Tax Bulletin LTT 2-2004, April 2004

• This bulletin provides highlights of the conditions and procedures required in order to obtain the land transfer tax exemption on certain transfers of farmed land, as provided for in Regulation 697, R.R.O. 1990.
• Effective March 28, 2003, this exemption has been expanded to apply to certain transfers of farmed land between family members who meet the tax exemption criteria (see O. Reg. 87/04).
• This bulletin replaces Land Transfer Tax Information Bulletin 5-79 (August 1979).
• The information in this bulletin does not replace the law found in the Land Transfer Tax Act (Act) and related Regulations.

General

Introduction

For the purposes of this bulletin, related individuals means individuals who are members of the same family or who are same-sex partners of each other. See definitions on page two of this bulletin.

Ordinarily, a transfer of farmed land is subject to land transfer tax. However, an exemption from tax may apply where:

• an individual, or related individuals, transfer farmed land to a family farm corporation,
• the family farm corporation continues to farm the land under the direction of the transferor(s) or individual(s) related to the transferor(s), and
• the shareholders of the family farm corporation and the individual(s) transferring the land are related individuals.

In addition, effective March 28, 2003, an exemption from tax may apply where:

• an individual, or related individuals, transfer farmed land to an individual or individuals,
• the farmed land continues to be farmed by one or more individuals, each of whom is related to each transferor of the farm, and
• each of the transferees and the individual(s) transferring the land are related individuals.

The details of the exemption, and the procedures for claiming it, are explained in this bulletin. This exemption applies to registered conveyances and unregistered dispositions. Affidavit Re: Exemption for the Conveyance or Disposition of Farmed Land form replaces the Affidavit Re Conveyance to Family Farm Corporation Form 3.

Definitions

"family farm corporation" means a corporation in which, at the date of registration of any conveyance with respect to which the expression is being applied,

1. all of the issued shares except for directors' qualifying shares are owned by a person or persons, each of whom is a member of the family or a same-sex partner of each transferor of the land being conveyed, and, where any of such persons is a corporation, 95 per cent of the value of the assets of such corporation are farming assets, and
2. 95 per cent of the value of the assets are farming assets.

"farming" includes tillage of the soil, the breeding, raising or grazing of livestock of all kinds, the raising of poultry and the production of poultry products, fur farming, dairy farming, fruit growing, the growing of food for human consumption or for the feeding of livestock and the keeping of bees, but does not include the leasing out of land where the lessor is not entitled to share in the crops, livestock or other commodities raised or produced on the land or the proceeds of the sale of such crops, livestock or other commodities so raised or produced.

"farming assets", of a family farm corporation, means,

1. land, buildings, equipment, machinery and livestock that are used chiefly in farming by the corporation,
2. any right or licence granted or issued under any Act of the Legislature that permits or regulates the production or sale of any commodity or thing produced, raised or grown through farming,
3. the building in which a shareholder or member or members of his or her family or his or her same-sex partner reside who are engaged in farming if that building is on land that is used or is contiguous to land used by that shareholder, member or members of his or her family or his or her same-sex partner in farming,
4. shares in another family farm corporation, and
5. trade accounts receivable, supplies and inventory of commodities or things produced, raised or grown through farming.

"members of the family" means, with respect to an individual,

1. the individual,
2. the individual's spouse,
3. the individual's child,
4. the individual's father, mother, brother or sister or any spouse or descendant of such brother or sister,
5. the brother or sister of the individual's father or mother or any descendant of any such brother or sister,
6. the father, mother or any brother or sister of the individual's spouse or any descendant of any such brother or sister,
7. the individual's son-in-law or daughter-in-law,
8. the individual's grandfather or grandmother,
9. the individual's grandchild or great-grandchild or the spouse of any such grandchild or great-grandchild, or
10. a corporation all of the issued shares of which except for directors' qualifying shares are owned by an individual or individuals, each of whom is related to the individual to whom the expression is being applied in the manner described in any of clauses (a) to (i).

