| 922525 | |
| 24(1) | Glen Thornley |
| (613) 957-2101 |
Attention: 19(1)
December 8, 1992
Dear Sirs:
Re: Definition of Farming and Qualified Farm Property
This is in reply to your letter of August 14, 1992 in which you ask if the maintenance and operation of a woodlot for the purposes of extracting and selling maple syrup would be considered a "farming" business for purposes of the Income Tax Act (the "Act").
You also relate an apparent factual situation whereby a taxpayer acquired property prior to June 18, 1987 and reported farm losses for seven years. Returns for these years were apparently accepted as filed but in the eighth and subsequent years all farm losses were disallowed on the basis that there was no reasonable expectation of profit and the taxpayer was only engaged in farming as a hobby. You ask if the 7 years the property was purportedly farmed would be sufficient to meet the definition and qualifications of farm property as outlined in subsection 110.6(1) of the Act.
As indicated in Information Circular IC 70-6R, when a requested interpretation relates to a contemplated transaction, a taxpayer should request an advance income tax ruling rather than an opinion. Additionally, a district office may consider requests for written opinions on completed transactions. As your hypothetical fact situation would appear to relate to a taxpayer who may have been re-assessed we suggest you contact the District Taxation Office responsible for the particular taxpayer's returns for information regarding the re-assessment. We do, however, provide the following general information relative to your enquiry.
Our Comments
1) It is a question of fact whether a particular farming operation constitutes a farming business at any particular time. Some of the criteria which should be considered in making this determination are set out in Interpretation Bulletin IT-322R. In addition the Department's general position with respect to the meaning of a farming business is outlined in paragraph 7 of Interpretation Bulletin IT-433, dated June 25, 1979 and paragraph 9 of Interpretation Bulletin IT-145R, dated June 19, 1981 (see also Special Release to IT-145R, dated February 28, 1986). In this respect, it is also entirely a question of fact whether a particular activity can be considered to be "farming" for purposes of the definition in subsection 248(1) of the Act. For instance, as outlined in paragraph 7 of IT-433, it has been decided by the courts that farming also includes tree farming.
The Department's views with respect to the owners of farm woodlots and tree farms are set out in IT-373R. It is unlikely, though, that the maintenance and operation of a purchased woodlot solely for the purpose of extracting and selling maple syrup would be considered a "farming business".
2) In order to meet the definition of "qualified farm property" in subsection 110.6(1) of the Act, real property must have been used in the business of carrying on the business of farming in Canada. That determination can only be made on a factual basis, generally as the result of an audit. The fact that returns were accepted as filed does not prove that a particular property was used in the business of farming.
However, where farm losses have been disallowed on the basis of no reasonable expectation of profit in a year or years following the acceptance of returns as filed it would probably indicate that in the view of District Office personnel no farm business was being carried on both before and after disallowance. However, as indicated previously, such matters are the responsibility of the District Offices.
We trust our comments will be of assistance to you.
Yours truly,
E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch