If you own a successful farm corporation and have adult children you trust, there is a unique strategy that allows you to move farmland into your company and access millions of dollars tax efficiently. It all comes down to using your children’s lifetime capital gains exemptions.
Prefer to watch the video?
What You Need
To make this work, you will need:
- A profitable farm corporation with available cash
- Personally owned farmland with large unrealized gains
- At least three years to implement the plan
- Adult children who are willing to help
Let’s walk through how it works.
The Setup
You own four quarters of farmland personally. You originally paid two hundred thousand dollars for each one, and now each is worth one point two million dollars. That means you are sitting on four million dollars of capital gains.
You also have four adult children.
Step One
Gift each child one quarter section of farmland. Because it qualifies as farm property, there is no immediate tax. Each child inherits your cost base of two hundred thousand dollars. Now each child owns land with a one million dollar gain.
Step Two
Wait three full years. During this time, the land is legally your children’s property, so you need full trust and transparency.
Step Three
After three years, your corporation purchases the land from your children at market value. That is one point two million dollars per quarter, or four point eight million dollars in total. Your children report one million dollar capital gains each, but they use their exemption to eliminate the tax.
Step Four
Your corporation pays each child one point two million dollars.
Step Five
Because Canada has no gift tax, your children can gift that money back to you. You have now withdrawn four point eight million dollars from your corporation with no personal tax.
Final Thoughts
This strategy allows you to move farmland into your corporation and withdraw a large amount of cash tax efficiently. But it is not something to try without help. You will need to plan around minimum tax, legal agreements, GST, potential clawbacks, and family dynamics.
If you are wondering whether this strategy could work for your family, we are here to help. Visit our website and book an appointment with us.
