Agricultural and Farm property occupy an interesting segment of the real estate market, as they are often a mix of commercial and residential uses. This means that many of the rules that apply purely to a residential home purchase have limited applicability to agricultural lands.
A. THE 0.5 HECTARE RULE:
There are a number of tax exemptions which do not apply (or have limited applicability) where a property exceeds 0.5 hectares (1.24 acres) in size:
- Principal Residence Exemption – this Income Tax Act exception allows exempts capital gains of a primary residence from income, however the total area of a “principal residence” must not exceed 0.5 hectares (1.24 acres) hectares.
- Property Transfer Tax (Related Individual) – a transfer of a principal residence from a parent to child, or to a spouse is an exempt transfer for property transfer tax, however (similar to above) the total area of a “principal residence” must not exceed 0.5 hectares (1.24 acres) hectares.
- Property Transfer Tax (First Time Home Buyer) – a transfer of a principal residence to a first time home buyer is an exempt transfer for property transfer tax, however (similar to above) the total area of a “principal residence” must not exceed 0.5 hectares (1.24 acres) hectares.
B. Rural Area Tax Incentives
- Agricultural Land Reserve (“ALR”) Tax Exemption – 50% of the assessed value of ALR land is exempt from school tax if the land is classified as a farm or is in the ALR and is vacant, used as a farm or for residential purposes.
- Rural B.C. Home Owner Grant – B.C. has a property tax assistance program which reduces the amount of taxes paid on a home. You can claim the additional rural grant of $200 (for a total regular home owner grant of $770) on your principal residence if you live in rural areas of British Columbia and you file your income tax in British Columbia.(Kelowna is considered a rural area)
C. GST/ HST on Agricultural and Farmlands
The applicability of HST on farmland is complicated by the “mixed” use of most farmland as both residential and commercial use. Generally sales of farm property attract GST/ HST unless there is a specific exemption.
- If selling the farm as a business as a going concern to a unrelated third party – GST/HST applies, but GST Election 44 can be applied to have no GST/ HST applied on sale
- If selling a hobby farm not used as a business – GST/HST would not apply as you are selling your home and there is no reasonable expectation of a profit from the hobby farming activities.
- If selling a personal residence with farm property- that portion of the property that is necessary for the use and enjoyment of the house is exempt from HST.
For Purchasers of farm property, it is important to ensure that:
- the Purchaser receives tax advice prior to subject removal; and
- the Purchaser is registered for GST/HST prior to closing
D. Agricultural Land Reserve
The Agricultural Land Reserve in British Columbia limits the non-farm uses of designated property. These restrictions may include what kind of buildings can be erected and whether the lot can be subdivided (including the addition of home site). If you are purchasing a property that has been designated in the ALR, please ensure that your future use of the property is within the uses permitted by the Agricultural Land Commission Act.
Peter Borszcz is a Business and Real Estate Lawyer practising in Kelowna, British Columbia and a shareholder of Montgomery Miles & Stone Law Firm.