In a recent Advance Tax Ruling (2015-0576961R3), CRA reviewed the ability to transfer farmland within a family. The land was originally owned by Grandparent, who used the land in a farming business which was his primary source of income. Parent had purchased the land for fair market value. Grandparent leased the land from Parent for use in his farming business until he retired. After Grandparent’s retirement, the land was leased to an arm’s length tenant who also farmed the land.

Parent never farmed the properties. Parent wished to transfer the property to three Adult Children as a gift. It was expected each Child would own the land for several years (the exact number was redacted) after the gift.

these criteria in assessing whether land was used principally in a farming business

CRA Ruled that the land was used principally in a farming business carried on by Parent or Grandparent during the period it was owned by Parent. Therefore, the transfer would be eligible for rollover at the adjusted cost base (ACB) pursuant to Subsections 73(3) and 73(3.1). CRA noted the following in respect of the Ruling:

1. The rollover is subject to Subsection 69(11) (see VTN 403(5)).
    
2. CRA noted that “used principally” means “during the period of ownership, the particular property must have been used by eligible users (set out in Paragraph 73(3)(c)) more than 50% (on a total land area basis and on a total ownership period basis) for eligible farming activities”.
    
3. CRA further indicated that income from the farming business was required to be the eligible user’s primary source of income for each relevant year.

a detailed review of eligibility for rollover or Capital Gains Exemption

Editors’ Comment
It should be noted that, while Parent did not have to farm the land personally, only farming by eligible individuals while Parent owned the property was relevant to this determination. It is important to note that the criteria for transfer on a rollover basis are very different from the requirements for property to be Qualified Farm Property for Capital Gains Exemption purposes (see VTN 406(7) and 392(6)). Both definitions are detailed and complex.