The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, delivered the 2024 federal budget, entitled Fairness for Every Generation, on April 16, 2024. The federal government is asking the wealthiest Canadians to pay their fair share. Whether it is fair or not is certainly up for debate, but one thing is for certain, farmers and farmland owners are significantly impacted.

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Tax Changes Affecting Farmland

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1. Capital Gains Inclusion Rate

The budget will increase the capital gains inclusion rate to two thirds (from one half) for corporations and trusts, and to two thirds (from one half) on the portion of capital gains realized in the year that exceed $250,000 for individuals, for capital gains realized on or after June 25, 2024.

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What this means…

For farmland owned by farm corporations, instead of 50.0% of your capital gains being taxable, 66.7% is now taxable.

For farmland owned personally, 50.0% of the first $250,000 in capital gain is taxable. However, for every dollar of capital gain beyond $250,000, 66.7% is now taxable. This is on an annual basis and applies after your personal Lifetime Capital Gains Exemption is used up (see 2. below)

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AG Expert Insight

• Consider triggering some capital gains by disposing of certain farmland parcels or closing transactions before June 25, 2024. It doesn’t have to mean giving up control or beneficial ownership of the asset if you, for example, sell to a corporation you control, or to a family member.
• Consider whether certain farmland parcels should be owned personally rather than in a corporation since the latter isn’t eligible for the 50-per cent inclusion rate.
• Watch the timing of capital gains. You’d be better off reporting $250,000 in gains for two years in a row than reporting $500,000 in a single year now. That is not always possible, but it should be considered.
• It appears the proposed capital gains inclusion rate change will apply to capital gains realized from deemed dispositions on death. Unfortunately, this will result in a material increase in an individual’s estate tax liability. It is critical to have a strategic succession, estate, and tax plan in place.

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2. Lifetime Capital Gains Exemption (LCGE)

The budget will increase the Lifetime Capital Gains Exemption (LCGE) to $1.25 million of eligible capital gains (from $1,016,836 in 2024) realized on the disposition of qualified small business corporation shares and qualified farm or fishing property, effective for dispositions that occur on or after June 25, 2024. Indexation of the LCGE will resume in 2026.

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What this means…

The LCGE increases from $2.0 million to $2.5 million for a farming couple who own farmland personally. Farm couples will have an additional $500,000 of capital gains exemption. This benefits those who hold farmland personally.

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AG Expert Insight

• To fully utilize the LCGE, strategically consider which farmland parcels should be owned personally and which ones corporately.

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Navigating New Tax Laws with Expert Guidance

The 2024 Federal Budget introduces significant tax changes that will directly impact farmland transactions and estate planning for farmers and farmland owners across Canada. With the increase in the capital gains inclusion rate and adjustments to the Lifetime Capital Gains Exemption, strategic planning becomes even more crucial.

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At Hammond Realty, we understand that these changes can seem complex and daunting. We are here to help our clients navigate these new tax laws with confidence. Our team of experts, in consultation with your accountant, is equipped to provide tailored advice that ensures you make the most informed decisions regarding the buying and selling of farmland.

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For Sellers: We can guide you on the optimal timing for selling your farmland to maximize the benefits of the current tax rates and exemptions before they change. Our strategic insights can help mitigate potential tax increases on your capital gains.

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For Buyers: We provide essential insights into how the new tax laws might affect your future tax liabilities and how to structure your purchases to benefit from the most favorable tax treatments.

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Planning for the Future: Beyond immediate buying and selling, our services include helping you plan for succession and estate matters, ensuring that your farming legacy is preserved and passed on with minimal tax burden under the new laws.

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Let us help you stay ahead of these changes with our professional advice and personalized service. Contact us today to schedule a consultation and ensure that your farmland transactions are as profitable and tax-efficient as possible. Put our Acres of Expertise to work for you.

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