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: Is land qualified farm property?
Position: yes
Reasons: Meets criteria in 110.6(1) definition.
XXXXXXXXXX
XXXXXXXXXX 990015
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling:
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX requesting an advance income tax ruling on behalf of the above-named taxpayers.
We understand that, to the best of your knowledge, none of the issues raised in this ruling is being considered by a Tax Services Office or Taxation Centre in connection with an income tax return already filed, is the subject of any notice of objection or is under appeal.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. XXXXXXXXXX.
2. XXXXXXXXXX are husband and wife and have been married since XXXXXXXXXX file their annual tax returns at the XXXXXXXXXX Tax Centre and deal with the XXXXXXXXXX Tax Services Office.
3. XXXXXXXXXX is the son of XXXXXXXXXX, and is resident in Canada.
4. XXXXXXXXXX is the daughter of XXXXXXXXXX, and is resident in Canada.
5. The facts with respect to the relevant pieces of land are as follows:
(a) XXXXXXXXXX
XXXXXXXXXX
(b) XXXXXXXXXX
XXXXXXXXXX
(c) XXXXXXXXXX
XXXXXXXXXX
(d) XXXXXXXXXX
XXXXXXXXXX
(e) XXXXXXXXXX
XXXXXXXXXX.
Of this land, XXXXXXXXXX acres is arable land and XXXXXXXXXX is non-arable and was used as pasture. During many of those years, XXXXXXXXXX gross revenue from farming exceeded his income from all other sources. XXXXXXXXXX acres were used for buildings.
6. In XXXXXXXXXX were sold for $XXXXXXXXXX; the proceeds were treated as a reduction of the adjusted cost base of the land.
7. In XXXXXXXXXX were sold for $XXXXXXXXXX; the proceeds were treated as a reduction of the adjusted cost base of the land.
8. The land described in paragraph 5 has a current fair market value estimated to be $XXXXXXXXXX per acre for arable land and $XXXXXXXXXX per acre for non-arable land. Its fair market value at XXXXXXXXXX is estimated to be $XXXXXXXXXX per acre for the arable land and $XXXXXXXXXX per acre for the non-arable land. The cost of the land to XXXXXXXXXX was less than the fair market value on XXXXXXXXXX.
9. XXXXXXXXXX has $XXXXXXXXXX of his $500,000 capital gain exemption for qualified farm property, as defined in subsection 110.6(1) of the Income Tax Act (the "Act"), remaining to be used. XXXXXXXXXX have not used any of their capital gains exemption. Since prior to XXXXXXXXXX has transferred an interest in some of the property described in paragraph 5 to XXXXXXXXXX, any capital gains realized by XXXXXXXXXX on the disposition of such property will be attributed to XXXXXXXXXX by virtue of subsection 74(2) of the Act.
Proposed Transactions
10. XXXXXXXXXX will sell the land described in paragraph 5 above to XXXXXXXXXX, with a XXXXXXXXXX% undivided interest in the five quarter sections going to each of them, in exchange for promissory notes from each of XXXXXXXXXX equal to XXXXXXXXXX% of the total of the adjusted cost base of XXXXXXXXXX interests in the land plus $XXXXXXXXXX, which is XXXXXXXXXX unused capital gains exemption.
Purpose of the Proposed Transactions
11. The proposed transactions will transfer responsibility for any future disposition of the lands to XXXXXXXXXX, simplify XXXXXXXXXX wills and any provision they may have to make for their demise, and provide XXXXXXXXXX an opportunity to utilize the capital gains exemption for qualified farm property.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transaction is carried out as described above, we confirm the following:
(A) XXXXXXXXXX proceeds of disposition on the sale of the land described in paragraph 5 above will be deemed by paragraph 73(3)(b) of the Act to be equal to the adjusted cost base of the land plus $XXXXXXXXXX.
(B) The capital gains realized by XXXXXXXXXX, including those realized by XXXXXXXXXX and attributed to XXXXXXXXXX, will be capital gains from the disposition of qualified farm properties pursuant to the definition in subsection 110.6(1) of the Act and will be deductible as provided in subsection 110.6(2) of the Act.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information circular 70-6R3 dated December 30, 1996, and are binding on Revenue Canada, Customs, Excise, and Taxation provided that the proposed transactions are completed by XXXXXXXXXX.
Other Comments
Nothing in this advance income tax ruling should be construed as implying that we are ruling on whether XXXXXXXXXX carried on a farming business at any particular time, neither are we confirming that each and every parcel of the farmland being transferred was used primarily for the purpose of farming by XXXXXXXXXX. These are given facts and our ruling is given on the basis that all the facts are correct.
Immediately after the transfer, the land will have been last acquired by XXXXXXXXXX after June 17, 1987, so to be considered qualified farm property at a particular time it must meet the criteria in clause 110.6(1)(a)(vi)(A) of the definition. These conditions are met if the property is owned by XXXXXXXXXX or their parents throughout the 24 month period ending immediately before the particular time and if, for at least 2 years while the property was so owned, the gross revenue from the farming business carried on by any of these individuals exceeded their income from all other sources for the year. As stated in fact 5 above, XXXXXXXXXX father met this test, so, in our opinion, the land will be qualified farm property for XXXXXXXXXX.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings and
Interpretation Directorate
Policy and Legislation Branch