Transfers from an Individual to a Family Farm Corporation

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 on certain transfers of farmed land from an individual or related individuals to a family farm corporation.

The individual(s) transferring the land is/are the transferor(s). The corporation receiving the land is the transferee.

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
  • the farming was carried on exclusively by an individual in that individual's personal capacity, and not as directed by a corporation, and
  • each individual who was farming the land is a member of the family of the transferor.

The transferee corporation is a family farm corporation, meaning:

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

  • the land is being transferred for the principal purpose of enabling the transferee corporation to continue the farming business on the land under the direction of a person or persons, each of whom is related to each transferor of the land being transferred.

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

    The definition of farming does not include:

    • growing Christmas trees
    • nurseries (growing flowers, bushes, etc.)
    • retail stores
    • sod farms
    • horse stables
    • contracting services to improve another farmer's land (e.g., excavation work, barn or fence building)
    • manufacturing products from crops grown
    • leasing land to a person who farms the land whereby 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.

    If the activity conducted on the land does not fall within the definition of farming, consider whether the exemption for certain transfers to family business corporations will apply. The family business corporation exemption may be found in section 3 of Regulation 697.

    FAIL: The transfer is part of an arrangement to sell the shares of the transferee corporation to a third party.

    To qualify for the exemption on a transfer to a family farm corporation, the principal purpose of the transfer must be to enable the transferee corporation to continue farming on the land under the direction of a person or persons, each of whom is related to each transferor. If the transfer is made in order to sell the shares of the family farm corporation, the exemption will not apply.

    FAIL: The transferee corporation does not continue the farming operation, but instead acts as a holding corporation, renting the land to the operating corporation.

    The transferee corporation must be the corporation that actually farms the land. If the transferee is a holding corporation and it rents the land out to another legal entity that is farming, the transfer to the holding corporation will not qualify for the exemption.

    FAIL: Prior to the conveyance a corporation was farming the land.

    Prior to the transfer, an individual must farm the land in his or her personal capacity. If the individual transferor was farming the land under the direction of a corporation (e.g., the expenses and income of the farming are on the corporation's books before the transfer), then the individual performing the physical and intellectual work is doing so for that corporation, and not doing so in the individual's personal capacity.

    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 9080 located on the exemption tab. Please note that selecting these statements requires information to be entered into the applicable text boxes of each statement. 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 9080

    The land is being conveyed for the principal purpose of enabling the transferee corporation to continue farming on the land being conveyed under the direction of [NAME(S)], each of whom is a member of the family of each transferor.

    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 conveyance 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 an officer of the transferee corporation, 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 register(s) of the transferee corporation, and any of its corporate shareholder(s), along with a copy of the 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 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 an officer of the transferee corporation, and
    4. any other documentation that the ministry may request.

    In addition, the Land Taxes Section may require a copy of the shareholder register(s) of the transferee 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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