More from the top ten list

By Gary Sliworsky
OMAFRA Rep.

Rob Gamble is a Finance and Tax program lead for OMAFRA. Last week’s article was the first 4 from his Top Ten list for farm tax questions regarding the capital gains exemption, based on the inquires he gets. Following are the final 6 in the Top Ten list.
5. Does the exemption apply to the individual or the property?
The exemption is based on the individual. This means that a parent might use the full exemption on a transfer to a child and then the child has the same $750,000 exemption available. Or if there are multiple children then each of them have the full exemption. Spouses each have the exemption if they are on title together.
6. Can I just add my spouse’s name to the title before I sell the property and double up the exemption? If the capital gain in the property is greater than the $750,000 exemption then this might seem like a good strategy. Unfortunately, the tax rules prevent you from just gifting the property to your spouse and creating an instant $750K tax break. What happens is the capital gain is attributed back to you on the sale. The only way to avoid that is to sell the property to the spouse at FMV (fair market value), charge current interest rates on any loans to the spouse and not use the tax deferred rollover provisions that can apply to a transfer to a spouse. The result ... your sale to your spouse at FMV will trigger the capital gain you were trying so cleverly to move to your spouse. Instead of an attributed gain you get the actual gain. Those tax policy folks are not stupid!
7. Can the exemption be used upon the death of an individual?
Yes, an executor can trigger a capital gain and use the exemption with the final tax return. This increases the cost base of the property which benefits the beneficiaries, whether spouse or children. This should usually be done if the deceased individual has any exemption available.
8. Can I sell land to my children and then have them sell the land to “double or triple up” the capital gain exemption?
Here are two points of discussion on this topic ... the assumption is that the sale to your child was below FMV would use up your exemption, and then when your children sell it they would use their exemption. Tread carefully here. If you sell the assets within a 3 year period or even make arrangements to do so, Canada Revenue Agency will consider this to be tax avoidance and will deem that you sold the property to your children at fair market value, thus triggering all the gain in your hands. Get tax advice on this one for sure. Secondly just in case you had not thought about this, your children really will own the assets, and all the money they get from the second sale.
9. Can a corporation access the capital gains exemption?
A corporation does not have any capital gains exemption. You might be able to use up your exemption on the transfer of assets to the corporation, but once the corporation owns it there is no further exemption. If the corporation sells the asset, 50% of the gain is taxable in the corporation and the other 50% goes into the capital dividend account from which tax free dividends can be distributed. Having said that, the shares of a family farm corporation are qualified farm property and the exemption can be used if a share sale takes place.
10. Can a partnership access the capital gains exemption?
Partnerships are not taxed as a separate entity. Profits flow out to the partners, which means that a capital gain on the sale of a partnership asset flows out to the partners as a capital gain. If they have access to the capital gains exemption they can use it. The exemption can also be applied to the sale of an interest in a family farm partnership.

Dates to Remember
Apr. 24 - Rainy River Cattlemen’s Spring Sale, Stratton Sales Yard