A look at Statistics Canada figures regarding the demographics
of farmers reveals some trends which will continue to shape the
Canadian agriculture industry.
Farm consolidation: In 1991, there were 280,043 farms in Canada.
However, by 2011, that number had dropped to 205,730. Connected to
this trend is the average farm size. Between 1991 and 2011, the
average farm size increased from 598 to 778 acres while the number
of farm operators decreased from 390,875 to 293.925, a 24.8%
Age of a Farmer: Statistics Canada notes that between 1991 and
2011, the number of farm operators under 55 years of age decreased
from 265,495 to 152,015 while the number of farm operators older
than 55 increased from 125,380 to 141,920.
While improvements to farm practices and equipment have allowed
farmers to work well past traditional retirement age, these trends
of consolidation and increased age point to a significant turnover
in farm assets in the years ahead.
While the transition of any family business has potential
pitfalls, there is no doubt that dealing with a family farm carries
emotional attachments. For these reasons, a detailed farm
succession plan with input from professional advisors will be a
valuable tool so as to meet the family's needs and to allow for
an orderly, and peaceful, transition.
For those in Ontario, the Ontario Ministry of Agriculture, Food
and Rural Affairs has published comprehensive information regarding
the components of a farm succession plan.
A key component of that plan will be the transfer of ownership
of the farm's real estate and assets. The goals of the family,
tax considerations, and structure of the farm before and after the
transition will all be factors to consider during the planning
If the farm is to be transferred from a sole proprietor to
another sole proprietor, an asset purchase agreement covering the
farm's implements, inventory, and land can be drafted to
transfer ownership to the incoming generation. Generally, this
method allows the outgoing sole proprietor to use the one-time
capital gains tax exemption of $800,000. If the farm is to be
transferred from a partnership composed of spouses then the
one-time capital gains tax exemption of $800,000 per spouse is
doubled for a total of $1.6 million in exempt capital gains arising
from the transfer of the farm.
If the farm is already incorporated, the incoming generation may
instead consider purchasing the shares of the farm corporation from
the outgoing generation. Similar to the asset purchase, the
outgoing generation may still use the $800,000 per spouse of
capital gains exemption on the proceeds of the sale of the shares.
Additionally, this transaction is often considered simpler than an
asset purchase as it avoids the need to valuate and transfer each
asset, although valuation of shares may still be necessary.
A process known as an "estate freeze" may also be used
to transfer assets. Through this method, the outgoing generation
would transfer the assets of the farm to a corporation held by the
incoming generation in exchange for fixed-value shares of that
corporation. The current value of the assets transferred is
"frozen" or "crystallized" through these
shares. Depending on how the share structure and estate freeze is
implemented, any future increase in the value of the transferred
farm assets can belong to the incoming generation. The outgoing
generation defers the taxes on the capital gain that would have
been payable on a subsequent disposition of those assets, and
instead will only be liable for any capital gains arising from the
disposition of the fixed-value shares. Using this method in
conjunction with the capital gains exemption previously described
allows for a tax efficient transition.
Other provisions of the Income Tax Act may provide tax
relief during either an inter vivos (between the living) or
testamentary transfer. In an inter vivos transfer, the outgoing
generation may be able to postpone tax on any taxable capital gain
and any recapture of capital cost allowance until the child sells
the property. Farmland, buildings, quota, shares in a family-farm
corporation and interests in a family-farm partnership may qualify
for this transfer. In a testamentary transfer, the estate of the
outgoing generation may benefit from a tax-free transfer of the
farm property to a child if certain conditions are met. This
reduces the tax exposure arising from the disposition of the
farmland and assets for which the estate of the deceased farmer is
To finalize the transfer, changes to the will or any insurance,
RRSP or pension beneficiary designations should also be made to
complete the farm succession plan, ensure that the outgoing
generation's wishes and years of hard work are respected, and
enable both the success of the incoming generation and continued
strength of the farm.
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.
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Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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