Jennifer Farmer farmed for 36 years. She has recently sold her farm assets. Her primary crop was asparagus, and 20 of Jennifer’s 25 hectares of land were devoted to growing this vegetable.

The land had cost her $10,000 in 1967. She has sold it for an all-inclusive price of $175,000 that includes an unharvested asparagus crop that is 70% mature. Asparagus is a perennial plant consisting of a strong root stock which, when planted, remains in the soil for many years and requires little annual maintenance. Every year, the root stock provides two or three asparagus crops, which are harvested at little cost and sold directly to a food wholesaler.

The sale agreement for $175,000 included a cash down payment of $35,000 and a first mortgage of $140,000 held by Farmer. The mortgage is to be paid in seven annual instalments of $20,000. Interest of 12% will be charged on the unpaid balance. Farmer has sought your advice concerning the tax implications of the sale.

Required:

1) Describe to Farmer how the preceding transaction will be treated for tax purposes.

2) What additional information will you require to determine the actual amount of income for tax purposes created by the transaction?