Principal Issues: Whether income under "sharecropping arrangement" received by a farmer from a tenant in lieu of rent is considered rental income or farming income.
Position: Question of fact.
Reasons: Often sharecropping income is rental income. However, there may be other types of sharecrop arrangements, where the sharecropper is actually an employee of the taxpayer and receives a share of the crop as remuneration for services rendered. Under these other types of arrangements the landlord could be in the business of farming depending upon the facts of a specific case.
May 22, 2007
Sylvette Brazeau HEADQUARTERS Business Information Section Charles Rafuse Tax Information Division 613-957-8967
2007-022924
Re: Your Opinion Counts: Ref 07-0210-Review of Definition Request
This is in reply to your email of March 21, 2007, concerning whether XXXXXXXXXX, received rental income under a sharecropping arrangement. This also confirms our telephone conversation (Rafuse/Brazeau) regarding this matter.
It was determined by CAIS program staff at Agricorp that XXXXXXXXXX was not eligible for the CAIS program in 2005 on the basis that his income from crop-sharing was considered to be rental income and not farming income for income tax purposes. Agricorp communicated its decision to XXXXXXXXXX in a letter dated November 23, 2006, and advised him of his right to appeal the decision to the National CAIS Committee-Ontario Appeal Sub-Committee (NCC-OASC).
In a letter to Agricorp dated February 15, 2007, XXXXXXXXXX asked for a review of the decision by the NCC-OASC, indicating that his 1/3 share of the crops was not rental income. In his letter, XXXXXXXXXX explained that at all times the crops were grown on his land and belonged to him and that under the agreement with his sharecropper-neighbour he made payments in kind by giving his neighbour 2/3 of the crops for services rendered.
It is unknown whether the NCC-OASC has completed its review of XXXXXXXXXX eligibility for the CAIS program.
Our Comments
The decision concerning XXXXXXXXXX eligibility for the CAIS program was made by people charged with such responsibility, namely the CAIS program staff at Agricorp, and it would be inappropriate for us to interfere. Accordingly, our comments below apply only for income tax purposes, since the administration of the Income Tax Act is the responsibility of the Canada Revenue Agency (CRA).
Paragraph 9 of Interpretation Bulletin IT-433R "Farming or Fishing - Use of Cash Method" indicates that the crop share received by a landlord in a sharecropping arrangement is considered to be rental income and not income from farming where the "sharecropping arrangement" is an arrangement under which a taxpayer or landlord receives from a tenant a share of crop in lieu of rent. The bulletin also explains that there may be other types of sharecropping arrangements, such as where the sharecropper is actually an employee of the taxpayer and receives a share of the crop as remuneration for services rendered, and that under these other types of arrangements the landlord could be in the business of farming depending upon the facts of a specific case.
It is evident from reading the above-mentioned bulletin that the tax treatment of income received by a taxpayer in a sharecropping arrangement would depend on a review of the facts and circumstances surrounding the case under consideration.
Based on the limited facts available, we are unable to express an opinion as to whether, for income tax purposes, XXXXXXXXXX received the 1/3 of the crops under his sharecropping arrangement as rental income, as the CAIS program staff at Agricorp concluded, or whether he, as an employer, paid 2/3 of the crops to the sharecropper (as an employee) as remuneration for services rendered. However, we note that XXXXXXXXXX indicates in his letter to Agricorp of February 15, 2007, that he did not rent out his land to a sharecropper but that he paid his neighbour a 2/3 share of his crops to farm his land. Accordingly, a review of XXXXXXXXXX sharecropping arrangement would be required to determine whether he was renting out his land or was hiring an employee.
Whether or not an employer-employee relationship exists in a sharecropping arrangement, such as that between XXXXXXXXXX and his sharecropper-neighbour, is a question of fact that can only be determined on a case-by-case. The CRA publication RC4110, Employee or Self-employed?
(www.cra-arc.gc.ca/E/pub/tg/rc4110/README.html), discusses the criteria used to make this determination.
We trust this information is helpful.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch