Capital Gains Exemption

[LEP]

I was looking at this article on the FCC website. https://www.fcc-fac.ca/en/knowledge/farm-tax-planning-the-basics.html Farm tax planning: the basics

Seems to imply there is an intermediate step using a partnership structure to trigger the CGE but retain psuedo personal ownership. This is only available to farms and fisherman.

If your farm operates as a sole proprietorship, accountants will often recommend that it becomes an interim partnership, before being switched to a corporation. Rather than selling assets to the corporation and potentially triggering personal income, you can sell your partnership interest to the corporation, creating a capital gain that’s eligible for the Capital Gains Exemption. This sale will, in turn, create a shareholder’s loan that the corporation can then pay you without tax implications, provided you don’t exceed the capital gains exemption limit.

Richard5 has mentioned this in the past. The equity in the partnership can be from all assets in the partnership that have value. Essentially like a share sale of the corporation. I think you need to operate for 2 years before selling your partnership interest to a corporation. I don't see the need to do so with just straight land.

[farming101]

I was looking at this article on the FCC website. https://www.fcc-fac.ca/en/knowledge/farm-tax-planning-the-basics.html Farm tax planning: the basics

Seems to imply there is an intermediate step using a partnership structure to trigger the CGE but retain psuedo personal ownership. This is only available to farms and fisherman.

If your farm operates as a sole proprietorship, accountants will often recommend that it becomes an interim partnership, before being switched to a corporation. Rather than selling assets to the corporation and potentially triggering personal income, you can sell your partnership interest to the corporation, creating a capital gain that’s eligible for the Capital Gains Exemption. This sale will, in turn, create a shareholder’s loan that the corporation can then pay you without tax implications, provided you don’t exceed the capital gains exemption limit.

Not being nosy but you seem to indicate you have a company already? If it owns the farming equipment and inventory then that changes things somewhat.

This works well if the partnership is a verifiable entity. (Can be tested by asking if the partnership was dissolved or its assets sold would the named partners share the proceeds) Also I think the partnership has to be in existence for a minimum of two? years before selling to a corporation.
A few years back I think it became mandatory for Partnerships to file an annual Partnership Financial Return with CRA.
The great benefit is that inventory can be sold to the corporation by the partnership without triggering a huge income tax bill by the individuals in the partnership. Instead you get to use the lifetime Capital Gains Exemption.
However there will be an Alternative Minimum Tax that has to be paid in the year of the partnership sale by the individuals in the partnership. This can in most cases be recaptured in future years as long as the individual continues to have some employment income.


Just my comments, might not be entirely accurate. Need Richard to comment.
I see LEP commented before I posted this

[jazz]

Not being nosy but you seem to indicate you have a company already? If it owns the farming equipment and inventory then that changes things somewhat.

101, we just have an operating company since 2011 and that holds the equipment and inventory and runs the expenses, holds cash and RE. Land and buildings (where all the CG gains are) still held personal.

We werent really thinking CGE when we set this up in 2011. Just wanted to manage cashflow in a low tax environment.

I dont really like the thought of moving assets even further away from personal ownership.

[SASKFARMER]

I'm going to throw some other thing into this.

We have all set up corporations over the years because the banks wanted some to do that all personal exemptions are lost. Others had Accountants push it others read books etc and did it.

Now that most are set up that way would the fed gov not think it's easy to hit companies trying to sell out as the big bad corporations.

you have to think like a liberal.

FAmily trust and offshore.

[bucket]

Family trust and offshore.

Thats the ticket ..... put yourself in the same category as Galen Weston...the federal government will never touch you because they would have to investigate the richest of the rich...and thats not going to happen...

They got away with a 25 dollar gift card offer for price fixing where they probably took over a billion from Canadian consumers...slap on the hands...if that.

[jazz]

The family trust checks all the boxes on protecting against estate tax grab and protecting beneficiaries from divorce.

[Richard5]

If I was a betting man I would say I wouldn't do anything in a panic now. I don't believe there will be a change. Capital gains exemption is a way for businesses to transfer. Even if one government makes a change, doesn't mean another won't change it back. If you make this change it hurts future business growth and future tax revenue. If they change the gains inclusion rate they will change the math so that you will still have the 1 million exemption. It's the same as the changes years ago when it went from 75% to 67% to 50%.

