An individual (Mr. Y) acquired the shares of Farmco (a CCPC whose only property, being farmland and farm equipment, had been used principally in the course of its farming business) in an arm’s length purchase. Such Farmco assets were then used principally in the course of Mr. Y's farming business, but then such assets were leased to a corporation. How should para. (b) of the definition "share of the capital stock of a family farm corporation" be applied respecting a subsequent sale of the Farmco shares by Mr. Y? CRA responded:
Paragraph (a) of that definition provides that throughout any 24-month period ending before that time (the time of disposition), more than 50% of the fair market value of the property owned by the corporation was attributable to inter alia property that was used principally in the course of carrying on the business of farming in Canada in which a person described in subparagraph (a)(i) of that definition was actively engaged on a regular and continuous basis. Such a person may be, among others, the individual holding the share, or the individual's spouse or common-law partner. The 24-month period can be any continuous 24-month period ending before the particular time during which the corporation owns the property. …
Paragraph (b) of that definition provides that, on the disposition of the shares, all or substantially all of the fair market value of the property, described in subparagraph (a)(iv) of the definition, owned by the corporation, is attributable to inter alia property that was used principally in the course of carrying on the business of farming in Canada by a person or partnership described in subparagraph (a)(i) … .
...E2004-0061271E5 still represents the position of the CRA. Consequently … in order to meet the test set out in paragraph (b) … it is necessary to consider the use of the property throughout the period that the taxpayer was the owner.