| 922068 | ||
| 24(1) | L. Holloway | |
| (613) 957-8953 |
Attention: 19(1)
August 11, 1992
Dear Sirs:
Re: Transfer of Farm Property
This is in reply to your letter dated June 9, 1992, requesting our opinion on the tax consequences of a transfer of farm property by a father to a corporation owned by the adult daughters of the transferor. You asked if the transferor will be deemed to have received proceeds equal to the tax value of the property thereby not triggering any tax consequences.
Our Comments
The fact situation which you set out is quite specific and it appears that it may relate to definite contemplated or completed transactions. Assurance as to the tax consequences of contemplated transactions can only be given in response to a request for an advance income tax ruling. If you wish to obtain any binding commitment with respect to an actual case with facts similar to your example, an advance income tax ruling application should be submitted. If, on the other hand, your situation reflects factual historic occurrences, the determination with respect to the tax consequences under the Act would generally be carried out by personnel from your local District Taxation Office. We do, however, provide the following comments for your information.
Whether losses from a "hobby farm" are deductible for purposes of the Income Tax Act will depend on whether the farm is a business carried on with a reasonable expectation of profit. If the farm operation is not a business carried on with a reasonable expectation of profit, losses are not deductible against other income and the special provisions respecting farm businesses in the Act are generally not available.
An individual may transfer property used in a farm business to their child without incurring any liability for tax on capital gains, provided:
€ the child was a resident of Canada; and
€ the individual, his spouse or any of his children used the property in a farming business.
However, this rollover of tax values is only available under subsection 73(3) of the Income Tax Act where an individual transfers the property directly to the child, not to a corporation controlled by the child. Transfers of shares of a family farm corporation are provided for under subsection 73(4).
Where a gift for no proceeds is made to a non-arm's length party, the transferor is deemed to receive proceeds equal to the gifted property's fair market value at the time of transfer by virtue of paragraph 69(1)(b) of the Income Tax Act thereby triggering any accrued gains, recapture or other income on the disposition. The transferee in such a case is deemed to have acquired a property at a cost equal to its fair market value.
If property disposed of is qualified farm property, as defined in subsection 110.6(1) of the Act, a capital gain resulting on the transfer may be partially or entirely offset by the amount of a taxpayer's unused capital gains deduction.
We trust our comments will be of assistance to you.
Yours truly,
E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch