "qualified farm property", within the meaning of subsection 110.6(1) of the Income Tax Act (the "Act"), since it would fail to meet the post-June 17, 1987 gross revenue test of the definition of "qualified farm property".

Our Comments

When the capital gains election is filed in respect of capital property, the property is, pursuant to subparagraph 110.6(19)(a)(ii) of the Act, deemed to have been reacquired by the elector immediately after February 22, 1994. Therefore, in our opinion, if the capital gains election is filed in respect of qualified farm property, the property will be considered to have been last acquired after June 17, 1987. However, the fact that the capital gains election gives rise to a new acquisition date does not necessarily mean that property which previously qualified as "qualified farm property" will no longer qualify as such. Although an individual who acquired farm property after June 17, 1987 may not have farmed the property since he or she acquired it, in our opinion, the person meeting the gross revenue test in subparagraph (a)(vi) of the definition of "qualified farm property" need not be the person who owns the property and may be any of the persons described in subparagraphs (a)(i) to (iii) of the definition of "qualified farm property". Therefore, in the situation described above, the property may continue to meet the definition of "qualified farm property" notwithstanding the new acquisition date, if, in at least 2 years while the property was owned by the parent of the individual, the gross revenue of the parent from the farming business in which the property was principally used and in which the parent was actively engaged on a regular and continuous basis exceeded the parent's income from all other sources for the year.

There may, however, be situations where, as a result of filing the capital gains election, property which constitutes "qualified farm property" ceases to qualify as such since it fails to meet the gross revenue test found in the "qualified farm property" definition. For instance, farm property acquired by an individual prior to June 18, 1987 which, since its acquisition, has been farmed by the individual while he or she was employed in another capacity, would qualify as "qualified farm property" since it would have been used principally in the course of carrying on the business of farming in Canada in at least five years during which it was owned. However, if the capital gains election were filed in respect of this property, it might no longer qualify as "qualified farm property" since the individual might not meet the gross revenue test of subparagraph (a)(vi) of the definition of "qualified farm property", which generally applies to property acquired after June 17, 1987.

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