| 912288 | |
| H. Woolley | |
| (613) 957-2139 |
24(1)
Attention: 19(1)
February 6, 1992
Dear Sirs:
Re: Subsection 110.6(1) of the Income Tax Act (the "Act")
This is in reply to your letter of August 14, 1991 which follows up your letter of June 7, 1991 and our response thereto of July 22, 1991. We apologize for the delay in our reply which resulted from our desire to see if the draft Technical Bill, released on December 20, 1991 by the Minister of Finance, would be of assistance with the matters raised in your inquiry. You have requested our interpretation of certain definitions in subsection 110.6(1) of the Act as they relate to the capital gains deduction for "qualified farm property" in subsection 110.6(2) of the Act. Specifically, you have requested our comments where an individual owns an interest in a partnership that in turn owns shares of a Canadian-controlled private corporation whose assets are all used in a farming business in which the individual was actively engaged on a regular and continuous basis for at least five years.
As the definition of "share of the capital stock of a family farm corporation" ("SCSFFC") in subsection 110.6(1) of the Act requires that such share be owned by an individual, if all the shares of the corporation are owned by a partnership, the shares would not meet the requirements of the definition. However, it is our view, that if even one share of the corporation (common or preferred) was owned by the individual the corporation would qualify as "a corporation a share of the capital stock of which was a share of the capital stock of a family farm corporation of an individual referred to in subparagraph (ii), (iii), or (iv)" as set out in subparagraph (v) of the definition of "interest in a family farm partnership" in subsection 110.6(1) of the Act.
The definition of "interest in a family farm partnership" in subsection 110.6(1) of the Act has the requirement that "the value of the property was attributable to property used by" one of several persons including, the partnership, the individual or a qualifying corporation. If property is owned by a corporation, a share of which is not a SCSFFC, because all the shares are owned by a partnership, it is unclear whether the assets of such corporation could be considered to be used by either the partnership or the individual. The Department has brought this matter to the attention of the Department of Finance.
We hope our comments are of assistance.
Yours truly,
E.Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch