Capital Gains for Farmers and Farmland
December 1st, 2016 by Grant M. Driedger
Farmers get special treatment from the government. For most citizens capital gains tax applies when an asset is sold, on the difference between the value when it was initially acquired and the value its sold for. (There are some exceptions, such as for a personal residence.)
This can be different for farmers. The government created special rules to preserve the family farm. A farmer who transfers farmland to a family member who is also a farmer can defer paying capital gains tax.
The path to meet this exception is narrow. The asset must be farmland (a rental house, for example, would not qualify). The recipient must be actively farming on a regular and continuous basis. The land must be held by the receiving child for a certain period of time. And, there must be specific filings made with Canada Revenue Agency to achieve this.
It also must be emphasized that this is a deferral only, it does not eliminate the tax forever. When the recipient disposes of the land, unless there is another rollover, the tax will have to be paid.
Given the incredible rise in the value of farms and farmland in recent decades – value which does not always translate to cash flow – at times the only way to preserve the farm is to use these rollover mechanisms.
These situations are very fact specific and complex. There are complicated tangles if there are multiple children only some of whom may be taking over the farm. Good accounting and legal advice is essential to planning a strategy to deal with these issues. Ask for our help if you are in this type of situation.
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