Personal held assets will always have much more value and flexibility verses corp held.

I do see the gov't hammering even more on investment income in a company. I also see increasing the capital tax threshold currently at 10 million. If you make certain things reasonable, businesses pay more tax up front. How many of you paid tax up front last year because of thoughts the corp tax rate may go up? How many will max out the next 2 years now that sask has a 9% rate for the next 2 years? Would be a good strategy if you or your accountant are thinking proactive.

They would generate more dollars by a hike in GST by 1%.

I see a large portion of the covid programs clawed back with 5% or higher in interest once the real rules are outlined.

Doesn't really matter to me, basically used my exemption years ago with the incorporation of my partnership. Others should have done the same if they had the right accountants 20 years ago.

For those that were talked into transferring all their land into there company in the last 10-15 years or very recently because "you can take all this tax free shareholder loan out" should be banging their accountants head. Doesn't anyone else realize that it's still only a deferral? Buying new land in the company may make sense especially if at current rates and if you have some cash to throw at it.

We can't just pay corp tax and feel we can take a 45000 dividend to pay zero personal tax and think this is a good long term strategy. Unless others are much more frugal than I, but I can't and won't live on 45k x2.

[jazz]

Richard thx for chiming in.

Couple things, firstly if our industry is going to be unfairly targeted by a carbon tax, there is no limit to what the govt can do. It only takes the stroke of a pen in the budget and its changed at midnight and there is no going back. Just like the carbon tax was hiked after the last session ended. If they can apply a carbon tax unequally across the country, they can do the same with a CGE targeting large landowners instead of home owners.

If anything this govt has shown us, they will break every promise they made for their progressive agenda. I dont want to get caught flat footed.

If you were surveying the landscape to get canada back on fiscal track where would you look? A little hike in the GST or billions of entrenched equity in inflated real estate.

The saying the govt would never do something doesnt apply anymore imho.

[bucket]

And what stops them from applying a NDP wealth tax to stay in power with support from the NDP?

And applied against anyone with over X amount of wealth...that the NDP deem wealthy?

[Richard5]

Richard thx for chiming in.

Couple things, firstly if our industry is going to be unfairly targeted by a carbon tax, there is no limit to what the govt can do. It only takes the stroke of a pen in the budget and its changed at midnight and there is no going back. Just like the carbon tax was hiked after the last session ended. If they can apply a carbon tax unequally across the country, they can do the same with a CGE targeting large landowners instead of home owners.

If anything this govt has shown us, they will break every promise they made for their progressive agenda. I dont want to get caught flat footed.

If you were surveying the landscape to get canada back on fiscal track where would you look? A little hike in the GST or billions of entrenched equity in inflated real estate.

The saying the govt would never do something doesnt apply anymore imho.

I agree on the carbon tax debate. Any significant change altering capital gains exemption would have a phase out period as people would only be backdating a bunch of transactions. GST or any other consumption tax is easy to change effective midnight.

Although Trudeau is the puppet in the media he is not the brains behind gov't policy

[bucket]

I have asked this before about farms ...if mom and pop farm become XYZ corporate farm but the players that do the actual physical farming are the same.....why have different tax rates????

It like why you need a business account to receive CEBA...

They have never not taken the personal cheque for agri-invest, agristabilty, or crop insurance or my income tax due.

I know its off topic...but why do they have to complicate everything???

My preference would be a flat tax...and fire a tonne of bureaucrats and accounting firm leeches...

[fjlip]

"The great benefit is that inventory can be sold to the corporation by the partnership without triggering a huge income tax bill by the individuals in the partnership. Instead you get to use the lifetime Capital Gains Exemption.
However there will be an Alternative Minimum Tax that has to be paid in the year of the partnership sale by the individuals in the partnership. This can in most cases be recaptured in future years as long as the individual continues to have some employment income."

As MNP did our partnership. But if 65 or older you lose OAS for 5 years, or pay it all and recapture 20% for 5 years. Guess all manner of business situations in farms, some done poorly, too early and some soon too late. Almost luck, timing is critical as always, snooze you lose. Get informed on all options by a trustworthy account/firm, your beneficiaries will thank you. And try NOT to give the TURD more $ to waste.