Transfers from a Family Farm Corporation to an Individual

Table of contents

Introduction

Conditions which must be meet to qualify for the exemption

Important points to consider

How to claim the Land Transfer Tax exemption

How to claim a tax refund


Introduction

An exemption from land transfer tax may apply where a family farm corporation transfers farmed land to an individual, or related individuals.

The family farm corporation transferring the land is the transferor. The individuals receiving the land are the transferees.

The terms family farm corporation, farming, farming assets, members of the family, child, and spouse are defined in the Act or in Regulation 697.

When claiming the family farm exemption, please note that there is a distinction between a family farm corporation and an individual. An individual refers to a single human being operating a farming business in a personal capacity. A family farm corporation is not an individual. It is a separate legal entity from its shareholders and owners. Although a corporation is not an individual, it is a person. Please refer to the court case of Upper Valley Dodge Chrysler Limited v. (Ontario) Minister of Finance for more details on the subject.

It is also important to understand that if a corporation is farming the land (e.g., the expenses and income of the farming are on the corporation's books) then the individual who performs the physical and intellectual work is doing so on behalf of the corporation (for example, as an employee), and not as an individual in his or her personal capacity.

Conditions which MUST be met to qualify for the exemption

Before the transfer of the land:

  • the land was used predominantly in farming, and
  • farming was carried on exclusively by the family farm corporation (transferor) under the direction of a person or persons, each of whom is a member of the family of each transferee of the land being transferred.

The transferor corporation is a family farm corporation:

  • each of the shareholders of the transferor corporation is a member of the family of each transferee
  • at least 95 per cent of the value of the transferor corporation's assets at the time of the transfer, including the land being conveyed, is attributable to farming assets, and
  • if a shareholder of the transferor corporation is a corporation itself, then:
    • the corporate shareholder must be a member of the family of each transferee (i.e., all the shareholders are individuals and are family members of each transferee), and
    • at least 95 per cent of the value of the total assets of the corporate shareholder must be attributable to farming assets.

At the time of the transfer of land:

  • the land must be transferred to an individual(s) as described in this section for the principal purpose of enabling one or more individuals to continue farming on the land
  • each of the shareholders of the family farm corporation transferring the land are members of the family of each of the individual(s) continuing the farming on the land.

Important points to consider

Historically, applications for this exemption most often fail for one of the following reasons:

FAIL: The activity conducted on the land does not meet the definition of farming.

The definition of farming includes:

  • tillage of the soil
  • the breeding, raising or grazing of livestock of all kinds
  • the raising of poultry and the production of poultry products
  • fur farming
  • dairy farming
  • fruit growing
  • the growing of food for human consumption or for the feeding of livestock
  • the keeping of bees.

The definition of farming does not include:

  • growing of Christmas trees
  • nurseries (growing of flowers, bushes)
  • retail stores
  • sod farms
  • horse riding stables
  • contracting services to work to improve another farmer's land, such as excavation work, barn or fence building
  • manufacturing of products from crops
  • leasing the land to the person who farms the land where the lessor is not entitled to share in the crops, livestock or other commodities raised or produced on the land or their proceeds of sale.

FAIL: The transferee does not continue the farming operation, but instead rents the land to another entity.

The transferee or related individual must actually farm the land. If the transferee rents the land out to another entity that is farming, the transfer will not qualify for the exemption unless the transferee is entitled to share in the crops, livestock or other commodities raised or produced on the land or the proceeds of the sale of such crops, livestock or other commodities so raised or produced.

FAIL: Before the transfer the transferor corporation was not farming land.

Before the transfer, the family farm corporation (transferor) that owned the land must have farmed the land (e.g., the expenses and income of the farming are on the corporation's books before the transfer). Where another corporation or individual(s) runs the farming business on the land owned by the family farm corporation, the transfer will not qualify for the exemption.

FAIL: After the transfer a corporation farms the land.

