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Tax amendment makes it easier to transfer Canadian farmland to family

Tax amendment makes it easier to transfer Canadian farmland to family

By Andrew Joseph,

An amendment to Canada’s Income Tax Act – Bill C-208 – recently took effect offering relief to better provide intergenerational transfer of shares of family farms, small businesses and fishing corporations—a wordy way of saying that its now easier to transfer ownership shares to children and siblings.

Granted Royal Assent on June 29, 2021, the Canadian Department of Finance quickly announced it wanted to delay the amendment until January 1, 2022, but a few weeks later on July 19, 2021 instead stated that there was no issue, and that the amendment is now law.

One of the amendments was to Section 84.1 of the Income Tax Act which had made it difficult for children to use a corporation to buy shares of a small business, family farm, or fishing corporation from their parents—a taxing issue when parents wanted to claim the lifetime capital gains exemption on a sale of those shares.

While parents who wanted to sell shares to an unrelated corporation could use the capital gains exemption to reduce the income tax on the resulting capital gain on the transaction, the same did not hold true if sold to their children. If family farmland or business was sold to their children, parents would get an income tax hit – and not the good type.  

Basically, it was easier to sell to a third-party than it was to leave the family farmland and business to a family member. That is no longer the case.
Sales to children are no longer negatively affected by the amended Act, with parents receiving the same tax rights as if sold to an outside party.

Section 55 of the Income Tax Act was also amended. Previously, tax relief was provided for certain corporate reorganizations that assist in the transition of business or family farm or fishing assets between family members, but it was not allowed in a sale to siblings—apparently they weren’t considered to be family.

Coming to its senses, the amendment now allows for siblings to be considered a family relation relative to this tax rule.

Thanks to C-208, the amendments to Canada’s Income Tax Act will aid in the continuation of a family farm enterprise.  

Photo by Luemen Rutkowski on Unsplash

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