Capital Gains and Tax

[Bungee]

Hello,
I`m asking this for some advice for my dad.

He owned farm land and sold it in 2008. He said the Capital Gains taxes he`ll have to pay is very very high.
I told him i`d write this note to see if anyone could offer advice. Is there a way to reduce the amount he will have to pay on Cap. gains? He already knows he can max out his RRSP`s but that`s not going to help very much he said. Is there something else he can do?
He`d like to know before end of this week (tax RRSP contribution cut off).

Thanks

 

[EdRenkema]

QUOTE (Bungee @ Feb 23 2009, 01:12 PM) Hello,
I`m asking this for some advice for my dad.

He owned farm land and sold it in 2008. He said the Capital Gains taxes he`ll have to pay is very very high.
I told him i`d write this note to see if anyone could offer advice. Is there a way to reduce the amount he will have to pay on Cap. gains? He already knows he can max out his RRSP`s but that`s not going to help very much he said. Is there something else he can do?
He`d like to know before end of this week (tax RRSP contribution cut off).

Thanks

As I understand it farmers get $500K capital gains free.
Best to ask an agricultural based accountant or tax expert.

 

[Thomas Beyer]

QUOTE (Bungee @ Feb 23 2009, 01:12 PM) Hello,
I`m asking this for some advice for my dad.

He owned farm land and sold it in 2008. He said the Capital Gains taxes he`ll have to pay is very very high.
I told him i`d write this note to see if anyone could offer advice. Is there a way to reduce the amount he will have to pay on Cap. gains? He already knows he can max out his RRSP`s but that`s not going to help very much he said. Is there something else he can do?
He`d like to know before end of this week (tax RRSP contribution cut off).

Thanks

This post is 6 months too late ..

High taxes ? About 40% on 50% on the gain .. about 20% ONLY !!!! This is low for any industrialized nation !!!

Now that it is sold he can do little. He can offset with losses of other projects, like stocks that get hammered in 2008 .. did he sell some of those off ?

I believe he can carry forward some of these gains and offset with stock losses if he sells in 2009 even, but you may wish to confirm with an accountant on that !

He could have leased it for a 25 or 30 year lease, with a large upfront balloon payment, for a deferral of payments over many years or he could have taken a multi-year VTB, i.e. stretched the gain over many years, decades even thus lowering the overall tax bill!

 

[Bungee]

Thanks Thomas and Edward

 

[brentdavies]

Tax on sale of property can be complicated and professional advice is critical before the deal is written.

We sold our farm in 2007 and the tax issues took over 16 months to settle. Ours was fairly simple.

Farm land has is own rules for capital gains and exemptions. Equipement, quotas, and farm operations have special rules.

For example the homestead, the house and 1 acre, if it was the principle residenance can be exempt on capital gain or tax on gain. Detailed information including an appraisal for tax purposes.

Tax accountant is critical. Accountant saved us more money than his bill.

Good Luck.

 

[Tammy]

The biggest deduction your Dad still might have access to is the $750,000 Lifetime Capital Gains exemption. This deduction basically means that he would not have to pay tax on the first $750,000 of capital gain. To qualify for the exemption the farm property he sold must be "Qualified Farm Property". Qualified Farm Property is a term that is specifically defined in the Income Tax Act and there are a number of tests that must be met. His ability to utilize the $750,000 Lifetime Capital Gains exemption could be reduced based on what he has done in the past on his tax returns. As already stated by others in the above posts this can very quickly become a complex analysis.

Have your Dad mention "Qualified Farm Property" to his accountant and they should be able to walk him through the tests.

If he prepares his own tax return and wants more information a good starting point is to read the CRA Capital Gains guide. Here is a link to CRA`s website:

http://www.cra-arc.gc.ca/E/pub/tg/t4037/README.html

 

[Bungee]

Thanks all for your help.

Yes, the Qualified/farm land, is in his favour. He spoke to the accountant and mentioned farm land and they said, he doesn`t have to pay Cap.Gain on the $500K because the land was farmed prior to some date in 1980`s.
He asked me to say THANK YOU to all those that helped lead to this conclusion.
Thanks guys you all rock, we saved him over $10K from this.