| 920960 | |
| 19(1) | Bill Guglich |
| (613) 957-2102 |
June 12, 1992
Dear 19(1):
Re: Qualified Farm Property
This is in reply to your letter of March 21, 1992 wherein you describe two tree farm situations and request our views as to whether they could be considered "qualified farm properties". The two fact situations which you set out are quite specific. 24(1)
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. We are enclosing Information Circular 70-6R2 which describes the guidelines respecting advance income tax ruling applications. On the other hand, 24(1) the determination with respect to entitlement to the capital gains deduction, would be carried out by personnel from your local District Taxation Office. We do, however, provide the following comments for your information.
The Act provides, to certain individuals, a deduction of up to $500,000 for capital gains realized on the disposition of qualified farm property. The definition of qualified farm property in the Act requires that the real property must be used in carrying on a farming business in Canada by at least one of certain eligible users such as the owner of the property, a spouse, child, or parent of the owner etc.
In any specific case it is a question of fact whether or not the particular real property has been used in carrying on a farming business. In addition the farm operation must be a business.
We are enclosing Interpretation Bulletin IT-373R which discusses farm woodlots and tree farm operations. As stated in paragraph 7 of IT-373R, "A taxpayer who is not otherwise engaged in a lumbering or logging business and who undertakes the reforestation of an area of land with the objective of producing mature trees at a date that may be 40 or 50 years in the future, or even longer, is considered to be farming." Whether the farming operation is a business depends on whether it was undertaken with a reasonable expectation of profit.
Where the reforestation project was undertaken in a systematic way, in a business-like manner in accordance with good forestry procedures, and holds forth the prospect of a profit when the trees mature, the Department generally considers that the tree farming operation is a business that was undertaken with a reasonable expectation of profit.
We are also enclosing Interpretation Bulletin IT-322R which describes in paragraphs 4 and 5 some criteria which must be considered to determine whether or not a particular farming operation is a business. While IT-373R deals specifically with farm woodlots and tree farms, IT-322R deals with farming in general.
We trust our comments will be of assistance to you.
Yours truly,
G. Thornleyfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch