| 24(1) | File No. 900329 |
| W.C. Bailey | |
| 957-2061 | |
| Attention: 19(1) |
June 27, 1990
Dear Sirs:
Re: Ontario Farm-Start Program
This will reply to your letter of April 2, 1990 with respect to the taxation of grants received under the above-named program.
The information provided indicates that the yearly grants under this program are to assist new farmers with their cash flow during the difficult first years of farming. The grants are made on the basis of ongoing viability as shown by financial statements and projections. They are general in nature, not providing assistance for any named capital cost or operating cost. An eligible person who is a shareholder, partner or member of a farming corporation, partnership, association or other organization may elect to receive grants in the name of the corporation, partnership, association or other organization, or in his or her own name. A grant may also be made to assist an eligible person in acquiring a share in his or her parents' farm (through partnership interest or shares in a corporation).
The treatment of governmental assistance for tax purposes depends upon the purpose for which the assistance was given by the government body, not upon the use made of the funds provided.
Except in the case where the funds are applied for to be used to acquire an interest in their parents' farm through acquisition of shares or a partnership interest, it seems evident that the grants under the Ontario Farm-Start Program are not made to defray the cost of any specified asset or expense, but rather to subsidize the cash flow of the business. It is our view therefore that grants of this nature are taxable under paragraph 12(1)(x) of the Income Tax Act in the year of receipt.
Where the recipient has clearly applied for the grant to acquire shares of a partnership interest in his or her parents' farm corporation or business, the grant would reduce the adjusted cost base of the shares or partnership interest pursuant to paragraph 53(2)(k) of the Income Tax Act. If the grant is not clearly given for the acquisition of shares or partnership interest, it will be taxable under paragraph 12(1)(x).
We trust these views will be sufficient to respond to the inquiries you have received.
Yours sincerely,
DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch
19(1)