As they say, there are only two things in life that are certain, death and taxes! With land prices being as high as they are some of you might be considering selling the farm. After finally deciding to sell the farm, you are probably wondering how much tax you need to pay. The answer to that question is a great big DEPENDS. Everybody’s situation is different and it is really important to sit down with your financial advisor and your accountant and figure out the taxes for your individual circumstance. I cannot stress this enough! The sooner you do this in the process the better. I will however, go over a few of the more common questions I receive about selling the family farm.
Does selling farmland qualify for the Lifetime Capital Gain Exemption?
Yes Qualified Farm Properties do qualify for the LCGE, the key word being qualified. In order for farm property to be qualified it must meet the following definition: “Property must be principally used in farming by one of the qualified users, the individual, the spouse, child or parent of the individual or by a family farm partnership or corporation of the individual, spouse, child or parent. Property purchased prior to June 18, 1987 must be used in principally farming in the year of sale or have been principally used in farming for any 5 years during its ownership. Property purchased after June 17, 1987 must be owned for 24 months prior to the sale and in at least two years, the gross farm revenue of the qualified users who is actively engaged in farming the property must exceed income from all other sources or the property was principally used by a family farm partnership or corporation in a two year period during which time the individual, spouse, child, parent or partnership was actively involved in the farming business. In all cases, the qualifying individuals, whether farming as a sole proprietorship, a partnership or corporation, must be actively engaged in the day to day activities of the business”. In the eyes of the CRA” principally used” means "more than 50%" from either a time or usage perspective. This is particularly important when you are renting out your land. If you have rented out the land for greater than 50% of the time you owned the property it does NOT qualify for the LCGE.
Can I split the Capital gain with my Spouse?
Yes, if both spouses contributed to the purchase of the property, you can split the gains to reduce taxes. Although both may be on title, it is the contribution toward the purchase that is important”. Yes you both can use your LCGE.
The government allows a fair amount of flexibility when selling the family farm in particular if you are selling it to a family member. I can’t urge you enough to talk to a qualified individual to help you make the best decisions for your individual circumstance.
Gary VanMoerkerke is a Financial Advisor with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James. This article is for information only. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. Securities offered Raymond James Ltd. Member-Canadian Investor Protection Fund. Insurance products and services offered through Raymond James Financial Planning Ltd., not member Canadian Investor Protection Fund.