ARCHIVED - Inter Vivos Transfer of Farm Property to Child

What the "Archived Content" notice means for interpretation bulletins

NO.: IT-268R3SR, SPECIAL RELEASE

DATE: September 6, 1991

SUBJECT: INCOME TAX ACT
Inter Vivos Transfer of Farm Property to Child

Application

The purpose of this Special Release is to revise Interpretation Bulletin IT-268R3 dated February 13, 1987 to reflect amendments to the law. In addition, this Special Release incorporates the changes to paragraph 21 previously covered in the Special Release dated May 30, 1988 and cancels the latter release.

Bulletin Revisions

1. Paragraph 2 is revised to replace, on line 10, the words "age of 21" with the words "age of 19" and to add the following sentence at the end of that paragraph:

"For years prior to 1988, the reference to 19 should be read as a reference to 21."

2. Paragraph 3(c) is replaced by the following:

"(c) in the case of eligible capital property in respect of a farming business of the taxpayer, any amount from the fair market value of the property to 4/3 times the taxpayer's cumulative eligible capital in respect of that business (paragraph 73(3)(b.1)). (For transfers occurring prior to the commencement of the first fiscal period of a taxpayer's business commencing after 1987, the above reference to "4/3" should be read as a reference to "2".)"

3. Paragraph 10 is replaced by the following:

"10. Subject to the comments in 34 and 35 below, the deemed proceeds of disposition of the taxpayer (transferor) under subsection 73(3) is, in the case of land and depreciable property of a prescribed class, deemed to be the child's cost of acquisition (paragraph 73(3)(d)). In the case of eligible capital property, the child is deemed to have acquired a capital property at a cost equal to the taxpayer's deemed proceeds of disposition, except in cases where the child continues to carry on the business previously carried on by the taxpayer or the spouse or any of the children of the taxpayer. In such cases, the child is deemed to have acquired an eligible capital property and to have made an eligible capital expenditure at a cost equal to the aggregate of the taxpayer's deemed proceeds of disposition and the unrecaptured portion of any deduction taken by the taxpayer under paragraph 20(1)(b) prior to the transfer (paragraph 73(3)(d.1)). (For transfers occurring prior to the commencement of the first fiscal period commencing after 1987 of a taxpayer's business, the child is deemed to have acquired an eligible capital property and to have made an eligible capital expenditure at a cost equal to the taxpayer's deemed proceeds of disposition.)"

4. Paragraph 14 is replaced by the following:

"14. A taxpayer who disposes of farm property may be eligible for the capital gains deduction under section 110.6 on taxable capital gains arising from the disposition. Where the disposition was of qualified farm property that was disposed of in 1985 and before May 24, 1985 and the taxpayer deducted an amount for contributions to an RRSP on account of taxable capital gains arising from the disposition, the taxpayer's 1985 annual gains limit for purposes of section 110.6 is reduced by the amount of such deduction. This reduction is diminished to the extent that in 1985 the taxpayer withdrew amounts from the RRSP. A $500,000 capital gains deduction is available for qualifying farm property although the capital gains deduction for most other property has been capped at $100,000. However, the maximum capital gains deduction that a taxpayer can claim from all sources including dispositions of qualified farm property is limited to $500,000."

5. Paragraph 21 is revised to delete 21(d) and to move the word "and" from 21(c) and insert it at the end of 21(b). (This revision confirms that transfers described in paragraph 21 qualify for the rollover referred to therein if the conditions in 21(a) to (c) inclusive are met.)

6. The following note is added to the end of paragraph 32:

Note: If draft legislation contained in Bill C-18, tabled in the House of Commons on May 30, 1991, is enacted into law as currently proposed, the provisions of subsection 75.1(1) will be amended to apply to transfers after 1989 of shares in a family farm corporation and interests in a family farm partnership under subsection 73(4) in addition to transfers of farm property under subsection 73(3)".