Capital Gains Exemption

[farming101]

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.

Always wise to make an honest appraisal and analyze what the end game is for retirement and income and asset retention. You can't take it with you. At some point as they age many people loose interest in assets and material things.

1. Lifestyle in retirement: Does a guy want to live large and die poor letting the state look after him after his health fails? Or, does a guy want to live conservatively and budget in retirement so the kids get a nice inheritance? The plan could be anywhere in between these two scenarios

2. Does a guy want to get rid of the farm or leave it to the kids for an income source. Call it pride or a legacy. How do the kids feel?

3. Remember if a guy never sells an appreciating asset he will never pay the capital gains tax. A wealth tax is a different can of worms.

4. The Lifetime exemption applies to the sale of shares of a farm corporation but not to the sale and wind up of a corporation. Some have in recent times found a buyer who was willing to buy 100% of the shares in a farming business rather than the assets of the business that is wound up. One caution with this is that the shares value must be indexed. I do not know how that is calculated.

[jazz]

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.

There are quite a few funds that now pay a portion of their distribution as ROC and eligible dividends. Some of the funds I have seen the ROC portion is 30-40%. ROC is not included in the eligible dividend gross up and is untaxed.

So technically with the right fund, you could each personally earn upwards of almost $70k tax free. The rest could stay in the company. ROC portion shouldnt be spent on beer and should be reinvested, so that portion can go into a TFSA RESP or RRSP and reinvested there or put toward a personal home mortgage.