| 19(1) | File No. 5-8457 |
| R.B. Day | |
| (613) 957-2136 |
September 6, 1989
19(1)
We are writing in reply to your letter of July 27, 1989, wherein you requested our opinion as to whether the enhanced capital gains deduction under subsection 110.6(2) of the Income Tax Act would be available to certain individuals in the following circumstances:
As we understand it, a farmer transfers his farm, including depreciable property and land, to his adult children pursuant to paragraphs 73(3)(a) and (b). Immediately thereafter the children sell the farm property in an arm's length transaction.
Our Comments
Assuming that, for purposes of subsection 73(3), the land and depreciable property were in respect of a farm business carried on in Canada; immediately before the transfer the children were resident in Canada and the property was used by the taxpayer, his spouse or any of his children in the business of farming; and further assuming that for purposes of the "qualified farm property" definition in subsection in subsection 110.6(1) the requirements of either subparagraphs 110.6(1)(a)(vi) or 110.6(vii) are fulfilled, it is our opinion that the adult children would be entitled to claim the enhanced capital gains deduction under subsection 110.6(2). The period of ownership by the father could qualify the adult children for subparagraph (a)(vii), as regards both the 24 month period and the gross revenue requirement in clause (a)(vii)(A).
Whether or not the farm was listed for sale, either through a lawyer or some other agent of the family, prior to the transfer under section 73 would not, in and by itself, alter our views as set out above.
The above comments are made on the further assumption that the adult children do not have a history of real estate transactions that could taint the transaction as being an "adventure in the nature of trade" and that would bring the realized gains into income.
We would caution that the above comments represent an expression of opinion only, and as such, are not binding upon the Department.
Yours truly,
for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch