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Dear Sir;
My husband and I would like to sell our farm and retire.We have a Quota and all the assets are in the company.
We do have it up for sale as a going concern, but people are interested in the land and buildings and others are interested in just the Quota.. Our dilemma is how to break up the farm without paying too much in taxes ?
Is it possible to make a new company and put the land and buildings into the new company without too much taxes or cost incurred ? My husband and I would like to get our $500,000 personal exemptions so we can retire.
I would like to see what would be the best way to do this. I can spend a lot of money through our accountant and lawyer and it might not be the best way to do it.
Thank you for a sight like this and hope to hear from you soon
MXXXXXX
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david ingram replies:
I gave your realtor Gary Armstrong an answer of sorts. Anything more would involve a consultation.
When you want to sell the property as a company to take advantage of the $500,000 tax free exemption, the purchaser has to make around a $950,000, and pay $450,000 of income tax to have $500,000 left to give you tax free. When the deal is to sell the company, the price is ALWAYS less than if you sold the assets at their new and current price whereby the purchaser gets to depreciate the physical assets.
It is an accounting problem to figure out what is fair.
The same thing is front page news in the Vancouver Sun right now over the sale of BC Rail. The CN wants the BC Government to indemnify it for the amount of income tax lost if the Federal government does not allow the CN to use the accumulated BC Rail tax loss. the difference in purchase price will be some $240,000,000 if I remember the numbers correctly.
In other words, BC Rail is worth $240,000,000 more with the tax loss than it is by itself.
In addition, you are another example of where a corporation is getting in the way. At this point, you might want to shoot (figuratively) the person who advised you to incorporate. I doubt if the corporation saved you any income tax in the long run and it is just getting in the way today. The main advantage of the corporation was likely that your accountant and lawyer received larger fees. There are very few breaks afforded a corporation when director's liabilities are taken into account (the most popular corporation in the US, an S corporation, has exactly the same tax rate as a proprietorship). In addition, it is easier to make your mortgage deductible, your summer cabin or winter ski chalet, or powerboat deductible if you are not incorporated.
In Canada a non incorporated farm is easy to break up and the parts all qualify for the $500,000 tax free.
The following red copy is the answer given your realtor.
Dave I am a realtor who refers clients to you and who reads and enjoys all of your information
now i have a couple who have just forwarded to you their company
they own a company which in turn owns the land and quota for a turkey farm if they sell it as a turn key its has one million of capital gains allowances and if they split it up land quota equipment they pay on it all can they split the company to two and have one sell the quota and the other the land
gxxxx
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david ingram replies:
This is completely off the cuff. If they own a private company, they can sell that company for up to $500,000 capital gains tax free each.
If they owned a farm, they could sell the land and quotas for up to $500,000 capital gains free each.
It sounds to me that they have a buyer who wants the quota and does not have enough for the land. Perhaps what they should do is sell the whole shebang to a third entity, get eh capital gains tax free and then split it off at that point.
THIS IS OFF THE CUFF. I HAVE NOT SEEN THE BALANCE SHEET AND HAD ANY OTHER INFORMATION. DON'T DO ANYTHING WITHOUT FURTHER CONSULTATION
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