| 24(1) | 5-902354 |
| R.D. Mundell | |
| (613) 957-2139 |
Attention 19(1)
October 9, 1990
Dear Sirs:
Re: Family Farm Transfers and "GAAR" - Subsections 73(3), 110.6(2) and 245(1)
This is in reply to your letter of August 30, 1990 requesting our views 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, an individual transfers farm land to his child pursuant to subsection 73(3) and shortly thereafter there is a quick sale to a third party. The objective is to increase the family's utilization of the deduction under subsection 110.6(2). Your concern is whether section 245 ("GAAR") would be applicable, and if not, would the farm land in question be considered to be capital property in the child's hands.
Our Comments
Although the definition of "qualified farm property" in subsection 110.6(1) requires that the real property be used by a qualified user in a certain manner and during a defined period in the course of carrying on the business of farming in Canada, it does not require the owner of the land to hold it for any minimum period of time. Accordingly, in the situation which you have described, it would appear that there would not be a misuse of a provision of the act or an abuse of the act as a whole, within the meaning of those terms in subsection 245(4), and it would be reasonable to conclude that, in the absence of other circumstances, GAAR would not apply.
Assuming that, for purposes of subsection 73(3), the property in question would be qualified farm property and that neither the child nor the transferor has a history of real estate transactions that could taint these transactions as an "adventure in the nature of trade" that would bring the realized gains into income, it is our opinion that the farm land could be considered to be capital property in the hands of the child.
We caution that the above comments represent an expression of opinion only, and as such, are not binding upon the Department.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch