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The CRA's View on the Activity of Making Wine


There are few “black and white” answers when it comes to Canadian tax law. Most situations require a careful evaluation of the facts combined with knowledge of the Income Tax Act, related resources and case law. The question of whether the activity of making wine constitutes farming is a great example.

Why does it matter?

The question has relevance in a number of tax-planning areas including the ability to report income on the “cash basis”, transfer farm property between generations on a tax-deferred basis and claim the lifetime capital gains exemption on qualified farm property.

Subsection 248(1) of the Income Tax Act says farming “includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees”. Clearly, this is not an exhaustive list but it seems a safe bet that growing grapes in a vineyard is considered farming.

But what if the producer of those grapes goes on to make wine from them? That’s where things start to get gray. There is no clear guidance in the Act so we must turn to Canadian case law.

In one case, the judge stated “one could compare growing grapes and producing wine to growing tomatoes and making tomato sauce and paste. In both scenarios, the first activity falls under the broad definition of farming whereas the latter does not”.

The Canada Revenue Agency adopted this line of reasoning, as demonstrated in their 1999 Income Tax Ruling where they state “where a person’s activities involve, for example, grape growing and winemaking, it is our view that these two activities are too different to classify both as various aspects of a single commercial production. Therefore, the activity of growing grapes would be considered farming, but the activity of winemaking would not, since the end product is totally different from the raw materials and it goes beyond the normal growth stage”.

But in another case, the judge found the estate winery to be one business, not two separate activities, and that the one business was farming. The judge stated that “the two operations (vineyard and winemaking) are so interdependent and intermingled that it is difficult to isolate one from the other in respect to the profit aspect of the operation”.

So where does this leave us?

Clearly, the CRA’s default position is to consider winemaking to be a separate business activity apart from the farming activity in the vineyard. This should be kept in mind when keeping your records, because if the vineyard activities and production cannot be clearly distinguished, then your entire operation will be considered to be non-farming.

But in very specific and limited circumstances, an estate winery operation where grapes are grown and used exclusively to produce estate bottled wine could be considered to be a farming operation in its entirety.

Ultimately, your situation is unique and should be discussed with your advisors.

Geoff McIntyre, CA, specializes in advising wineries and fruit growers. For more information, contact him at 250.763.8919 or [email protected]