2017-0717401E5 Fishing Licences

Principal Issues: Can fishing licences be considered as QFFP as defined in subsection 110.6(1)? Can they be eligible for the “on death” and inter vivos rollovers in sections 70 and 73, respectively?

Position: General comments provided but yes provided required conditions are met.

Reasons: Question of fact.

Author: D'Angelo, Sandro
Section: 73(3), 73(3.1), 73(4), (4.1), 110.6(1), 110.6(1.3), 70(9), 70(9.01), 70(9.2), 70(9.21), 70(9.8), 70(10)

XXXXXXXXXX                                                                                                    2017-071740
                                                                                                                            S. D’Angelo, CPA, CMA
January 30, 2018

Dear XXXXXXXXXX:

Re: Qualified Farm or Fishing Property

This is in response to your correspondence of July 31, 2017 and our subsequent telephone conversations (D’Angelo/XXXXXXXXXX) pertaining to the income tax treatment of certain types of fishing licences issued by Fisheries and Oceans Canada.

In particular, you want to know whether a fishing licence that is issued to an individual that is leased to a corporation that carries on the fishing business can qualify for the lifetime capital gains deduction under subsections 110.6(2) and (2.2) of the Income Tax Act (the “Act”). You also want to know if the rollover rules in sections 70 or 73 of the Act can apply to a transfer of such property to a child.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). 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 a particular transaction 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.

Since you are asking about property that is described as a fishing licence issued by Fisheries and Oceans Canada to individuals that are used by a corporation that carries on that fishing business we will limit our general comments to that type of situation.

A fishing licence issued by Fisheries and Oceans Canada to an individual to be used in a fishing business would generally be depreciable property of a prescribed class (i.e., Class 14.1) after December 31, 2016.

Generally speaking, subsections 110.6(2) and (2.2) of the Act permits a lifetime capital gains deduction of up to $500,000 for “qualified farm or fishing property” (QFFP), as that term is defined in subsection 110.6(1) of the Act, disposed of after April 20, 2015, by an individual (other than a trust) who is resident in Canada throughout the taxation year. Paragraph (d) of the definition of QFFP would include property included in Class 14.1 that was owned by an individual and used by that individual, or a person or partnership referred to in any of subparagraphs (a)(ii) to (v) of that definition, in the course of carrying on a farming or fishing business in Canada.

Subsection 110.6(1.3) of the Act further provides that for purposes of applying the definition QFFP in respect of a property, such as a fishing licence used in a fishing business, such property will not be considered to have been used in the course of carrying on the business of farming or fishing in Canada unless the 24 month continuous ownership test described in subparagraph 110.6(1.3)(a)(i) of the Act by one or more persons described in clause (A) to (D) of that subparagraph is met and one of the two use tests described in clause (A) or (B) of subparagraph 110.6(1.3)(a)(ii) is met.

Somewhat similarly, and generally speaking, depreciable property in Canada of a prescribed class of an individual that was before the particular time used principally in a farming or fishing business carried on in Canada in which the individual or the individual’s spouse or common law partner, parent or child, was actively engaged on a regular or continuous basis may be eligible for the rollover rules in sections 70 or 73 of the Act to a child provided all the required conditions are met. Interpretation Bulletin IT-268R4, “Inter Vivos Transfer of Farm Property to Child” discusses the application of the rollover provisions in section 73 of the Act. Similarly, Interpretation Bulletin IT-349R3, “Intergenerational Transfer of Farm Property on Death”, discusses the application of the rollover provisions in section 70 of the Act.

For the purposes of subsection 70(9), and 73(3) and paragraph (d) of the definition of QFFP in subsection 110.6(1), subsection 70(9.8) of the Act provides a special rule that may apply where an individual’s property, such as a fishing licence, is being used, inter alia, by a corporation principally in the course of carrying on a farming or fishing business in Canada. In order to qualify, the shares of the capital stock of the corporation using the property must qualify as a “share of the capital stock of a family farm or fishing corporation” as that term is defined in subsection 70(10) of the Act. It should be noted that the respective definitions of a “share of the capital stock of a family farm or fishing corporation” in subsection 70(10) and subsection 110.6(1), while similar, are not identical.

While it remains a question of fact as to whether a particular property, such as a fishing licence, is eligible for the capital gains deduction for QFFP or the rollover rules in sections 70 and 73, assuming the required conditions set out in those particular provisions are otherwise met, such property can so qualify.

We trust these comments will be of assistance to you.

Yours truly,

Michael Cooke, CPA, CA
Manager
Business Income and Capital Transactions Section
Business and Employment Division
Income Tax Rulings Directorate

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