Revenue Canada Taxation Head Office
XXX
R.B. Day (613) 957-2136
JAN 20 1989
XXX
We are writing in reply to your letter of November 24, 1988, wherein you requested our interpretation of subparagraph 110.6(l)(a)(vii) of the Income Tax Act (the "Act") in the definition of "Qualified Farm Property".
Our understanding of the situation set out in your letter (and your interpretation of the relevant income tax provisions) is as follows:
Mr. A. acquired farmland prior to June 18, 1987 more than twenty four months ago that he has since been using in the business of farming. Mr. A now wishes to transfer the farmland to his wife; Mrs. A, by way of gift. Once the farmland is owned by Mrs. A she will use the property in the business of farming. However, given that she has full time employment, the gross revenue that Mrs. A expects to earn from her farming business will be less than her income from all other sources for any particular year.
If Mrs. A subsequently disposes of the farmland, while Mr. A is still alive and while Mr. and Mrs. A are married, subsection 74.2(1) of the Act will attribute any capital gain realized by Mrs. A to Mr. A. As well, subsection 74.2(2) of the Act will deem that Mr. A. disposed of the property when in fact Mrs. A disposed of it. It is your view that the farmland will be considered to be qualified farm property of Mr. A despite the fact that the gross revenue earned by Mrs. A from her farming business is less than her income from all other sources in the particular year. It is also your view that the farmland will be qualified farm property to Mr. A whether or not Mrs. A owns the land for a period of at least 24 months preceding the date of disposition by her.
Clause (vii)(A) in the definition of a "qualified farm property" in subsection 110.6(1) of the Act provides (in part) that where the real property was acquired by the individual after June 17, 1987, and that property was owned by the individual or her spouse throughout a period of at least 24 months prior to the acquisition and in at least 2 years while the property was owned by the individual or her spouse the gross revenue of the individual or her spouse from the farming business carried on in Canada exceeds the income of the individual or her spouse for the year from all sources for the year, the property in question will be qualified farm property as of the date of disposition.
In view of the above, it is our opinion that the real property in question would be qualified farm property and any capital gains realized on the disposition of the qualified farm property would be attributed to Mr. A pursuant to subsection 74.2(1) of the Act and Mr. A would be deemed to have disposed of the qualified farm property pursuant to subsection 74.2(2) of the Act, provided that the following conditions are met:
a) Mr. A owned the property throughout the 24 month period prior to the date Mrs. A acquired it from him by way of gift, and
b) in at least two years while the property was owned by Mr. A, his gross revenue from carrying on the farming business in Canada exceeded his income from all other sources in each of the two years.
We would caution that the above comments represent an expression of opinion only, and as such, are not binding upon the Department.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch