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Farming and Taxes – Success is in the Details


This article was previously published in Western Producer and has be reproduced with permission.

This is a scenario that comes up often with our clients who own farmland and may not be registered for GST / HST, selling taxable farmland to another non-registrant.

Determining who collects and remits the tax on the sale of real property tends to be very confusing and depends on the GST / HST registration of both the vendor and the purchaser, so all the details must be available in order to determine the correct treatment for GST / HST.

In this scenario, because both the purchaser and vendor are both non-registrants for GST / HST purposes, it is the responsibility of the vendor to collect GST / HST on the sale of taxable real property.

Regardless of whether the farmland is taxable or not, generally, a sale of real property should not be included when determining the small supplier threshold. We would not advise the farmer in this case to register for GST / HST and then sell the farmland to remit the tax.

In this circumstance, the vendor will complete a GST 62 to report GST / HST on the sale of taxable real property. The due date for filing will be the last day of the month following the month of sale. For example, if the sale occurs on any day in November, the return and payment of GST / HST are due December 31.

Furthermore, if the farmer paid GST / HST on the original purchase of the property and collected GST on the current sale of the farmland, he or she may be eligible to apply for a rebate to recover the basic tax content.

It’s important to note that if there is a principal residence on the farmland included in the sale, the portion of the property that includes the house plus the “land that is necessary for the use and enjoyment of the house” would be considered exempt residential real property. The remaining property would then be taxable. The CRA provides specific guidelines for the wording, so this must be reviewed to ensure compliance with the legislation.

Please also note that the scenario above would only apply to the details included above. It’s important to gather as much information as possible regarding both the purchaser and the vendor. Who are the parties involved (individuals, partnerships, or corporations)? Who is registered for GST / HST? How was the property used prior to the sale? And how will the property be used by the new owners? All these factors will affect the outcome of whether the property is taxable and who is liable to pay and remit the tax if it is.

For more information on how you can structure your tax strategy to yield the best results, contact Angela Chang, CPA, CGA at 604.685.8408 or [email protected] or Katy Donnelly, CPA, CA at 250.469.6485 or [email protected].