16 minute read
Land Gifting
A Taxing Situation
Breaking down farmland rollovers to minimize government money grabbing
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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. 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
that land and not claim the CGE, they would pay tax on that $1 million at about 24 per cent, or $240,000 in tax,” he says.
If the CGE is not used up prior to gifting all the land, it’s useless.
“The CGE can be structured into the gifting process in a fashion where you use it up,” says Latimer. “With professional involvement to ensure it’s done properly the kids can benefit from the fact that their tax cost base is adjusted accordingly.”
Parents who roll their land to a child at cost incur no tax while the child inherits the land with no increase to the cost base. When parents transition at a value above cost and claim their CGE against the transaction they can still avoid income tax provided they meet the eligibility criteria. Meanwhile the child receives an increase in the adjusted cost base, reducing the future income tax liability associated with that parcel of land.
“This is what we focus our planning around—whether we do this at cost, at market value, or we pick somewhere in between,” says Latimer. “Some farmers may have $20 million worth of land, and the CGE only shelters tax from the first $1 million in gains. Maybe we transfer one or two quarters at fair
Grant Thornton LLP’s Steve Latimer says increased land values mean the planning around farmland rollovers are more important than ever. “The tax implications of doing something wrong are becoming increasingly significant as the value continues to grow.”
Ron Friesen, ag tax partner with MNP: “Farms have grown and the values of everything have skyrocketed.” Fortunately, farm families are more commonly taking on the necessary discussions and planning needed to safely keep more money in the family.
market value, use up the CGE, and transfer the rest at cost so we don’t trigger unnecessary tax.”
Partnerships and corporations are more complex, but typically these interests can roll to a child at their adjusted cost base. However, the entity’s balance sheet must be substantially made up of farming assets. Family farm company shares are eligible with either parent able to transfer their shares to a child without incurring tax. When parents farm together in a partnership, they don’t hold depreciable pools, they actually hold partnership interests which also qualify for both rollover rules and the CGE. “This is a valuable asset that we frequently use when we’re tax planning for farms,” says Friesen.
With farmland rollovers, timing is everything. “One, you’re dealing with an asset that has tremendous financial, and sentimental, value,” says Latimer. “[Farmers] need to make sure they don’t transition the land too early when the child is not mature enough to handle the responsibility associated with that asset.”
The reverse also applies.
“If a child is trying to start their own farming business, it makes it very difficult if the parents will not transition the land, especially if that kid’s been working on their farm for a long time,” says Latimer. “Say this child never left the farm, finished school and worked for the parents for 15 years. Now, they’ve started their own family, but they don’t have any assets. This is one situation where we see a lot of strain placed on families.”
Proceed with caution
While farmers tend to be independent by nature, this is not the time for a DIY approach.
“We hear all sorts of horror stories of people just going ahead and doing things, thinking it’s allowed under the Income Tax Act,” says Latimer. “Later on, they figure out they’ve missed one of the conditions, or something didn’t work quite right. If you have $10 million worth of assets, someone should be taking care of you from a tax perspective, but a lot of the time this is not necessarily the case.”
When farmers put a child’s name on the title without actually intending to roll the land at the time, it’s called joint ownership with right of survivorship. The parent retains the land and the income produced, but the title is set up so when they pass on, the child automatically takes it over. When the family is in agreement with a solid plan, this can be a valid option.
But Friesen urges people engage legal counsel in case of an about-face by a set of parents.
“If the parent changes their mind and decides they want to sell the land or they want it to go to a different child, they’ve lost control of it. They now need to get permission from the other person on the title,” he says. “This is a trap we see people get into and it’s difficult to get out of.”
Failure of the recipient to register for GST prior to the transfer is a costly and common mistake, leading to GST charged on the land’s fair market value. “Transferring land to a non-registrant, let’s say the land is worth half a million dollars per quarter, five per cent of 500,000 is a $25,000 cheque you now have to write to the government,” says Friesen.
Waiting too long to transfer land prior to death is also costly. Probate fees differ between provinces and it is important to know the rules where you live.
Farmers may also fail to coordinate their will and adjust the final estate’s distribution according to ongoing transitions, bringing up the “softer” family-related rollover issues. A child controlling land must farm it themselves or rent it back to the parents. And, there may be more than one child to consider. If mismanaged, this may jeopardize the farm and estate transfer.