"same-sex partner" means same-sex partner as defined in section 29 of the Family Law Act. At present, "same-sex partner" means either of two persons of the same sex who have cohabited,

1. continuously for a period of not less than three years, or
2. in a relationship of some permanence, if they are the natural or adoptive parents of a child.

"spouse" means spouse as defined in section 29 of the Family Law Act. At present, this means either of a man or a woman who are married to each other, or who are not married to each other and who have cohabited,

1. continuously for a period of not less than three years, or
2. in a relationship of some permanence, if they are the natural or adoptive parents of a child.

In addition, under Regulation 697, R.R.O. 1990, "spouse" includes either of two persons who are married to each other.

Requirements to Qualify for Exemption

Principal Purpose- Transfers to Individuals

Where the transfer of farmed land is to an individual or individuals, the land must be conveyed for the principal purpose of enabling one or more individuals, each of whom is related to each transferor of the land, to farm on the land.

Principal Purpose- Transfers to Family Farm Corporations

Where the transfer of farmed land is to a family farm corporation, the land must be conveyed for the principal purpose of enabling 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 of the land being conveyed.

Conditions Required Prior to Conveyance or Disposition

The following conditions must exist prior to the conveyance of the land:

• an individual, or related individuals own the land,
• the land is used predominantly in farming,
• farming was carried on by an individual or individuals, who are related to each transferor of the land being conveyed.

Additional Condition Where Transferee is a Family Farm Corporation

Where the transfer of farmed land is to a family farm corporation, all of the issued shares (except for director's qualifying shares) of the family farm corporation must be owned by a person or persons, each of whom is related to each transferor of the land being conveyed.

95 per cent of the assets of the family farm corporation must be farming assets. Where a corporation owns shares in the family farm corporation, 95 per cent of that corporation's assets must be farming assets.

When determining the 95 per cent ratio of farming assets to total assets, the value of the interest in the land being conveyed shall be included as an asset of the corporation.

Procedures for Claiming Land Transfer Tax Exemption - Electronic Registration

Conveyance to Family Farm Corporation

Where the transfer is to a family farm corporation and is submitted electronically, the exemption may be claimed by selecting the appropriate electronic statements, located under the exemption tab. There is no requirement for a completed Affidavit Re: Exemption for the Conveyance or Disposition of Farmed Land form.

Conveyance to Individual(s)

Where the transfer is to an individual or individuals, the exemption cannot be claimed electronically until changes to the electronic registration system are complete. In this case, currently two options are available:

1. Pay the tax at the time of electronic registration, and then apply for a refund. (See "Procedures for Claiming Tax Refunds" below.)
   
2. Prior to electronic registration, provide the following documents to the Ministry of Revenue's Land and Resource Taxes section at the address below to obtain an endorsement to indicate that no land transfer tax is payable on registration:
   • two hard copies of the document to be submitted for registration. The land transfer tax statements must be completed on the hard copies,
   • a copy of the agreement of purchase and sale, and
   • a properly completed, Affidavit Re: Exemption for the Conveyance or Disposition of Farmed Land form, signed by all the transferees.

One hard copy of the document to be submitted for registration will be endorsed and returned. This endorsed document must then be submitted to the Land Registrar as evidence that the endorsement from the Ministry of Revenue was received.

Procedures for Claiming Land Transfer Tax Exemption - Paper Registration

Conveyance to either Family Farm Corporation or to Individual(s)

In addition to the usual Land Transfer Tax Affidavit, one completed Affidavit Re: Exemption for the Conveyance or Disposition of Farmed Land form, signed by all the transferees, must be attached to the conveyance to be registered. This form may be obtained on line at ontario.ca/revenue or by contacting the Land and Resource Taxes section at the address at the end of this bulletin.

One of the following explanations should be included on the Land Transfer Tax Affidavit which is attached to the conveyance:

For a transfer to a family farm corporation:

"This is a conveyance of farmed land from an individual (individuals) to a family farm corporation and is exempt from tax pursuant to subsection 2(1) of Regulation 697, R.R.O. 1990 under the Land Transfer Tax Act."

