I have a client whose husband passed. All the farm T2042 related revenue and expenses were claimed 100% on the husbands’ 2022 tax return. The wife will take over the farm, and she will have a T2042 on her 2023 tax return.
How to transfer the farm property under the new rules for qualified transfers - per Bill C208, which affected subsection 110.6(1). Is it a spousal rollover provision, where the assets are transferred at the UCC? What about the capital gain exemption and farming rules when someone dies?
I don’t think that Bill C208 has anything to do with your client’s situation. That legislation was meant to deal with transfers of small business or farm corporations to children and grandchildren. Prior to Bill C208 it was easier to use the capital gains exemption if you sold your corporation to a stranger than a family member.
Your client files a T2042 so it seems the farm is not operating as a corporation. If the farm was left to the surviving spouse then a tax deferred transfer automatically applies via the provisions contained in subsection 70(6)… commonly referred to as the Spousal Rollover provision. Assets are transferred to the surviving spouse at their ACB or UCC with no immediate tax implications.
If you feel it would be beneficial to trigger some capital gains in order to take advantage of the capital gains exemption then a physical election can be filed under subsection 70(6.2) to have subsection 70(5) apply instead of 70(6). Subsection 70(5) is the part of the act that says capital property of a taxpayer is disposed of for fair market value immediately before death.
The 70(6.2) election may be made on a property by property basis.
Some other considerations before deciding whether to make use of the CGE and to what extent;
- Does the farmer meet the qualification test for the CGE?
- OAS Clawback
- Does the Fair Market Value of any elected properties exceed the available capital gains exemption?
- Does electing under 70(6.2) trigger recapture of CCA?
- Is the surviving spouse expected to sell the farm?
- Is there an opportunity for the surviving spouse to make a tax deferred transfer of the farm to a child or grandchild under subsection 73(3) during her lifetime or 70(9) upon her eventual death?
If you can make use of the CGE without it causing too many unintended consequences the good news is there is no Minimum Tax in year of death. 