ARCHIVED - Deferred Cash Purchase Tickets Issued for Grain
DATE: October 18, 1978
SUBJECT: INCOME TAX ACT
Deferred Cash Purchase Tickets Issued for Grain
REFERENCE: Reference: Subsection 76(4) (also section 11 and subsections 28(1) and 249(1))
This bulletin cancels and replaces Interpretation Bulletin IT-184, dated November 4, 1974. Current revisions are designated by vertical lines.
1. Subsection 76(4) provides for the deferral of income where cash purchase tickets and other forms of settlement prescribed pursuant to the Canada Grain Act or by the Minister of National Revenue are issued in respect of grain delivered to a primary or a process elevator. It applies, for 1973 and subsequent taxation years, to taxpayers carrying on a farming business who elect under subsection 28(1) to use the "cash method" of reporting income. For the 1973 taxation year it applies only in respect of cash purchase tickets for grain delivered to a primary elevator.
2. Subsection 76(4) also applies to farmers on the "cash" basis whose chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income. Further, it is the Department's practice to permit a landlord who leases farm property on a share crop basis to defer the reporting of that portion of the rental income that relates to grain delivered against cash purchase tickets as mentioned in subsections 76(4) and (5). This position does not imply that the landlord is in the business of farming.
3. The general rule contained in subsection 76(1) requires a "cash" basis taxpayer who receives a security in satisfaction of an income debt to include the value of the security in the computation of income for the taxation year in which it is received. However, subsection 76(4) provides an exception to the general rule where the taxpayer receives a cash purchase ticket under the conditions stated in 4 below. In this situation, subsection 76(4) requires that the taxpayer exclude the amount stated on the ticket from the income of the taxation year in which the grain was delivered and include a like amount in the income of the immediately following taxation year.
4. Subsection 76(4) applies where
(a) the ticket issued by the primary or process elevator is for the sale of grain (wheat, oats, barley, rye, flaxseed and rapeseed) produced in designated areas (see 10 below for the definition of "designated area") and
(b) the holder of the ticket is entitled to payment by the elevator operator of the amount stated therein, without interest, at a date that is after the end of the taxation year in which the grain is delivered.
5. The Department's interpretation of the term "delivered" in subsection 76(4) is that it means "delivery for sale". Therefore, subsection 76(4) becomes applicable at the point in time when a farmer exchanges a storage ticket for a cash purchase ticket rather than when a storage ticket is received. For example, if a farmer received a storage ticket upon the delivery of grain to a primary elevator and then in the following fiscal period exchanged the storage ticket for a cash purchase ticket that was redeemable in the immediate subsequent fiscal period, the amount stated in the ticket should be included in income for the immediate subsequent fiscal period.
6. Amounts brought into income under subsection 76(4) are considered income from a farming business and, as a result, the taxation year referred to in subsection 76(4) is the fiscal period of the farming business. Subsection 76(4) applies to bring an amount into income in the immediately subsequent fiscal year if the cash purchase ticket is payable in a fiscal year that is subsequent to the fiscal year in which the grain is delivered. If the cash purchase ticket is received by a partnership that is in the business of farming it is the fiscal period of the partnership that is relevant.
7. A taxpayer who pledges a cash purchase ticket as security against a personal or business indebtedness or sells it before maturity is not denied any right to defer the reporting of the proceeds of the ticket. On disposition of a cash purchase ticket for less than face value, the resultant discount is treated as a separate transaction in the taxpayer's fiscal period in which the discount is incurred. Whether the discount is deductible from income is determined in accordance with the facts of the particular situation (see IT-114).
8. Where a farmer receives a cash purchase ticket that qualifies for deferral under subsection 76(4) and uses it in the fiscal period that the grain is delivered to pay allowable expenses, he or she is entitled to claim the expense in that fiscal period. In such a situation subsection 76(4) will still be applicable and the farmer will not be required to include the purchase price stated in the ticket in income until the immediately following year.
9. In situations where a farmer sells grain and receives a cash purchase ticket that is subject to a levy under the Western Grain Stabilization Act, the Department's position is that the levy is considered to have been paid at the time of receipt of the cash purchase ticket. As a result, the levy is considered to be deductible by a farmer calculating income using the "cash method" in the year the delivery for sale takes place rather than when the ticket is cashed.
10. Subsection 76(5) refers to the following definitions contained in the Canadian Wheat Board Act and the Canada Grain Act which are relevant for interpreting subsection 76(4) of the Act
(a) "Cash Purchase Ticket" means a document in prescribed form issued in respect of grain delivered to a primary elevator as evidence of the purchase of the grain by the operator of the elevator and entitling the holder of the document to payment by the operator of the purchase price stated in the document.
(b) "Operator" means, in respect of an elevator, the person in possession of the premises constituting the elevator, either as owner or lessee, or as being entitled under a contract with the owner or lessee to operate the elevator for his own benefit and advantage.
(c) "Primary Elevator" means an elevator the principal use of which is the receiving of grain directly from producers for either or both storage and forwarding.
(d) "Process elevator" means an elevator of the principal use of which is the receiving and storing of grain for direct manufacture or processing into other products;
(e) "Designate Area" means that area comprised by the provinces of Manitoba, Saskatchewan and Alberta, and those parts of the Province of British Columbia known as the Peace River District and the Creston-Wynndel areas, and such other parts of the Province of British Columbia and such parts of the Province of Ontario lying in the Western Division as the Board may from time to time designate.
Voluntary Payment Deferrals
11. Where grain is produced and the requirements of subsection 76(4) do not apply (see 4 above), such as where grain is produced in a non-designated area (that is, an area outside the "designated area" described at 10(e) above), a farmer may sell grain in one fiscal period and receive payment in the following fiscal period. Where this occurs and neither of subsections 76(1) nor 76(2) is applicable (see IT-77), the farmer, who has elected to compute income in accordance with the "cash method", is to report the amount of the sale in the fiscal period in which the amount is received, even though this amount could have been received in the preceding period had the farmer chosen to request it. Subsection 28(1) would not apply in the fiscal period in which the grain was sold as no payment was received in that period.
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