For a transfer to an individual or individuals:

"This is a conveyance of farmed land from an individual (individuals) to a related individual (individuals) and is exempt from tax pursuant to subsection 2.1(1) of Regulation 697, R.R.O. 1990 under the Land Transfer Tax Act."

Once the Land Registrar is satisfied with the tendered documents, the conveyance may be registered without the payment of land transfer tax.

Procedures for Claiming Land Transfer Tax Exemption - Unregistered Disposition

Transfers to either Family Farm Corporation or to Individual(s)

Where the transfer of land is not registered, the exemption is still available.

In these cases, the following documents must be submitted to the Ministry of Revenue's Land and Resource Taxes section within 30 days of the date of the disposition:

• a completed Return on the Acquisition of a Beneficial Interest in Land form,
• a copy of the agreement of purchase and sale, and
• a properly completed, Affidavit Re: Exemption for the Conveyance or Disposition of Farmed Land form, signed by all the transferees.

In addition, where the transfer is to a family farm corporation, the Ministry of Revenue's Land and Resource Taxes section may require a copy of the shareholders registers of the transferee corporation and any of its corporate shareholder(s) along with a copy of financial statements for all corporations involved.

Procedures for Claiming Tax Refunds

Application for Refund

If land transfer tax has been paid on a conveyance of farmed land, and the conveyance meets the qualification criteria for the land transfer tax exemption, an application for a land transfer tax refund may be made within four years from the date on which the tax was paid.

The following documentation must be sent to the Land and Resource Taxes section:

• a copy of the registered instrument upon which land transfer tax was paid, (in the case of electronic registration, please include a copy of the docket summary which relates to the transaction),
• a copy of the agreement of purchase and sale, and
• a properly completed, Affidavit Re: Exemption for the Conveyance or Disposition of Farmed Land form, signed by all the transferees.

In addition, where the transfer is to a family farm corporation, the Land and Resource Taxes section may require a copy of the shareholders registers of the transferee corporation and any of its corporate shareholder(s) along with a copy of financial statements for all corporations involved.

Points to Consider

Common Reasons for Unsuccessful Exemption Applications

Ministry of Revenue experience has shown that where applications for this exemption fail, it is often for one of the following reasons:

One or more of the transferors is a corporation:

• to qualify for the exemption, each transferor must be an individual.

The activity conducted on the land does not meet the definition of "farming":

• refer to the definition of "farming".
• if the activity is not "farming", consider whether the transfer may qualify for the Family Business Exemption provided for in section 3 of Regulation 697, R.R.O. 1990.

The transfer is part of an arrangement to sell the shares of the transferee corporation to third parties:

• 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 persons, each of whom is related to each transferor.

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

• the transferee corporation must actually farm the land.

Subject to Audit

All exemptions of farmed land are subject to audit.

The Minister may assess or reassess any person for any tax payable by the person under the Act within four years from the day the tax became payable.

There is no time limit where the Minister establishes that a person has:

• made any misrepresentation that is attributable to neglect, carelessness or wilful default,
• has committed any fraud, in supplying any information under the Act, in making any affidavit required by the Act, or in omitting to disclose any information, or
• the person has failed to deliver any return required by the Act.

Additional Information

If this bulletin does not completely address your particular situation, please refer to the Act and related Regulations, or contact the:

Ministry of Revenue
Tax Compliance Branch
Land Transfer Tax Program
33 King Street West
PO Box 625
Oshawa ON  L1H 8H9

Toll-free: 1 866 ONT-TAXS (1 866 668-8297)
Fax: 905 433-5770
TTY (Teletypewriter): 1 800 263-7776

This bulletin and various other English and French tax materials published by the Ministry of Revenue may be obtained online at ontario.ca/revenue.

The Land Transfer Tax Act and Ontario's other public statutes and regulations may be obtained online at www.e-laws.gov.on.ca.

© Queen's Printer for Ontario, 2004

ISBN 0-7794-5880-X