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Farm Land Capital Gains for wife of farmer

I have been reading the forum for 2 years but I hesitate to post for the first time due to the negativity for the quality of questions asked, but here it goes…

Couple married 25 years ago. Shortly after marriage purchased 2 parcels of farm land. Farm land deed is in the name of the wife only - credit issues for husband early in marriage, and was not able to qualify for financing thus not on deed. Husband farmed land for 25 years, was his sole and primary source of income. Wife worked outside of the home for 25 years, always had higher income than husband. Combined farm and wife income contributed to household finances and raising children.

Now, 25 years later, they just started their separation. Wife wants husband to keep land to farm it, as it has always been and will be his sole source of employment. Called CRA who say that wife needs to pay capital gains on transfer of land from her name to husband for all 25 years, as she owns the land thus it is not qualified farm property. When asked if they ever make exceptions to the rule, rep said yes - but it is a case by case basis which can be challenged with a tax lawyer once 2019 taxes are filed. (P.S. I was put on hold with a senior rep for about 50min to get this answer)

So, has anyone ever been granted a ‘exception’ to the rule? Is there a different way of approaching this situation that is worthwhile? I find it disappointing that it is being treated like a parcel of recreational property would.

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Hi. I do not have an answer for you but i understand your initial statement. Please do not let others intimidate you… this forum is here for All of us… Cameron ( the amazing man who created this entire system) recently posted
same.( in his own words). I feel confident that should i have a question… i will post. Hoping you find an answer but wonder if a lawyer may have any insight re ownership

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I’m not sure the CRA rep gave you accurate information.

The farmer (husband) does not need to be the person selling the property in order for it to be considered Qualified Farm Property.

There are some tests that need to be met in order to determine whether the farm land qualifies for the $1M capital gains exemption.

  • The principal use of the property must be for farming by a qualified user. A qualified user includes the individual (wife), a spouse (her husband), a child, a parent, or by a family farm corporation. It must have been actively farmed by the qualified user for farming to be considered the principal use. This means that it needs to be farmed by the person, not rented.

The properties were acquired after June of 1987, so the following criteria must also be met

  • The farm land must have been owned for at least 24 months

  • There is a “Gross Revenue Test” of the farmer (husband) that must be met. In any 2 years of ownership the “Gross Revenue” from the business of farming as reported on his Farm Statement (ie T2042, T1163, T1273) must be greater than his Gross Revenue from all other sources.

The gross revenue test is not applicable to the person who is selling the land, it is applicable to the person (spouse, child, parent etc) who is farming the land.

The Capital Gains Exemption for Qualified Farm Property most certainly can be available to a spouse who owns farm property but who is not a farmer provided the above tests are met.

A couple of cautions;

Depending on the age of the individual, OAS clawback may apply
Depending on the selling price, Minimum tax may apply

The other thing to mention;

Capital property (including land) can be transferred to a spouse at cost on a tax deferred rollover basis. I don’t know that attribution rules would apply upon a subsequent sale of the property by the husband as they would be separated at that point.

Hope this helps a bit.

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I doubt whether a lawyer would agree that the wife owns the (whole) property, because of the rules of Resulting Trust.

Its probable that it may be going to get messy because of separation legal fights over ownership, as well as over whatever the tax liability ends up to be. Odds are that it may well end up up to be quite a lengthy working paper workup, and cooperation/liaison with the relevant lawyers as to equity as well as taxation.

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At this pint it appears that the wife wants the husband to have the farm land. if this is true and she can withstand her lawyer’s argument that she should not give the land to her husband. She could request that the property be transferred to the husband as part of the separation agreement. I think a legal separation agreement would have the land transfer without any tax problems. might want to heck to see if this would work.

John

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It doesn’t sound like the CRA rep gave you really any advice. There is no “exception” required. And there is no reason why the wife must pay capital gains tax on the transfer of the land. As Snowplow pointed out, CRA also got the QFP rules wrong. Perhaps they didn’t have all the facts but this is a good example of not relying too heavily upon CRA’s interpretation of the law (isn’t that odd?).

Snowplow’s summary of the rules is good. Also, I agree with John that the ITA allows a transfer of the property at cost where it is done in settlement of the matrimonial issues. Obviously, it would have to be properly documented.

Another option that may allow things to proceed is to have an agreement whereby the property is transferred to the husband but upon his retirement from farming, the property is valued and a settlement made at that time between the husband and wife.

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I agree with the above from @snoplowguy

Any comments I made regarding posts on this forum where never meant to discourage people from asking questions.

My apologies if it came across as such.

And questions such as this question help all of us, as it encourages us to think, and to apply our knowledge.

Have nothing to add to the replies already posted.

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Kevin’s got it.

First up, it’s a marital breakdown, so those rules apply first. There’s no tax consequence.

Second, CRA may not have really understood what was going on, because they are supposed to be “function over form” ie. the actual facts as opposed to the legal form is what matters.