Canada: Planning Considerations When Selling The Farm

There comes a time eventually when every farm will need be sold. Often, farms are sold by the owner's choice, upon retirement or to transfer to the next generation. In other cases the sale is forced, as in the case of death, disability or financial difficulty. Whether the sale is made to the neighbour down the road or to the farmer's children, perhaps at less than fair market value, planning is necessary to ensure the sale takes place in a tax-efficient manner. A farm owner has several options.

Allocation of proceeds

There are conflicting tax consequences for the buyer and seller of farm property. It is often the case, for example, that the portion of the farm purchase price associated with the farm house and one acre of land will be exempt from tax under the principal residence exemption. The seller will want as much of the proceeds allocated to the house as possible in order to avoid taxable capital gains on this portion of the sale. The buyer, on the other hand, will prefer this amount to be lower in order to potentially increase a future tax-free gain. Additionally, in some provinces land transfer tax is applicable on real estate assets, which include the land, buildings and principal residence. Allocating more value to assets that are not subject to this tax, such as quotas and inventories, benefits the buyer.

For farm equipment, buildings and production quotas, the seller will want to minimize the allocation of the price to these assets as much as possible. The seller likely has claimed CCA/CEC (tax depreciation) as deductions on these assets over the years, reducing their depreciated tax cost. Any proceeds received over and above this depreciated tax cost, right up to the original cost of the asset, will be included as regular taxable income. The buyer, however, will want more value assigned to the quota, buildings and equipment to maximize CCA/CEC deductions against taxable income. And again, allocating more value to equipment and quota as opposed to the buildings and land may also reduce land transfer tax payable by the buyer.  

A seller with any available lifetime capital gains exemption on farm property will seek to allocate more value to qualifying assets. In 2014, this exemption amounted to $800,000 per individual, and will be increased in 2015 and subsequent years as it is indexed to inflation. Land and production quotas are qualifying assets; inventory does not qualify. Sellers will seek to claim as much of this exemption as possible. Buyers obviously will prefer to allocate less value to qualifying assets in order to maximize their own exemptions in the future.

A further consideration is alternative minimum tax (AMT). Capital gains on quota sales, though they are only 50 per cent taxable, differ from regular capital gains in that they do not attract AMT, unless an election is filed to treat them as normal capital gains. As a result, it may be advantageous to a seller to allocate more value to the quota as opposed to the land asset in order to minimize AMT – particularly where it will be difficult to cover the refundable AMT in future years. AMT was discussed in more detail in the May 2014 issue of Farm Alert.

Because of the opposing interests of the buyer and seller, both parties should try to agree on the allocation and put it in writing in the purchase and sale agreement. The Canada Revenue Agency (CRA) might challenge the allocations, particularly where the buyer and seller report different amounts on their tax returns. If it is not possible to get an agreement in writing, third-party evidence can be helpful to support the reported allocation (e.g., a letter of opinion from a real estate agent).

Capital gains reserve

The possibility of capital gains reserves should be considered on every farm sale. A capital gains reserve allows a seller to delay the inclusion of a capital gain in taxable income over a maximum of five years, or 10 years in the case of a sale to the seller's children. 

In order to access the capital gains reserve, the seller must take back a loan as consideration on all or part of the sale. The capital gain is then included in income as the proceeds are received. For example, in order to spread a gain over the maximum five years, the proceeds from the mortgage must be received evenly over five years.

In the May 2014 issue of Farm Alert, we noted that a capital gains reserve can help reduce the impact of AMT on a farm sale. But the reserve may also be used where the lifetime capital gains exemption is not sufficient to cover all of the capital gains on the farm sale. In these cases, the seller will use the reserve to spread the gain over several years, thus allowing more of it to be taxed at lower marginal rates and deferring when the tax is payable.

Taking back a mortgage on a farm sale involves more risk than being paid all of the proceeds up front, as the buyer might default on the loan. If there are any concerns about the buyer's ability to repay, it may be more prudent to take a pass on the capital gains reserve even if it ends up costing a bit more in tax. Additionally, it might not make sense to do the reserve if the buyer requires a loan term longer than the maximum allowed (five or 10 years) as taxes must be paid before all the proceeds on the sale are received. 

Sellers who want to use the capital gains reserve on production quotas must elect to treat the gain as a normal capital gain instead of a special CEC capital gain. As a result, they might end up paying more AMT than otherwise. 

RRSP planning

Many farmers rarely or never make RRSP contributions, instead preferring to reinvest as much as possible back into their businesses. As a result, these farmers build up significant unused contribution limits that can be used to defer tax on a farm sale.

Where there is adequate contribution room, a seller might make a lump sum RRSP contribution to offset taxable income otherwise included in the year of the farm sale. Then, in future years the RRSP contribution may be systematically withdrawn in a way to minimize taxes owing. The seller would not necessarily have to wait until retirement to withdraw the RRSP, depending on their other sources of income.

These are just a few of the planning strategies available on a farm sale. As always, the complex nature of this subject and the variety of situations cannot be covered exhaustively in this article. Contact your Collins Barrow advisor for assistance on any farm sale transaction to ensure that it is handled properly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.