Qualified Farming and Fishing Property (“QFFP”)

A QFFP, or Qualified Farm Property, refers to a situation where an individual who possesses farm property (such as land or buildings), a stake in a family farm partnership, or shares in a family farm corporation, might be eligible to receive a capital gains exemption of up to $1,000,000 upon selling the farm property. It's important to note that the capital gains deduction amounts to 50% of the capital gains exemption.

The 2015 Federal Budget increased the maximum LCGE (Lifetime Capital Gains Exemption) for qualified farm property dispositions on or after April 21, 2015, to the greater of:

• $1 million; and
• the indexed LCGE applicable to capital gains realized on the disposition of qualified small business corporation shares (for dispositions occurred 2023 that limit is $971,190).

Following are some frequently asked questions regarding this topic:

What are the QFFP requirements?

Certain rules apply for the period of ownership and the use of real property and eligible capital property in order to meet the qualified farm property requirements.

• Qualified farm or fishing property (QFFP) includes the following:
  • a share of the capital stock of a family-farm or fishing corporation that you or your spouse or common-law partner owns;
  • an interest in a family-farm or fishing partnership that you or your spouse or common-law partner owns real property, such as land, buildings, and fishing vessels;
  • property included in capital cost allowance Class 14.1, such as milk and egg quotas, or fishing licenses.
• Property purchased before Jun 17, 1987
  • The property must have been used principally (more than 50%) in a farming business by a qualifying person in the year it was sold; or
  • in at least five years while the property was owned by one of the qualifying persons, the property was used more than 50% in a farming business by one of those qualifying persons.
• Property purchased after June 17, 1987
  • throughout the 24-month period immediately preceding the disposition of the property, the property must have been owned by one or more of:
    • the individual, or a spouse, common-law partner, child or parent of the individual;
    • a partnership, an interest in which is an interest in a family farm partnership of the individual or of the individual's spouse or common-law partner;
    • if the individual is a personal trust, the individual from whom the trust acquired the property or a spouse, common-law partner, child or parent of that individual; or
    • a personal trust from which the individual or a child or parent of the individual acquired the property; and
  • one of the following requirements must also be met:
    • In at least two years while the property was owned by the one or more persons mentioned above;
    • the gross revenue of a person referred to in (a) from the farming business exceeded the income of that person from all other sources for that period, and the property was used principally (more than 50%) in a farming business carried on in Canada in which an individual referred to in (a), or where the individual is a personal trust, a beneficiary of the trust, was actively engaged on a regular and continuous basis; or
    • the property was used by a family farm corporation or partnership in the course of carrying on the business of farming in Canada throughout a period of at least 24 months during which time one of the persons mentioned above was actively engaged on a regular and continuous basis in the farming business in which the property was used.

What are the requirements for a family farm corporation or a family farm partnership?

Rules for a family farm corporation or a family farm partnership are quite similar:

• In any continuous 24 months prior to disposition, at least 50% of the fair market value (FMV) of their assets must be attributable to property that was used principally (at least half of the time it has been owned) in an active farming business by qualifying individuals, a partnership, or corporation. In addition, one or more qualifying individuals must be actively engaged in that farming operation on a regular and continuous basis; and
• at least 90% of the FMV of the assets owned at the time of sale or transfer must be attributable to a property that was used principally (at least 50% of the time) in an active farming business by qualifying individuals, a partnership, or a corporation. The “principally” test refers to the use of property over the entire period of ownership, so the property need not be used in farming at the time of sale or transfer.

Is share-cropping arrangement income from farming?

• It is in CRA’s view as indicated in paragraph 9 of IT0-433R, “Farming or Fishing – Use of Cash method”, that the crop share received by a landlord in a share-cropping arrangement is rental income and not income from farming. A “Share-cropping arrangement” in that context means an arrangement where a taxpayer or landlord receives from a tenant a share of a crop in lieu of rent. A lessor of farm property does not use such property in the business of farming.

What is considered “Farming” and “Fishing”?

• “Farming” includes tillage of the soil, livestock raising or exhibiting, maintaining of horses for racing, raising of poultry, fur farming, dairy farming, fruit growing and the keeping of bees, but does not include an office or employment under a person engaged in the business of farming
• “Fishing” includes fishing for or catching shellfish, crustaceans and marine animals but does not include an office or employment under a person engaged in the business of fishing.

What is “actively engaged”?

• In Views Doc No 2003-0024401E5, to meet the test, the CRA states that “the person would be expected to contribute time, labour and attention to the business to a sufficient extent that such contributions would be determinant in the successful operations of the business”, and that “[w]hen farming [or fishing] is not the chief source of income of a taxpayer, it may be more difficult to demonstrate that the taxpayer was actively engaged on a regular and continuous basis in the farm business”.
  

This overview aims to provide guidance and clarity to some commonly asked questions on the qualified farming and fishing property and the lifetime capital gains exemption.

If you have any additional questions or require further assistance, please do not hesitate to reach out to our tax planning team for help in determining whether you qualify and/or need help in establishing a plan to get you qualified for QFFP purposes.