Equalizing estate distributions has become a big factor for farm families today. Fortunately, Friesen says farm families are more commonly taking on the necessary discussions and planning. “The conversations have turned on their head in the last 20 years,” he says.
Atom-Jet Industries
Located in Brandon, Man., Atom-Jet Agriculture has been working in cooperation with farmers for more than 30 years to provide a comprehensive lineup of seeding openers, disc scrapers, fertilizer knives and hydraulic upgrade kits.
Being located in the heart of the Prairies has given the company a unique perspective to the ever-changing agricultural industry with many of our employees being farmers themselves.
The history of the company has been in the design of a vertical seed opener providing farmers better seed placement, moisture conservation, trash clearance and a product line that virtually eliminated plugging. By pioneering placing carbide tips on openers, Atom-Jet paved the way for farmers to get the most acres possible out of their products.
Atom-Jet’s research and development is still driven by feedback from progressive farmers, enabling us to provide innovations for its seeding and tillage needs. Part of that innovation is a commitment to bring new products to market along with the introduction of patents to Atom-Jet’s product line to ensure that customers will always receive the highest quality products.
The success of Atom-Jet has come from a dedicated and skilled team across all aspects of its operation. The company believe in working in co-operation with our customers, listening to their needs and using that as a guideline to produce products to satisfy those needs.
CLAAS
CLAAS announced that Climate FieldView, the flagship product of the Climate Corporation can now be connected to CLAAS TELEMATICS through the CLAAS API (application programming interface) to enable easy data exchange for field-specific and site-specific documentation.
Reliable data flows are essential for precision farming. Successful fertilizer, crop protection, planting and sowing strategies depend upon access to accurate information about the previous years’ yields and site-specific yield differences. To ensure that this vital information is provided seamlessly and at the farmer’s discretion, the FieldView platform and the CLAAS TELEMATICS portal can now be connected through the CLAAS API—offering access to new data science capabilities and ensuring seamless transfer of harvest information and insights from CLAAS TELEMATICS to FieldView.
“Data management is at the core of profitability and efficiency on the farm,” says Blair Hardie, product manager, efficient agriculture systems “(EASY).” “This new ability to synchronize data will help farmers improve their profitability, manage risk and save valuable time by gathering data and conducting analysis all in one easy-to-use portal.” The Automatic Documentation add-on option in CLAAS TELEMATICS facilitates driver-independent, field-specific and site-specific documentation. This makes it possible to obtain a complete overview of each field worked with data automatically being assigned to the field based on the boundary. In addition to machine data and consumption figures, yield data and measurements from NIR sensors can also be documented. When a farmer or contractor connects their CLAAS TELEMATICS account to their FieldView account via the CLAAS API, the documented harvest data from the TELEMATICS system are retrieved and sent to the FieldView user’s inbox as jobs. Customer can select the files they’d like to sync with their FieldView account and further process the complete fieldrelated documentation in FieldView.
If you have been looking for innovative solutions to your seeding challenges or needs, visit us on the web at atomjet.com or call 1-800-573-5048.
Wall Grain
Wall Grain has introduced its in-bin drying system, Fast Dry, to provide customers with a low-cost option for grain drying.
Fast Dry is one of the most cost-effective ways to get in on the grain-drying scene. Fast Dry uses specific grain management techniques, roof fans, multiple fan/burners, temperature/ moisture sensors and a grain spreader to make in-bin drying a breeze. By understanding airflow and its effect on grain, Wall Grain has developed a customizable system that can allow operations to dry just over 35,000 bushels of 18 per cent moisture content wheat down to 14 per cent in six-and-a-half days. This system is now 20 to 25 per cent more efficient when compared to previous versions. If you consider blending or drying fees a Fast Dry system can quickly pay for itself. When you’re ready, Fast Dry components can be traded or used with a continuous flow grain dryer from Wall Grain Handling Systems. To get the most out of a Fast Dry system, Wall Grain is proud to introduce GrainX Command. GrainX Command allows farmers to automate/monitor in-bin grain conditioning from the comfort of their home or anywhere with an internet connection.
SEEDMASTER
Seedmaster welcomes Martin Deerline as its newest Alberta dealership
SeedMaster’s market presence continues to develop throughout the province of Alberta as they welcome Martin Deerline as the newest edition to its distribution channel. In an effort to bring the best in seeding equipment to farms throughout the Prairies, SeedMaster is excited that producers will now have access to its equipment throughout the Edmonton region.
