By Kaitlynn Anderson
In Ontario, individuals who wish to purchase a property from another party must generally pay a land transfer tax to the provincial government.
The tax value that the buyer must submit is “normally based on the amount paid for the land, in addition to the amount remaining on any mortgage or debt assumed as part of the arrangement to buy the land,” according to the Ministry of Finance’s website.
“However, under certain conditions, transfers of farmed land may qualify for an exemption from this provincial land transfer tax (PLTT),” Nathan Martin, a farm lawyer with Smith Valeriote Law Firm LLP, told Farms.com.
“To qualify for an exemption from the PLTT, prior to a transfer the land must be used predominantly for farming. The principal purpose of the transfer must be to enable the recipient to continue farming the land,” he said.
The following cases, for example, could qualify for the PLTT exemption, Martin said.
- From an individual to a corporation: Under this scenario, the parties are subject to several tests, “but generally, the individual must transfer the property to a qualified corporation owned and operated by related family members.”
- From an individual to another individual: Here, “qualified family members transfer land to each other.”
- From estate to an individual: This case may be eligible for the exemption “if the recipient is a qualified family member of the deceased.”
- From a corporation to an individual: This option may qualify “if the corporation was under the direction of a person who is a member of the family (that is receiving) the property.”
The transfer of land from a corporation to another corporation is not eligible for the PLTT exemption, Martin added.
This exemption can provide some financial assistance when passing the farm down to the next generation.
“Rising land values … are making life difficult for farmers and their succession planning,” Martin said. “The PLTT exemption is a minor consolation prize as it reduces one of the tax expenses a farmer is faced with during the succession planning (process).”
Transfers made prior to the death of the farmer owning the property will be subject to “reduced probate fees and may also enjoy the benefit of an exemption from PLTT.”
But some properties may not qualify for the exemption under the certain circumstances outlined by the Ministry of Finance, he said.
Some of the common reasons, Martin explained, include:
- The activity conducted on the land does not meet the definition of farming.
- The recipient does not farm but instead rents the land to another entity.
- The transfer of land is part of an arrangement to sell the shares of the corporation that received the land.
- Prior to the transfer, a corporation — rather than an individual — was farming the land, or vice versa, depending on the situation.
The above information is a generalized summary of a continually changing aspect of farm property transfers. It is not legal advice and is not intended to be construed as such. Seek professional advice before taking specific steps.
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