Principal Issues: [TaxInterpretations translation] Interpretation of the definition of "property… used in the course of carrying on the business of farming" under subsection 110.6 (1.3) of the Income Tax Act
Position: It is our understanding that in order to qualify as "property …used in the course of carrying on a farming business", the property must satisfy either paragraphs 110.6 (1.3)(a) and (b), or 110.6(1.3)(a) and (c), depending on when it was acquired.
Reasons: We compared the definitions in the former wording of subsection 110.6(1) under "qualified farm property," and new subsection 110.6 (1.3). It can be seen that, despite the different wording, its tax effect remains the same.
XXXXXXXXXX 2008-027025 Nancy Turgeon, CGA June 16, 2008
Dear Sir,
Subject: Property used in the course of carrying on the business of farming
This is further to your e-mail of March 4, 2010 in which you asked for our interpretation of the meaning of the expression "property …used in the course of carrying on the business of farming" under subsection 110.6 (1.3) of the Income Tax Act (the "Act").
In particular, you wish to know if it is necessary, for farm property acquired before June 18, 1987 or after June 17, 1987 under an agreement in writing entered into before that date, to meet the conditions set out in paragraphs 110.6(1.3)(a) and (c) in order to be considered to have been used in the business of farming.
Unless otherwise indicated, all legislative references herein are to the provisions of the Act.
The situation you have indicated in your mailing appears to relate to an actual situation concerning a specific taxpayer. As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to issue written opinions regarding proposed transactions otherwise than by way of advance income tax rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
In order to qualify as "property …used in the course of carrying on the business of farming" for a particular individual, paragraph 110.6(1.3)(a) provides that, throughout the period of at least 24 months preceding the relevant time, the property or property for which the property was substituted must have been owned by one or more of the following persons or partnerships:
- the individual, or a spouse, common-law partner, child or parent of the individual;
- a partnership, an interest in which is an interest in a family farm partnership of the individual or of the individual’s spouse or common-law partner;
- if the individual is a personal trust, the individual from whom the trust acquired the property or a spouse, common-law partner, child or parent of that individual;
- a personal trust from which the individual or a child or parent of the individual acquired the property.
Where the property was acquired after June 17, 1987 so as not to fall within paragraph 110.6(1.3)(c), in addition to the condition set out in paragraph 110.6(1.3)(a), it must satisfy the conditions set out in paragraph 110.6(1.3)(b).
With respect to property acquired before June 18, 1987, paragraph 110.6(1.3)(c) repeats the conditions that were contained in subparagraph 110.6(1)(a)(vii) of the definition of "qualified farm property" prior to the adoption of Bill C-28, A second Act to implement certain provisions of the budget tabled in Parliament on May 2, 2006. Newly, under the current wording of subsection 110.6(1.3), the property must also satisfy the condition set out in paragraph 110.6(1.3)(a).
However, in practice, we are of the opinion that no additional requirement is created for property acquired before June 18, 1987 or after June 17, 1987 pursuant to an agreement in writing entered into before that date. In fact, any property acquired before that date should, in principle, now satisfy the requirements of paragraph 110.6(1.3)(a).
These opinions do not constitute advance rulings and, as stated in paragraph 22 of Information Circular 70-6R5 of May 17, 2002, are not binding on us.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.