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Property Tax Clawback on Farmland

Farm land that borders growing towns and cities can have its value boosted by the expectation that the farm land will be sold and turned into residential or commercial property. For a farm operator interested in selling, that can be a very good thing. The downside is the property taxes will increase to reflect the change in use, and the change in value. For farm operators who have no interest in selling and would rather continue farming the land, the positive increase of value may not outweigh the increased tax bill.

However, there is an exception available to farm operators. Farm operators can apply, under The Manitoba Municipal Assessment Act to have the farm property designated as a farm property for farming purposes. This allows the farm operator to be taxed at a lower value. But, if the farm property ceases to be used for farming, the local taxing authority can re-designate the property as non-farming property for the previous five years and recover the difference. This means that the local taxing authority can retroactively remove the farm property designation and then recover taxes for the previous five years based on the re-designation.

The farm property designation is only available to commercial farm producers. Farm operators producing livestock, fish, trees, food-crops, fur, bees etc., on a commercial basis can apply for the designation. Hobby farms, “gentleman farmers”, commercial agricultural processors do not fit the designation.

When a farm property is purchased it can trigger the tax repayment obligation. If the purchaser intends to develop the farmland into residential properties, the local taxing authority can recover the taxes for the previous five years from the purchaser. This can create an issue for the developers, and mortgagees, because The Manitoba Municipal Assessment Act allows a lien to be placed on the property which would then have to be discharged before a prospective purchaser can take title to the property.

Any time farmland is sold that may have its use changed the buyer and seller should carefully consider whether there could be a property tax claw-back.

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