Sharecropping

GST/HST Policy Statement P-253

Date of issue: January 13, 2009

Legislative references: Section 9 of Part IV of Schedule VI to the Excise Tax Act (the Act)

National coding system file numbers: 11845-2

Effective date: January 1, 1991 for GST, and April 1, 1997 for HST

Please note that the following policy statement, although correct at the time of issue, may not have been updated to reflect any subsequent legislative changes.

Issue

Sharecropping is a system of agricultural production in which farmland is supplied by way of lease, licence, or similar arrangement to a tenant who farms the land, in return for a portion of the crops grown on the property.

This policy explains the application of section 9 of Part IV of Schedule VI to the Act, which zero-rates the supply of farmland under sharecropping (also known as crop-sharing) arrangements. Section 9 provides that the following is zero rated:

A supply made to a registrant of farmland by way of lease, licence or similar arrangement, to the extent that the consideration for the supply is a share of the production from the farmland of property the supply of which is a zero-rated supply.

Decision

In order to zero-rate the supply of farmland under a sharecropping arrangement, each of the following criteria must be met:

• a supply of farmland is made by way of lease, licence, or similar arrangement;
• the recipient of the supply is a GST/HST registrant;
• the consideration, or a portion thereof, for the supply is a share of the production from the property; and
• the supply of the crop produced is itself zero-rated.

Discussion

There must be a supply of farmland made by way of lease, licence, or similar arrangement

Where a supply of farmland is not made by way of lease, licence, or similar arrangement, the supply will not be zero-rated as a sharecropping arrangement. Please refer to GST/HST Memorandum 19.1, Real Property and the GST/HST, for information on what constitutes a supply of real property made by way of lease, licence, or similar arrangement.

A farmer/landowner may choose to contract out a part or all of the tasks associated with the operation of a farm. Custom farming work occurs when a farmer engages the services of another person to undertake all or part of the work associated with the farming activity. The farmer maintains control over the land and the person performing the service does not own the crop. This is not a supply of farmland by way of lease, licence, or similar arrangement. The performance of custom farming services, while they are provided to and consumed by the farmer in the course of the farmer’s farming activities, does not constitute farming for the person providing the services. Instead, it is more appropriate to view the person doing the work as having supplied services rather than being engaged in farming. The CRA does not consider custom farming services to be sharecropping arrangements.

The recipient of the supply must be a registrant for GST/HST purposes

Where the recipient of the supply is not registered for GST/HST purposes and is not required to be registered, the supply of the farmland under a sharecropping arrangement by way of lease, licence, or similar arrangement will not be zero-rated. For more information on GST/HST registration, please refer to Chapter 2 of the GST/HST Memoranda Series (www.cra-arc.gc.ca/menu/GTMS_2-e.html).

The consideration for the supply must be a share of the production from the property

A “share” of the crop means a percentage or fraction of the crop, for example, 25% or one-third. A fixed payment, for example, $10,000 is not a share of the crop for GST/HST purposes.

Farmland rented under a sharecropping arrangement is zero-rated to the extent that the consideration for the supply is a share of production of zero-rated crops. If, for example, a farmer rents land for $1,000 plus one-third of the production from the farmland, GST at 5% or HST at 13% is charged only on the $1,000 paid.

While a sharecropping arrangement requires that a share of the production from property belongs to the landowner, the landowner may wish to receive his/her share in either the actual crop, or in cash based on the fair market value of the crop or the proceeds resulting from the sale of the crop. A farmer/landowner could be paid in the actual crop with the farmer/landowner picking up his/her share of the crop in the field or with the tenant delivering the crop to the farmer/landowner. Another arrangement could have the tenant delivering the farmer’s/landowner’s share of the crop to market, in which case the farmer/landowner would accept receiving his/her share in the form of sale proceeds. Also, an arrangement could have the tenant using the farmer’s/landowner’s share of the crop, in which case the farmer/landowner would accept receiving his/her share in the form of cash based on the fair market value of the crop at the time of harvest. In any of these cases, and if the other conditions are also satisfied, the supply of farmland is zero-rated to the extent that the consideration for the supply is a share of the production of zero-rated crops.

The supply of the crop produced must itself be zero-rated

Where the supply of the crop is not zero-rated, the supply of farmland in a sharecropping arrangement will not be zero-rated. It does not matter that the supply of farmland is made by way of lease, licence, or similar arrangement to a person who is a GST/HST registrant. For example, the supply of lawn seed and flower seed is taxable at GST at 5% or HST at 13% because these seeds are not used to produce food for human consumption, or livestock or poultry feed. Please refer to GST/HST memorandum 4.4, Agriculture and Fishing, for more information on the tax status of the supply of various crops.

Examples