LAND GIFTING | A TAXING SITUATION
A Taxing Situation
Breaking down farmland rollovers to minimize government money grabbing By Natalie Noble
Farmland values across the Prairies continues to rise. Many farmers find themselves asset rich as their overall net worth climbs with those land values. Which leaves to question, how can they hold on to their hard-earned money within the family and out of the government’s grab? One option is gifting land and assets to children or grandchildren, also known as the farmland rollover. It sounds simple, but failure to do it properly can be costly. “The increased value of land has made this option more important for farmers to plan into properly because the tax implications of doing something wrong are becoming increasingly significant as the value continues to grow,” says Steve Latimer, tax partner with Grant Thornton LLP.
Rollover rules Canada’s Income Tax Act legislation outlines eligibility guidelines allowing personally held land and assets to be transferred to a child or grandchild without triggering income tax. Formally referred to as depreciable pools, other assets may include machinery, dairy and poultry quotas, and buildings. “The general rules around farmland rollovers to children are, 40
if the land is farmed by the family and someone in the family has been actively engaged in that farming business, these individuals have the ability to roll the land to children at their tax cost base, or the original purchase price of the land,” says Ron Friesen, ag tax partner at MNP. “As a result, they do not need to report any income on their personal tax return.” Eligible land and assets must be used principally, more than 50 per cent, for farming. He explains that even a 79-81 breakdown of a quarter-section farmed versus a different commercial business or rented out means that parcel of land may not qualify. When the Income Tax Act conditions are met, farmland can be transitioned in any amount between its historical cost and the current fair market value. That optimal value is based on the family. This is where the lifetime capital gains exemption (CGE) comes into play, allowing the vendor to shelter tax on the first $1-million in capital gains over their lifetime. “Say the parents are ready to transition a piece of land that’s been in the family for a long time. It’s now worth $1 million and there’s only nominal cost base in that land. If they were to sell
