capital gains exemption re-corporate farms

[craig]

I'm wondering if there might be an opportunity to lobby government for changes to the tax act to allow indivduals to access capital gains exemptions within a farm corporation. The government seems to be doing their best to force us out of farming and yet I'm concerned when the dust settles, all that money I reinvested in the farm will disappear to capital gains. Would be interested in pursuing further if there are enough other people in same situation.

[pfraser]

I agree...it seems unfair to me that just because a family farm is incorporated it shouldn't need to disperse that equity to capital gains,especially considering 1) the $ 500,000 exemption still applies to small business and 2) most inc.farms are family owned & operated. So, count me in to sign a petition,etc.

[tdarling]

The $500,000 capital gains exemption applies to the shares of small businesses but does not apply to the assets within the corporation. Farming corporations are treated in the same way as other small business corporations. Revenue Canada's explanation of their policy might be that corporations have had the continuing benefit of low tax rates (about 19%) while sole proprietors pay up to 48%. It could be argued that assets within a corporation have already had an 'exemption' since they have been purchased with dollars that were taxed only at the small business rate of 19%.

[craig]

Ted you bring up valid points but it seems to me that many of us as producers are being caught in a catch 22. As long as you can roll your shares on to sons or daughters you can take advantage of the capital gains exemption on transfer of shares. However if you want to dissolve the company or sell to someone else you run into problems. It all revolves around that issue of land within a company. Accountants now advice clients to keep the land outside the company. That doesn't help those of us who incorporated before the realization of the consequences.If we were all making a fortune farming I might look at it differently. It seems to me that the government has left us to sink, discouraged the next generation from wanting to farm and if they want to force us out of business then there should be some consideration to allow us out without leaving us dead broke. Grain farming generates millions in tax revenue in the related food chain.Maybe there is some approach that the government would find as a livable compromise.

[ggilchrist]

What is wrong with selling the shares to a third party? I have a class mate who opened a robin's donuts. They started the corporation, bought the licence and then the corp. built the building. When they sold they didnot take the building out and then sell it, they just sold the corp.

[ggilchrist]

What is wrong with selling the shares to a third party? I have a class mate who opened a robin's donuts. They started the corporation, bought the licence and then the corp. built the building. When they sold they didnot take the building out and then sell it, they just sold the corp.

[craig]

We looked at selling the shares but you run into problems. First you could dispose of all other assets than the land without too much tax consequences and have a saleable product. What if you don't want to sell all the land. What if the buyer doesn't want to buy the whole parcel.There is also recognition that you are passing on a corporate entity with tax consequences down the road and there is an economic value to that. So there are options but few that don't require red tape and additional costs.

[pirnae]

I am involved with an investment management company which does exactly what you are looking for. We provide an investment product which can be used very effectively for tax deferral in a corporate farm or otherwise. If anyone is interested I would be pleased to give more information.