14 April 1999 External T.I. 9821265 - QUALIFED 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: Does 110.6(1)(a)(vi)(B) require property to be owned by individual in 110.6(1)(a)(i) to (v) during period of use?

Position: No

Reasons: Not required by wording as is in clause (A).

XXXXXXXXXX 	D. Duff
		982126
April 14, 1999

Dear XXXXXXXXXX:

Re: Qualifying Farm Property

This is in reply to your letter of August 12, 1998, requesting our interpretation of clause 110.6(1)(a)(vi)(B) of the definition of qualified farm property in the Income Tax Act (the “Act”).

One of the criteria in clause 110.6(1)(a)(vi)(B) of the Act requires real property to be used by a corporation described in subparagraph 110.6(1)(a)(iv) of the Act principally in the course of carrying on the business of farming in Canada throughout a period of at least 24 months. You asked whether a person described in any of subparagraphs 110.6(1)(a)(i) to (v) had to own the property during this 24-month period for the property to be qualified farm property.

You also wanted our opinion as to whether the real property in the following situation would be qualified farm property. A corporation described in subparagraph 110.6(1)(a)(iv) rents the property and uses it in the business of farming in Canada for a period of 24 months. A person described in subparagraph 110.6(1)(a)(i) to (iii) then purchases the property, holds it for 24 months without using it in the course of carrying on the business of farming, then sells it.

Our comments

It appears that your enquiry relates to specific transactions, either proposed or completed. Where a transaction is proposed, confirmation of the tax implications arising therefrom should be sought by way of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Where a completed transaction is involved, the enquiry should be addressed to the relevant Tax Services Office. We offer, however, the following general comments.

Real property can meet the criteria of qualified farm property of an individual where it is used in the course of carrying on the business of farming by a corporation described in subparagraph 110.6(1)(a)(iv) of the Act with respect to that individual. Pursuant to clause 110.6(1)(a)(vi)(B) of the Act, real property is considered to have been so used by such a corporation where the property was used by it principally in the course of carrying on the business of farming in Canada throughout a period of at least 24 months during which time an individual referred to in any of subparagraphs 110.6(1)(a)(i) to (iii) was actively engaged on a regular and continuous basis in the farming business in which the property was used. There is no requirement that the individual, or any person described in any of subparagraphs 110.6(1)(a)(i) to (v), must own the property during this 24-month period for the property to be qualified farm property. However, during this period the corporation must be a corporation, a share of the capital stock of which is a share of the capital stock of a family farm corporation of the individual, or an individual referred to in subparagraphs 110.6(1)(a)(ii) or (iii).

In the example provided, a corporation described in subparagraph 110.6(1)(a)(iv) rented real property and used it in the business of farming in Canada for a period of 24 months. A person described in subparagraph 110.6(1)(a)(i) to (iii) then purchased the property, held it for 24 months without using it in the course of carrying on the business of farming, and then sold it. Provided a share of the corporation was a share of the capital stock of a family farm corporation of the individual for the period while the property is used by it, and provided the individual was actively engaged on a regular and continuous basis in this business, in our opinion, the real property would be qualified farm property for that individual. We have previously brought this to the attention of the Department of Finance and they are aware of our interpretation of this provision.

The above comments reflect an expression of opinion only and are not binding on the Department, as explained in paragraph 22 of Information Circular 70-6R3. We trust, however, that they are of assistance.

Yours truly,

Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretation Directorate
Policy and Legislation Branch
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