Dear Sirs:
Re: "Qualified Farm Property" ("QFP") definition in Subsection 110.6 (1) of the Income Tax Act (the "Act")
This is in reply to your letter of December 27, 1990, whereby you request our opinion in respect of the eligibility of the taxpayer to the enhanced capital gain deduction in the following hypothetical situation:
1. Taxpayer, owns a 25% vested interest in a farm property, approximately 100 acres of farmland
2. The farm property was originally owned by taxpayer's parents from 1920 to 1981. The parents farmed the property, growing cash crops corn and beans.
3. In 1981, due to the death of the parents, the taxpayer and sister inherited the farm property, with joint (4) ownership.
4. Since 1981, the farm has been farmed by a tenant, on a sharecrop arrangement.
Please note that the Department does not provide opinions pertaining to a proposed transaction otherwise than by way of an advance income tax ruling. However, we can provide you with the following general comments.
Our Comments
As indicated in paragraph 8 of IT-433, the crop share received by a landlord in a sharecropping arrangement is considered to be rental income and not income from farming. The Department considers that a lessor of farm property does not use such property in the business of farming.
Generally, however, in order for real property acquired before June 18, 1987, to qualify as QFP, it must meet the following requirements set out in subparagraph 110.6(1)(a)(vi) of the Act; the property must have been used by the individual, his spouse, children, parents, family farm corporation, family farm partnership, or a personal trust from which the individual acquired the property in the course of carrying, on the business of farming in Canada (A) in the year the property was disposed of by the individual (B) in at least five years during which the property was owned by the individual, his spouse,child, or parent, or preferred beneficiary under a personal trust or his spouse, child or parent.
Accordingly, based on the assumption that the deceased parents while they owned the property met all of the other requirements of this subparagraph, we would agree that the property would qualify as QFP for purposes of the subsequent disposition of the taxpayer.
We would caution that the above comments, which are based on your hypothetical situation, are an expression of opinion only and as such are not binding upon the Department in an actual fact situation.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch