5-903580
Re: Qualified Farm Property
This is in reply to your letter of December 10, 1990 concerning the definition of qualified farm property.
You requested our views as to whether the property would be considered qualified farm property in the following hypothetical situations:
Situation # 1
1. A taxpayer uses property for at least five years in the course of carrying on a farming business.
2. The taxpayer ceases to use the property in a farming business and commences to use it for his own personal use and enjoyment. This results in a deemed disposition and a deemed reacquisition at fair market value pursuant to subsection 45(1) of the Income Tax Act (the Act). The taxpayer reports a capital gain and pursuant to subsection 110.6(2) of the Act claims a qualified farm property capital gains exemption.
3. Several years after the above change in use the taxpayer sells the property and realizes a further capital gain.
4. The taxpayer wishes to apply the unused portion of his qualified farm property capital gains exemption against the further capital gain.
1. A taxpayer sells qualified farm property and then reacquires it in a situation where section 79 of the Act applies.
Our Views
Situation #1
The opening words of subsection 45(1) of the Act clearly indicate that the deemed disposition in respect of the change in use is only for purposes of subdivision c of Division B of the Act. However, both the definition of, and the capital gain exemption for, "qualified farm property" are contained in section 110.6 which forms part of Division C of the Act. Consequently, the subsection 45(1) deemed disposition would not in and by itself preclude the property from being considered qualified farm property at any subsequent time. As a result the taxpayer could if the property otherwise qualifies claim any unused qualified farm property capital gains exemption on a subsequent sale of the property.
Situation # 2
Where a taxpayer sells property and then reacquires it so that section 79 of the Act applies he would for purposes of paragraph (vii) of the definition of qualified farm property in subsection 110.6(1) be considered to have acquired the property on the date of reacquisition. Therefore if the date of reacquisition is after June 17, 1987 the conditions in paragraph (vii) must be met. However, where the reacquisition is on or before Jun 17, 1987 the property will qualify in that, in your hypothetical situation, it qualified before the first disposition.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch