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Selling Farmland - What Should You Be Aware Of?

29/10/2015


​With the recent increase in land values, the tax implications of selling have become much more significant. What should you be thinking of when contemplating selling?​

1. Capital gains exemption - is now $1M so make sure that your land qualifies.  The rules are complex so make sure to discuss this with your advisor. Also, the rules around the tax-free rollover of farmland are different from those of the capital gains exemption, so make sure you are meeting the correct criteria to meet your objective.

2. Ownership - legal and beneficial ownership are not the same thing. Just because you put someone's name on title (ie. spouse, kids, etc.), does not mean they have beneficial ownership and can claim half the capital gain on the sale and access their capital gains exemption. Beneficial ownership is transferred when there is an actual transfer of consideration. Make sure you talk to your advisor to ensure you have access to all available capital gains exemptions.

3. Alternative minimum tax - even though your capital gains exemption is tax-free, alternative minimum tax might be an unexpected surprise.  If you are claiming your entire $1M of capital gains exemption in one year, the alternative minimum tax could be upwards of $50,000.

4. OAS clawback - you will lose $0.15 of OAS for every dollar of income over $72,809 for 2015.  If possible, consider using a capital gains reserve to reduce the amount of taxable gain you need to report in each year.

5. Replacement property - if your capital gain is over $1M; consider rebuying qualifying farmland to defer tax.

6. Final return - consider using the remaining amount of your capital gains exemption on your final return instead of while you are still alive. There will be no alternative minimum tax on your final return.

Each situation is different, and these are just several issues to be aware of, so make sure to contact myself at 403-317-2795​ or [email protected], or your local MNP advisor, early in the sales process to avoid unexpected surprises.