After the transfer, an individual as described in this section must farm the land in his or her personal capacity. If the individual that acquires the land, farms it under the direction of a corporation (e.g., the expenses and income of the farming are on the corporation's books prior to the transfer), then the individual performing the physical and intellectual work is doing so on behalf of the corporation (for example, as an employee), and not as an individual in his or her personal capacity. Even if the individual is the sole shareholder of the corporation, the corporation is not an individual. Please refer to Upper Valley Dodge Chrysler Limited v. (Ontario) Minister of Finance.

How to claim the Land Transfer Tax exemption

Electronic registration

If the transfer of land will be registered on title through Ontario's electronic land registration system, the exemption may be claimed by selecting electronic statements 9123 and 9078 located on the exemption tab. Note that selecting statement 9123 will require information to be entered in the applicable text boxes. If these statements as they read in bold are not true, they must not be selected, and the exemption may not be claimed.

Statement 9123

I/We have read and considered Regulation 697, R.R.O 1990, including the definitions of 'family farm corporation', 'farming', 'farming assets' and 'members of the family' as defined by the Regulation.

Each transferor or (if applicable) each shareholder of the transferor corporation, and each transferee or (if applicable) each shareholder of the transferee corporation are members of the same family, and where the transferor(s) is/are the personal representative(s) of the estate of a deceased individual, the deceased individual was also one of the members of the family immediately prior to his/her death.

Prior to the conveyance, the lands were used predominantly in farming carried on by [NAME(S)] during the period(s) [TEXT].

Statement 9078

The land is being conveyed for the principal purpose of enabling one or more individuals, each of whom is a member of the family of each transferor, or (if the transferor is a family farm corporation) of each shareholder of the transferor, to continue farming on the land.

Paper registration

If the transfer of land will be registered on paper at the Land Registry Office, two types of affidavits must be attached to the transfer in addition to the transfer to be registered:

Once the Land Registrar is satisfied with the tendered documents, the transfer may be registered without the payment of land transfer tax.

No registration on title

Where notice of the transfer of land is not registered, the exemption is still available. In these cases, the following documents must be submitted to the Land Taxes Section of the Ministry of Finance within 30 days of the date of the disposition:

  1. a completed Return on the Acquisition of a Beneficial Interest in Land form
  2. a copy of the agreement of purchase and sale and other agreements related to the transfer
  3. an Affidavit, Regarding the Exemption for the Conveyance or Disposition of Farmed Land, properly completed by all the transferees, and
  4. any other documentation that the ministry may request.

The above noted documents should be sent to:

Ministry of Finance
Compliance Branch
Land Taxes Section
33 King St. West
P.O. Box 625
Oshawa ON L1H 8H9

FAX: 905 433-5770

In addition, the Land Taxes Section may require a copy of the shareholder registers of the family farm corporation and any of its corporate shareholder(s), along with a copy of financial statements for all corporations involved.

If a return is not filed within 30 days, a request for an extension to file the return containing an explanation for the delay is also required.

Failure to file a return may result in an assessment of land transfer tax, penalty and interest.

How to claim a tax refund

If land transfer tax has been paid on a transfer of farmed land, and the transfer meets the criteria for the land transfer tax exemption, a request for an exemption and a refund of overpayment of land transfer tax may be made within four years from the date the tax was paid.

To apply for a refund, the following documentation must be sent to the Land Taxes Section:

  1. a copy of the registered instrument upon which land transfer tax was paid (in the case of electronic registration, include a copy of the docket summary which relates to the transaction)
  2. a copy of the agreement of purchase and sale and other agreements related to the transfer
  3. an Affidavit, Regarding the Exemption for the Conveyance or Disposition of Farmed Land form, properly completed by all the transferees, and
  4. any other documentation that the ministry may request.

In addition, the Land Taxes Section may require a copy of the shareholder registers of the family farm corporation and any of its corporate shareholder(s), along with a copy of financial statements for all corporations involved.

Requests for a land transfer tax refund may be sent to:

Ministry of Finance
Compliance Branch
Land Taxes Section
33 King St. West
P.O. Box 625
Oshawa ON L1H 8H9

FAX: 905 433-5770

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