“I am very excited to welcome Martin Deerline to the SeedMaster distribution network,” said Tim Criddle, global sales director of SeedMaster Manufacturing. “Their reputation for providing high quality products and outstanding customer support, along with their dealership values and their culture of excellence, are an ideal fit for us. We look forward to working together to grow their precision drill sales across their Edmonton-region market.”
Vincent Shank, agriculture sales manager at Martin Deerline, is also looking forward to developing the new-found partnership. “We are very excited to partner with the SeedMaster team. Their current product line, their professional staff, and their commitment to the Western Canadian producer, make them an ideal partner for Martin Deerline. We believe that the highquality equipment provided by SeedMaster will allow us to deliver the best seeding solutions to our clients.” SeedMaster will now be available at the following Martin Deerline locations: Westlock, Mayerthorpe, Warburg, Wetaskiwin, Barrhead, and Edmonton; adding six new locations to its Alberta distribution network.
SeedMaster looks forward to the continued expansion of its distribution channel, with a total of 18 locations throughout Alberta, SeedMaster anticipates they will see rapid growth throughout the province. They are committed to delivering an excellent customer experience to all its valued dealerships and look forward to working with Martin Deerline as a part of its growth strategy.
With many new initiatives in the pipeline and innovation at the forefront of product development, SeedMaster is poised to be a sought-after manufacturer for agriculture equipment dealerships and producers alike.
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NUMBER OF DAYS 844-744-WAL (9255) www.wallgrain.com
quick, simple, wireless remote PTO and hydraulic control
By Natalie Noble
As harvest fast approaches, many Prairie farmers dread the hassle, and frankly the bodily wear and tear of endless climbing in and out of their tractor. That constant effort to adjust their tractor’s functionality may soon be a thing of the past. Grande Prairie farmer Vincent Pawluski has designed the solution in RcFarmArm with a fresh take on a PTO and hydraulic control.
One of the Canadian Farm Show’s (CFS) 2021 Top Five Innovation Award winners, the system allows farmers to use a simple remote control to start their tractor and even run its hydraulics, PTO, throttle and more. Among its many advantages, RcFarmArm makes using a grain auger, extractor or completing any stationary PTO work significantly less labour intensive and safer for busy farmers on the ground in their daily operations.
“This is a labour saver, a stress reducer and an effective safety device,” says Pawluski. “People are able to move things around immediately to avoid any dangers that might be present without being inside the cab.”
Pawluski initially designed RcFarmArm by hardwiring the tractors on his own farm. “Then I had a request from a dealership to replicate the system in one of their tractors,” he says. “I put a video on Twitter that received an overwhelming response within 24 hours from other farmers wanting me to put this into their tractors.”
Last fall Pawluski worked on this idea while running combine to streamline the system so other farmers could take advantage of it in the least invasive and simplest way possible. With dry erase marker all over the windows, RcFarmArm was born. In a five-minute installation, farmers simply secure two modules and plug RcFarmArm into their tractor’s accessory port. It then overlays the armrest controls and ignition key in minutes, all with no wiring necessary.
“This gives farmers safe control of their tractor wherever they need to be standing and performing stationary PTO tasks,” says Pawluski. “They can control the engine starting and stopping, engage or disengage their PTO, and control two hydraulic functions to turn them on or off, with up to six user customizable functions.”
Understanding well the safety issues often involved with constantly getting in and out of the tractor during busy farm work, Pawluski designed a safety interlock for the PTO-engage and engine start. “It requires two buttons be depressed together to perform their functions,” he says. “The e-stop on the remote will safely stop all functions and shut the tractor down in seconds. RcFarmArm’s internal battery allows the shutdown of all controls in the case of a 12-volt power interruption. Farmers can also see which functions are engaged with six indicator lights for a visual alert.”
Pawluski is now taking pre-orders for the product as farmers get in line to enjoy its many benefits. While the pandemic has meant securing parts to manufacture RcFarmArm is slightly delayed, Pawluski is working to have orders shipped to Prairie farmers in time for harvest 2021. “We definitely want to be ready to roll for this upcoming harvest window,” says Pawluski.
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TAKE A LOAD OFF WITH THE FIRST LONGBOX SIDE-BY-SIDE WITH HVAC
When it comes to heavy tasks, the Can-Am Defender Pro Limited is built to take the weight. Consider it the best farmhand you’ve ever had. So what’s first on the to-do list?
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