FA R M F I N A N C E 2 0 1 7
FarmFinance
February 2017
Promotional Supplement
71
Planning for the future?
Here’s why you should gift your farm
A significant amount of wealth can be tied up in farm
businesses—including partnerships and corporations.
Our financial experts at Collins Barrow consider
succession planning an ideal opportunity to distribute
that wealth on a tax-free or tax-deferred basis. Much
of this wealth is eligible for capital gains exemptions,
allowing it to be passed on to future generations who
continue to farm, without a heavy debt burden.
So as you plan for the future of your farm business,
consider the tax benefits of gifting your farm assets.
Who can receive a gift?
Generally, a farming gift—which can apply to almost
any kind of farm asset except inventory—can be given
to a child or a grandchild. However, the definition of
“a child” can include a broad range of people, from
a stepchild to the spouse of a child.
Transferring tax-free
If you meet the definition of a qualified farm property,
including farm partnership or a qualified farm corporation
share, you can transfer wealth to another generation
without a tax impact. In a sense, you’re passing that
tax on to the next generation, but if the current tax laws
remain in effect, they can employ the same strategies
when succession planning for their heirs.
Essentially, these gifting options are set up to allow
successful farm businesses to be passed on generation
to generation.
Maintaining ownership
Our industry experts at Collins Barrow help farmers
choose which plan (there are many options) is best
for them to transfer property, while still maintaining
ownership in some way. For instance, if you transfer
your farmland to a family member, but maintain
beneficial interest, you are allowed to live there for a
lifetime. You can also reorganize your business as a
farm corporation and still maintain control, passing the
growth on to a child without any tax consequences.
Common mistakes
As beneficial as gifting can be, there are a number
of common mistakes that can be made when working
through the succession process (especially if you
don’t have the benefit of expert advice, like what
our Collins Barrow professionals provide). For one,
attempting to transfer an asset that you’re not allowed
to. If you transfer inventory during your lifetime, it’s
got to be at fair market value, not cost base. Another
common mistake is attempting to transfer property
in order to gain a benefit through the Income Tax Act.
For example, if you’re transferring farmland in an
attempt to multiply your capital gains exemption. Say
you have land that is worth $4 million and you only
have $1 million of gain exemption and you’re trying
to get three or four family members involved, so you
don’t pay any tax. Unfortunately, this is not allowed,
and the entire capital gain can be attributed back to
the transferor if the property is sold or an agreement
to sell occurs within three years.
To navigate the pitfalls that can occur if you (a) transfer
the wrong asset, (b) contemplate a sale or (c) fail to
hold on to an asset for long enough, be sure to contact
an expert. Your Collins Barrow advisor will keep you
out of trouble—and ensure you maximize all the tax
benefits available.
John Bujold, B.Sc., CPA, CA,
is a partner at
Collins Barrow SGB LLP. He provides accounting,
auditing and tax services to a wide variety of clients,
including not-for-profit, commercial, individual,
professional service and farm clients.
Watch your bottom line grow
With the right advisors planted next to you
Turn to Collins Barrow for objective, actionable
advice to help you maximize opportunities in
virtually every area of your business.
With more than 48 offices from coast to coast
offering audit, tax and advisory services, we’re here
to help you get the most out of your business.
Look to Collins Barrow, Chartered Professional
Accountants, to help your agri-business grow and
prosper. Call the experts.
collinsbarrow.com/grow
Audit | Tax | Advisory
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