The Lifetime Capital Gains Exemption

December 4, 2020 | Marie Versteeg

Recently, the Christian Farmers Federation of Ontario has received member questions around the Lifetime Capital Gains Exemption (LCGE), especially for those who have been renting their land and are now considering selling the farm.

CFFO reached out to Jonathan Kooiman of accounting firm DBK, for more information on the LCGE. Kooiman regularly receives questions about this complicated part of the tax code, and CFFO members can read more about his advice when our member newsletter hits mailboxes later this month.

Since 1994, farmers have been entitled to a capital gains deduction of $1 million per individual on qualifying farm property. “Qualified farm property” is specifically defined and includes physical property like farmland and buildings, as well as eligible capital property like quota. It includes only property that is used in the business of farming.

According to Kooiman, this caveat is important in terms of accessing the exemption, but there are two sets of rules, depending on when the property was purchased. Property purchased on or before June 17, 1987, must be used in farming at the time you sell or for any five years that you owned it.

It’s a bit more complicated for property purchased after June 17, 1987. In this case, more than half of the property must be used for farming by you, your spouse or your child for at least 24 months. In other words, if you rent farmland to a tenant, it’s possible that that property may not be eligible for the exemption. There are other factors at play as well, so Kooiman recommends discussing your situation with your professional tax advisor well in advance of selling.

There are many resources available that offer more information on the exemption, such as OMAFRA’s article, “The Ten Top Tax Questions on the Capital Gains Exemption.” CFFO will also be continuing the discussion at our Annual Meeting on March 23, which will focus on issues affecting farm transitions, from tax planning to relationship dynamics.

Farmers know that farm transitions are complicated and time-consuming. Winter is a great time to meet with advisors, accountants and transition experts to start or continue this important process.

The CFFO Commentary represents the opinions of the writer and does not necessarily represent CFFO policy. The CFFO Commentary is heard weekly on CFCO Chatham, CKXS Chatham, CKNX Wingham, and CHLP Listowel.