Succession for family farms & tax implications

5 minute read

Succession planning can be tricky, and no one knows that like family farms.

Succession planning for any family business can be tricky, but it becomes particularly complex when it comes to family farms. In fact, the Government of BC even published its own Family Farm Succession Planning Guide using a prickly porcupine as its mascot!

“For many people, dealing with succession planning and farm transfer arrangements is sort of like taking on a porcupine - it's prickly and hard to approach - a creature one would just as soon avoid entirely.”

- Family Farm Succession Planning Guide (Government of BC)

Whether it’s a vineyard, farm, or nursery, any family business has to have the conversation about succession and what that looks like. If your retirement is on the horizon, it is better to start that conversation now than it is to have it later.

Succession planning for family farms: Where do you start?

Start by considering what you need, what everyone involved wishes for, and what the end goal of transitioning looks like. At this stage, you will need to ask yourself some key questions including:

Who will inherit the property?
Who will own the farm assets?
Who will manage operations and make decisions?
How involved do you want to be?
How will labour be divided?
Do you intend to keep living on the estate?
Is your successor ready to take over?
Can your successor afford to run the farm?
Are you ready to let go of the reins?
How will you fund your retirement?

Once your goals are clear and you’ve aligned with your family, it’s best to consult an advisor to explore tax implications.

A staged approach to succession

Here’s an example: At 64, Karl wants to pass on his Langley vineyard and winery to his daughter, Jeanine. While her innovative sales ideas are promising, Karl is concerned Jeanine doesn’t appreciate the crucial cultivation and agricultural practices necessary to maintain the product’s integrity. She has been working in the business most of her life, but doesn’t have much saved for capital and operations.

Ownership paths

If Karl were to sell the winery outright to Jeanine in today’s market, she’d struggle to manage costs—including mortgage, taxes, payroll and maintenance.

He’s been advised against incorporating. By retaining personal ownership, he can leverage a $1 million Lifetime Capital Gains Exemption available to farmers. Had his wife, Martha, still been alive, they could both qualify.

The Capital Gains Deduction (CGD) is vital for reducing tax burdens in farm succession and encourages smoother transitions. Complex rules determine eligibility and deductibles, so reach out if you need help!

Certain eligible farm assets can also be “rolled over” from a parent to a child without tax—including land, buildings and machinery.

Karl’s financial advisor suggests transitioning from a sole proprietorship to a partnership. “A joint venture or partnership offers a farmer a lot of flexibility in how much or little they control the farm,” he explains. “Karl and Jeanine can both benefit from the shared profits, proportional to their contribution over time.”

Phrased transition

Karl and Jeanine both agree on a phased approach. Karl will stay in the vineyards for a few annual cycles, progressively transferring responsibility.

Not only does this process help Jeanine learn and prepare, Karl can also capitalize on a rollover provision for farmers to defer taxes on the transfer of some assets to Jeanine—vehicles, machinery and some equipment. As she gets more involved, they can pursue a partnership and use the rest of his CGD.

There’s no place like home

As most family farmers live on their farmland, it’s important that you know where you’ll spend your retirement moving forward, and plan for that.

For their mutual peace of mind, Karl and Jeanine agree to a clause in their partnership agreement to guarantee he can reside in the farmhouse until his passing, after which it transfers to Jeanine. In the meantime, Jeanine can build a small secondary residence on the property. Since the farm is part of BC’s Agricultural Land Reserve, she no longer needs to apply to the Agricultural Land Commission for permission.

Avoid retirement curveballs

Farm succession can be trickier than other businesses and requires personalized, ongoing management. Karl’s strategic approach underscores the importance of thoughtfully considering his daughter’s willingness and readiness to succeed him, his own comfort level with the transition and the tax implications of how to proceed.

Looking to transition your farm or winery to a family member? Book an appointment with one of our advisors today. We are here to help ensure the protection of your retirement income, optimize tax provisions and aid in a smooth transition of your family legacy. Whether you’re raising livestock in Abbotsford, growing corn in Abbotsford, packing blueberries in Maple Ridge or producing farm fresh eggs in Langley, we're right beside you as you cultivate your future.