Is it possible to claim both the personal residence exemption and the capital gains exemption for qualified farm property in the same year?
I have a client whose husband died in 2018. In 1977 the husband bought a quarter section from his father (for $1). From 1977 to 1980 both husband and wife worked on the farm, though they did not live on it. In 1980 they built a house there and moved to the farm. In 2015 they moved off the farm, but the husband continued to work the farm. In 2018 the husband died, and the farm was rolled over to the wife. In 2019 the wife sold the farm.
She qualifies for the PRE from 1980 to 2015. I assume she would qualify for the CGE from 1977 to 1980, but I can’t figure out how to report this in Tax Cycle. When I fill out both the T2091 and part 2 of the S3, it adds the gains together. Perhaps this is not allowed per the ITA?
Technically, you have 2 separate dispositions.
The proceeds allocated to the house & 1 acre need to be separated from the sale proceeds allocated to the farm land and outbuildings. If the criteria are met for the lifetime Capital Gains Exemption then it is possible she can claim the CGE on the portion of the gain attributable to the farm. If the husband ever claimed CCA on the outbuildings (or equipment if any proceeds allocated to equipment) then there would be recapture, that can’t be avoided with CGE.
Since the farm was purchased before June of 1987 the test for meeting the CGE aren’t quite as stringent. The property needs to be farmed by a permitted user in the year of disposal, or in any 5 years during its ownership (farming need not be chief source of income). The husband would qualify as a permitted user. The predominant use of the property over the years must have been from farming and renting the farm is not considered farming.
If the property fits the criteria for the CGE there is no reason why she can’t claim the principal residence exemption for the period of time she resided there and the CGE for the farm property.
Without knowing more of the situation I can’t tell whether she does qualify for CGE but I can tell you that if she does you can certainly claim both the PRE and CGE. Also, the CGE isn’t available for just 1977 to 1980, it’s either available on the entire gain or it isn’t. There aren’t some years that qualify and some that don’t.
Ah, yes. I forgot about the 1/2 hectare rule on PRE.
I did not know about the CGE rule re: farm purchased before 1987. That makes a difference!
Thanks, Wayne!