Principal Issues: Whether farm property consisting of land and a gravel pit operation would be qualified farm property under the definition in 110.6 subparagraph (a)(vii).
Position: Yes.
Reasons: The property was acquired in XXXXXXXXXX so the pre 1987 rules apply and both the taxpayer's mother and father had used the land 5 or more years in the business of farming.
Charles Rafuse
XXXXXXXXXX (613) 957-8967
2004-010334
October 3, 2005
Dear XXXXXXXXXX:
Re: Farm property, Capital Gains Deduction
We are writing in response to your email of November 12, 2004, concerning whether the $500,000 capital gains deduction under subsection 110.6(2) of the Income Tax Act can be claimed in the situation you describe.
Specifically, you have indicated that a taxpayer owned and farmed a piece of land since XXXXXXXXXX. This land was inherited from her father who had farmed the land and died in XXXXXXXXXX. The land was not legally in her name until XXXXXXXXXX when her mother died, who had been given the right to live on and operate the farm until her death per the instructions in the father's will.
XXXXXXXXXX
In XXXXXXXXXX, the taxpayer died and left the property to her children. You have asked, when reporting this transaction on the taxpayer's terminal return XXXXXXXXXX, how much of the land is eligible for the capital gain deduction.
Our Comments
Generally speaking, subsection 110.6(2) of the Act permits a capital gains deduction of $500,000 for an individual who is resident in Canada throughout the year and disposed of Qualified Farm Property (QFP) in the year. Subparagraph (a)(vii) of the definition of QFP in subsection 110.6(1) applies where a property was last acquired before June 18, 1987 and clause (B) indicates that the property is qualified farm property where it was used by the individual, or a parent of the individual principally in the course of carrying on the business of farming in Canada in at least 5 years during which the property was owned by the individual, or a parent of the individual. Since the property is only required to be used in farming for 5 years when it was owned by the individual or a parent, it is our view that in the example given the property would meet the definition of qualified farm property. Either the father or the mother would have met the test of using the property in the business of farming for 5 years.
We trust this information is helpful.
Yours truly,
Charles Rafuse
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch