Lifetime Capital Gains Exemption and Farm Properties


As published by Advisor Research Group

Executive Summary

For qualified farm or fishing properties (QFFP) disposed of after April 20, 2015, Budget 2015 introduced an additional deduction. This will effectively increase the lifetime capital gains exemption (LCGE) to $1 million for QFFP.

What you need to know

Before any of the following conditions are applicable, the farm property being sold must “qualify”. The definition is complex, and the advice of an experienced tax attorney and accountant must be obtained.

According to CRA a qualified farm or fishing property (QFFP) includes:

  • a share of the capital stock of a family-farm or fishing corporation that you or your spouse or common-law partner owns;
  • an interest in a family-farm or fishing partnership that you or your spouse or common-law partner owns;
  • real property, such as land, buildings, and fishing vessels; and
  • eligible capital property, such as milk and egg quotas, or fishing licenses.

Frequently Asked Questions:

  1. What is the current LCGE?

The maximum LCGE for individuals who realize capital gains on the disposition of QFFP and qualified small business corporation shares is $813,600 for the 2015 tax year. Since only half of the capital gain on the disposition of property is taxable, the resulting capital gains deduction limit is $406,800. The deduction limit is indexed annually to inflation using the Consumer Price Index data as reported by Statistics Canada.

  1. How is the limit changing for QFFP?

For QFFP disposed of after April 20, 2015, Budget 2015 introduces an additional lifetime exemption amount to effectively increase the LCGE for QFFP to $1 million. The LCGE for QFFP will stay at $1 million until the indexed amount of the base LCGE ($813,600 in 2015) exceeds $1 million. At that time, the same LCGE limit, indexed to inflation, will apply to the three types of property.

  1. How is the additional exemption calculated?

The additional exemption is calculated as the difference between $1 million and the indexed amount of the base LCGE ($813,600 in 2015). For properties disposed of after April 20, 2015, and before 2016, the additional lifetime exemption for QFFP is $186,400 and the additional lifetime deduction is $93,200.

  1. Can I use the additional lifetime deduction when I dispose of qualified small business corporation shares?

No, the additional lifetime deduction can be used only for QFFP. Qualified small business shares only qualify for the additional deduction to the extent that they also qualify as shares of the capital stock of a farm or fishing corporation.

  1. Can I use the additional lifetime deduction for QFFP before the LGE limit that applies to both QFFP and qualified small business shares is exhausted?

No, the additional lifetime deduction for QFFP can be used only after the existing LCGE limit that applies to both QFFP and the qualified small business corporation shares ($406,800 for 2015) is exhausted.

  1. Can a beneficiary of a trust that disposes of QFFP use the additional lifetime capital gains exemption?

Budget 2015 also introduces amendments to the trust rules to require a trust to determine and designate the amount that is considered to be a beneficiary’s taxable capital gain from a disposition after April 20, 2015, of the beneficiary’s QFFP. In the calculation of the beneficiary’s capital gains deduction associated with the designated taxable capital gain, the beneficiary will be able to use any of their remaining additional lifetime capital gains exemption.

  1. Where can I get more information about this change?

The Canada Revenue Agency (CRA) is committed to providing taxpayers with up-to-date information. The CRA encourages taxpayers to check its webpages often. All new forms, policies, and guidelines will be posted as they become available.

 

The Bottom Line

More information can be found directly from CRA at http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns248-260/254/menu-eng.html