Should I incorporate my farm before succession?

The useful question is what incorporation changes. A farm owned personally passes as land, equipment and contracts. A farm in a corporation passes as shares, because Alberta’s government describes a corporation as an independent legal entity separate and apart from its owners. Neither route is automatically better; the right one depends on the farm, the family and the tax facts. Should I incorporate before selling my business? covers the general question; this page is about handing a farm to the next generation.

Moving farm property into a corporation is a disposition

CRA publishes Form T2057, the election a taxpayer and a Canadian corporation make jointly under subsection 85(1) on a disposition of property to a taxable Canadian corporation. Its existence signals that putting land or equipment into a new corporation has tax consequences for an accountant to handle. Provincial land transfer tax is a separate cost; Ontario, for one, lists certain transfers from an individual to a family farm corporation among its exemptions, as this page on land transfer tax explains.

What a family transfer can use without a corporation

CRA’s longer capital gains reserve for transfers to a child covers family farm property that includes land or depreciable property used in farming by the owner, a spouse, a parent or a child, as well as shares. A personally owned farm is therefore not shut out of it. CRA also says a reserve generally cannot be claimed if the property was sold to a corporation the seller controls in any way, so a plan that routes a sale through the seller’s own corporation needs checking against that rule.

Other effects to weigh with advisors

A corporation changes who can hold an interest and how decisions are made. Saskatchewan regulates farm land ownership and operation by non-Canadian entities, which is worth checking if any intended shareholder lives outside Canada. The capital gains deduction for qualified farm or fishing property is another item to test before choosing a structure, since CRA says a claimant generally has to meet every condition.