Capital Tax - Family Farm/Fishing Corporation

Bulletin 3018
Published: March 2004
Content last reviewed: November 2010
ISBN: 0-7794-1575-2 (PDF)

Publication Archived

Notice to the reader: Capital Tax was fully eliminated on July 1, 2010. It was eliminated effective January 1, 2007 for Ontario corporations primarily engaged in manufacturing or resource activities.

This publication was archived and kept for historical purposes. Use caution when you refer to it, since it reflects the law in force at the time it was released and may no longer apply.

References: subsection 1(2) and 71(1), clauses 1(1)(a) and 1(1)(d)


The bulletin replaces Interpretation Bulletin L-14R originally published November 24, 1981 and is updated for comments contained in Information Bulletin 2738.

The bulletin sets out the policy of the Corporations Tax Branch regarding capital tax rules for family farm and family fishing corporations. It is provided as a guide to taxpayers and is not intended as a substitute for the legislation. Any reference to legislation are to the provisions of the Corporations Tax Act (Ontario) (CTA) and its Regulations, unless otherwise noted.


  1. Subsection 71(1) provides that corporations which qualify as family farm corporations or family fishing corporations are not required to pay any capital tax. It is effective for taxation years ending after May 4, 1999. Previously, these corporations paid an annual flat tax of $100, if they did not qualify for the small business capital tax exemption under subsection 68.

Qualification (Subsection 1(2))

  1. Each of the following conditions must be met by a corporation throughout a taxation year to qualify as a family farm (fishing) corporation:
    • the corporation must carry on the business of "farming" ("fishing") in Ontario through the employment of a shareholder or a "member of his or her family" actually engaged in the operation of the business
    • all the issued, voting shares should be owned by:
      • one individual alone
      • one individual, together with members of that individual's family
      • another family farm (fishing) corporation or
      • another corporation where all its voting shares are owned directly or indirectly by one individual or one individual with members of his or her family
    • both the individual and those members of his or her family, must be ordinarily resident in Canada
    • at least 75% of the net book value (excluding appraisals) of the assets must be "farming assets" ("fishing assets")
    • mortgages taken back on the sale of farm land, buildings, equipment, machinery and livestock qualify as farming assets, if the other farming assets, as defined, are not less than 50% of all assets.

Farming (Clause 1(1)(d))

  1. Farming includes the following operations:
    • tillage of the soil
    • livestock raising or exhibiting
    • raising of poultry
    • fur farming
    • dairy farming
    • fruit growing
    • the keeping of bees and
    • sharecropping, in those cases where the landowner assumes an appropriate share of the farming risk.
  2. The maintaining of horses for racing is excluded from the definition of "farming" for purposes of determining a corporation's liability for capital tax under subsection 71(1).

Fishing (Clause 1(1)(a))

  1. The definition of fishing provided in subsection 248(1) of the Income Tax Act (Canada) is adopted for Ontario purposes. It includes fishing for or catching:
    • shell fish
    • crustaceans, and
    • marine animals.

Employment of a Shareholder or Family Member

  1. The shareholder or family member should be an employee of the corporation. This means that he or she should be performing some service for which he or she is entitled to salary, wages or other remuneration paid by the corporation.
  2. The shareholder or family member should be employed "full-time" by the corporation in the operation of the business. If he or she holds a full-time job elsewhere and employs a manager or gives directions on a part-time basis on what work should be carried out, the business would not qualify as a family farm corporation or family fishing corporation.
  3. The services performed by the shareholder or family member should be farming or fishing services, e.g. supervising employees or operating implements, not just bookkeeping or advisory services.

Farming Assets (Subsection 1(2))

  1. Farming assets of a family farm corporation are generally those assets that would normally be used in a farming operation. These are:
    • cash, trade accounts receivable, supplies and inventory of farm production
    • land, buildings, equipment, machinery and livestock that are used chiefly in the farming operation
    • a government right or licence that permits or regulates the production or sale of any farming commodity
    • the residence of the shareholder or any of his family engaged in the operation of the farm, if the residence is on or contiguous to land used in the farming operation
    • investments in shares of, or loans and advances to, another family farm corporation, and
    • mortgages taken back as security on the sale of land, buildings, machinery and livestock provided that the total of the remaining farming assets exceeds 50 per cent of its assets.

Fishing Assets (Subsection 1(2))

  1. Fishing assets of a family fishing corporation are generally those assets that normally would be used in a fishing operation. These are:
    • cash, trade accounts receivable, supplies and inventory used in the fishing business
    • land, buildings, boats, ships, equipment, machinery and nets that are used chiefly in the operation of the fishing business by the corporation
    • any right or licence granted or issued under any Act of the Legislature that permits or regulates the catching or sale of fish, and
    • investments in shares of, or loans and advances to, another family fishing corporation.

Mixed Operations

  1. In some cases a farmer will carry on mixed operations such as the growing of produce and the sale of sand and gravel removed from the farm property. Farming equipment (e.g. tractors, trucks) may be used in both operations. These assets will still qualify as farming assets providing they are used primarily in the farming operation.
  2. The above will also apply to fishing assets where mixed operations are carried on.

Member of Shareholder's Family (Subsection 1(2))

  1. Members of a shareholder's family include:
    • spouse (for purposes of this paragraph, spouse includes common-law partner)
    • children
    • father, mother, grandfather or grandmother
    • brothers, sisters, nieces or nephews
    • uncles, aunts or cousins
    • father, mother, brother or sister of his or her spouse or their children
    • spouse of his or her child, or
    • persons adopted under the Child and Family Services Act or any predecessor of that Act, or the spouse or any lawful descendant of that person.

Income Tax

  1. This bulletin is intended to apply only to capital tax. For income tax purposes, family farm corporations and family fishing corporations are subject to Ontario corporations tax at the applicable rate on taxable income. For example, at January 1, 2001, the rate is 14%; 6.5% for small business income; and 12% for corporations eligible for the Manufacturing and Processing Profits credit on income not eligible for the small business rate.
Page: 464  |