2016-0670841E5 Inter-generational rollover of farm property

Principal Issues: 1. Has the position outlined in 2008-0303761E5 changed? 2. Would this position apply to subsections 73(3.1) and 73(4.1)?

Position: 1. No 2. Yes.

Reasons: 1. The relevant provisions have not been amended and no ITRD documents imply that we should conclude differently. 2. The provisions dealing with an inter vivos transfer deal with the same types of property and contain substantively similar conditions as subsections 70(9) and 70(9.2).

Author: Mathanda, Tara
Section: 70(9.01), 70(9.21), 73(3.1), 73(4.1)

XXXXXXXXXX                    2016-067084

February 8, 2018

Dear XXXXXXXXXX:

Re:  Intergenerational Transfer of Farm Property to Children

This is in reply to your letter of October 5, 2016 in which you requested our comments in respect of a hypothetical intergenerational rollover of farm property.

You asked us to confirm that our comments in our technical interpretation 2008-030376lE5 in respect of the ownership of, or work activity associated with multiple farm properties continues to reflect our position as it pertains to a taxpayer’s ability to transfer properties pursuant to subsections 70(9.01) and 70(9.21) of the Income Tax Act (the “Act”).  In addition, you asked whether our comments in our previous response would also apply to an inter vivos transfer contemplated under subsections 73(3.1) and 73(4.1) of the Act.

In the particular situation you previously provided, the given facts were as follows:

*    Mr. A is a resident of Canada, as are his XXXXXXXXXX children, all of whom are over 18 years of age.  Mr. A operates XXXXXXXXXX non-adjacent farms, XXXXXXXXXX of which he owns directly, with the remaining XXXXXXXXXX being held indirectly through XXXXXXXXXX corporations.  All XXXXXXXXXX corporations are Canadian-controlled private corporations and each is wholly-owned by Mr. A.  There is considerable interconnection among the operation of the XXXXXXXXXX farms.

*    Each of the farmlands that are owned directly by Mr. A are used exclusively for the business of raising livestock.  Mr. A works full-time on his farms and provides direct hands-on management of all of the farming operations.  The farmlands and other farm related assets of the farm corporations are located in Canada and represent all of the assets of each of these corporations.

We have assumed for discussion purposes that there has been no change in use of any of the XXXXXXXXXX farms and the farm related assets by Mr. A, or the degree of Mr. A’s activity in the farm operations.

Our comments

This technical interpretation provides general comments about the provisions of the Act.  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.  However, we are prepared to offer the following general comments.

Our views expressed in previous document 2008-030376lE5 in respect of multiple farm properties have not changed and are as follows:

For purposes of a transfer pursuant to subsection 70(9.2) of the Act, it is a question of fact as to whether all or substantially all of the property of a corporation is attributable to use principally in the course of carrying on a farm business. Similarly, for purposes of a transfer pursuant to subsection 70(9), it is a question of fact whether the land and/or depreciable property to be transferred was used principally in a farming business.

As is noted in paragraph 27 of Interpretation Bulletin IT-268R4, it is also a question of fact whether a person is "actively engaged on a regular and continuous basis" in the business of farming.  Such a determination will require full consideration of the unique facts in a given situation.  A person may be considered "actively engaged on a regular and continuous basis" when the person is "actively engaged" in the management and/or day-to-day activities of the farming business.  Ordinarily the person would be expected to contribute time, labour and attention to the business to a sufficient extent that such contributions would be determinant in the successful operation of the business.  Whether an activity is engaged on a "regular and continuous basis" is also a question of fact but an activity that is infrequent or activities that are frequent but undertaken at irregular intervals would not meet the requirement.

In our view, the fact that Mr. A owns multiple farm properties and farm corporations, would not, in and of itself, limit his ability to transfer the properties pursuant to subsections 70(9.01) and 70(9.21) of the Act. Nor would the fact that Mr. A works on more than one farm, in and of itself, lead to a conclusion that he was not actively engaged on a "regular and continuous basis" on any of the farms. 

However, in our view, where the transfer of multiple properties pursuant to subsection 70(9) and/or subsection 70(9.2) is contemplated, it will be necessary to separately determine, for each property, whether the conditions noted above are met.

With respect to your second query regarding the inter vivos transfer of farm property, we confirm that the comments reproduced above in respect of subsections 70(9) and 70(9.01) also apply to subsections 73(3) and 73(3.1) respectively.  In addition, our comments in respect of subsections 70(9.2) and 70(9.21) also apply to subsections 73(4) and 73(4.1) respectively.

Please note that any comments in our previous response that utilized the now repealed definition of “share of the capital stock of a family farm corporation” would continue to apply taking into consideration the appropriate adjustments for the revised definition of “share of the capital stock of a family farm or fishing corporation.”

We trust that our comments will be of assistance.

Yours truly,

Steve Fron CPA, CA, TEP
Manager, Trust Section II
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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