May 22, 2019

Bequeathing a Farm in Your Will

G+G Farmland

BEQUEATHING A FARM IN YOUR WILL

The transfer of farmland, by sale, gift or other form of transfer, is generally subject to HST unless it falls into one of the exemptions found in Schedule V of the Excise Tax Act. One such exception is found in section 167(2), which determines that:

“The estate of a deceased individual and the beneficiary may jointly elect to have no HST payable where:
• immediately before death, the deceased used the farmland in a business
• the estate is transferring the business assets in accordance with the individual’s will or the laws relating to the succession of property on death, to a beneficiary of the estate and an HST/GST registrant
• the farmland is used in a business by the beneficiary.”

This is an important consideration if you own farmland that you would like to pass to a beneficiary in your will. In order for HST not to be paid on such a transfer, the conditions listed above must be satisfied.

The Act does not define “farming business” but, there are criteria that have been established by the Canada Revenue Agency for this purpose. CRA considers the extent of the activity in relation to that of businesses of a comparable nature and size in the same locality. The main test is the size of the property used for farming. If it is too small to give any hope of profit, the presumption is that the property is for personal use or enjoyment and not farming. Where the land is large enough to be profitable, it is much easier to make the argument that a “farming business” is being carried out using that land.

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