How to Use Your Children’s Capital Gains Exemption to Move Millions Tax-Free

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 You have now withdrawn four point eight million dollars from your corporation with no personal tax.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.

Click here to book a free consultation with our team.

Watch the full video breakdown here.

Colin Sabourin is a Winnipeg-based investment & financial advisor with Harbourfront Wealth Management. His specialty is working with farmers who are planning to sell or transition their farms within the next 5 to 10 years. 

Disclaimer: The views expressed are those of Colin Sabourin, Certified Financial Planner, and Investment Advisor, and not necessarily those of Harbourfront Wealth Management Inc., a member of the Canadian Investor Protection Fund.

Farm Transition Guide

The hardest part is getting it started!

Let this guide be step #1. Ten tips specifically for farming families to help transfer their farm as efficiently as possilbe.

Get your guide below