The Rural Voice, 2001-01, Page 32Taking over
Transferring a family farm from one generation to
another requires
financial skills, but also people skills
By Keith Roulston
With
depressed prices in
recent years, just finding a
son or daughter who wants
to take over the family farm has been
difficult. But as another generation of
farmers ages, turning over the
operation to the younger hands is an
essential part of an ongoing family
farm.
But succession planning is not an
easy process, says David Rose,
OMAFRA business management.
specialist. Discussing succession
involves difficult issues like loss of
control of your business and your
financial affairs and facing your
eventual death. While they are
difficult topics to face, those farmers
who want to keep the farm in the
family must deal with the issues,
Rose says.
The transfer may not be as
difficult in those families with a
tradition of handing down the farm
between generations, he says. First
generation farming operations,
however, don't have the experience.
Family business skills like goal
setting, open communication,
planning for decision making, using
outside advisors, wealth
management, training successors and
retirement planning all help, Rose
says.
"Learn how to step back and take
28 THE RURAL VOICE
an objective overyicw of your
situation," Rose advises. "If you
can't do it yourself, find some
outside advisors who can help you.
Use their advice to help you and your
family to build a plan."
Long-term vision feeds goal
setting, he says, then goals provide
direction. "If you can't see where
you're going, how will you ever
know if you get there."
Starting early to build off -farm
investments to support you in
retirement will help. These days most
within -family transfers occur at
prices well below fair market value.
RRSPs or other investments can help
ease the cashflow crisis at transfer.
Transferring farm assets at less
than market value is one of the
flexible options Revenue Canada
allows farm families, says Peter
Coughler, succession planning and
business agreements program lead
with OMAFRA. Sales of farming
assets can occur at values from zero
to full fair market value, and the tax
is triggered with the tax treatment pf
the various assets. Inventory, for
instance, is fully taxable in the year
of sale. Equipment and buildings,
however, transfer tax free if they're
sold at the book value. Only when
the sale price is above the book value
will a recapture of the capital tax
allowance be triggered in which case
'the taxable income will be considered
in the year of the sale.
Quota can be sold tax free at 4/3
the book value plus its 1971 value.
Sales above this amount trigger
recapture of the capital cost
allowance and capital gain if the
recapture is exceeded.
Farm land sold at its cost base (the
1971 value, or the purchase price if it
was purchased since 1971) transfers
free of income tax but land sales
above book value are subject to
capital gains tax. (No matter what the
price, the provincial land transfer tax
still applies.)
If you have a farm corporation or
partnership, shares can sell tax free at
their cost base, but will trigger capital
gains if sold above their book value.
In all cases of capital gains, farm
families benefit from the $500,000
capital gains exemption.
Farmers can also take advantage
of provisions for "gifting" says
Coughler. Any asset can be gifted.
Most gifts don't create tax problems,
except for inventory. A gift of
inventory such as a cattle herd, is
deemed taxable income to the giver.
All other assets transfer at the book
value or the cost base for tax
purposes. The family can use the
capital gains exemption to land and