What constitutes a farm for tax purposes
Farm Property Class Tax Rate Program - Questions & Answers
Table of Contents
Eligibility for Farm Property Class Tax Rate Program
Q1. What are the eligibility requirements for the Farm Property Class (25%) tax rate?
Under the Assessment Act regulation that came into effect in January 1998, eligible farmlands can be classed in the Farm Property Class and taxed at 25 per cent of the municipal residential rate. Eligibility criteria for this class are:
- The property must be assessed and valued as farmland. This is determined by the Municipal Property Assessment Corporation (MPAC).
- The property must be used as part of a farming operation generating Gross Farm Income (GFI) of at least $7,000 as reported to Canada Revenue Agency for income tax purposes.
- If the GFI is less than $7,000, you may still be eligible for the Farm Property Class tax rate if you satisfy the requirements for an exemption .
- The property must be owned by Canadian citizens or permanent residents of Canada.
- If the property is owned by an individual or a group of individuals, each person must be either a Canadian citizen or permanent resident of Canada.
- If the property is owned by a partnership, more than 50% of the profit or loss of the partnership must be allocated to individuals who are Canadian citizens or permanent residents.
- If the property is owned by a corporation, more than 50 per cent of the voting shares must be legally owned by individuals who are either Canadian citizens or permanent residents of Canada. In other words, it is not sufficient if the voting shares are legally owned by another corporation and then that corporation's voting shares are owned by individuals who are Canadian citizens or permanent residents in Canada.
- A valid Farm Business Registration number is required for the farm business operating on the land, unless one of the exemptions applies and is granted. Under the Farm Registration and Farm Organizations Funding Act, a farm business generating Gross Farm Income of at least $7,000 as reported to Canada Revenue Agency for income tax purposes must register annually with Agricorp (1-866-327-3678). Continued eligibility for the Farm Property Class tax rate requires the yearly renewal of your Farm Business Registration number.
A farm property that does not meet these eligibility criteria is classed in the Residential Property Class, and taxed at the full rate set by the municipality.
The Ministry of Agriculture, Food and Rural Affairs administers the application process for the Farm Property Class Tax Rate. and is responsible for reviewing the above eligibility criteria before a property can be placed in the Farm Property Class.
Demonstrating that the eligibility criteria are met and returning the application and/or requested documentation by the deadline is very important. If you miss it, you will be required to pay the full residential tax rate on your farm property for the following year.
Q2. Are there any exceptions to the income eligibility requirements for the Farm Property Class Tax Rate?
If your gross farm income fell below $7,000 you may still be eligible for the 25% tax rate if:
- The applicable year was not a normal production year. but if it had been, the gross farm income would have been over $7,000; or
- As a result of age or illness of the owner or his/her spouse, or the death of the owners spouse or same sex partner, gross farm income fell below $7,000 in the applicable year. The person carrying on the farm business must be the property owner, the farm business must have generated an income greater than zero and be reported to Canada Revenue Agency for income tax purposes, must have been operated by the owner for at least ten years and the owner must have qualified for and received, the farm property class tax rate during this time; or
- You are starting your farm operation and have not yet met the $7,000 income criteria you may be eligible for a start-up exemption. To qualify for this exemption, you must clearly demonstrate that the operation will gross the $7,000 income in future years. The length of the start-up period must be realistic and relative to the commodity being produced.
Information that should be provided includes:
- Crop Production Plans for the first, second and third year, including crops to be grown, acreage, expected yield, and price
- Livestock Production Plans for at least the first, second and third year, including the number raised, market weight/size and price, as well as
- Farming Income & Expenses Statement for at least the first, second and third year.
You should also include any actual expenses incurred to date. The information should show how the $7,000 minimum income will be made, and the minimum time-frame involved. The length of the start-up period must be realistic relative to the commodity being produced.
If you or your tenant are applying for a gross farm income start-up exemption, please complete these forms and return them with your Farm Property Class Tax Rate application.
Q3. What is considered farming income?
For the purpose of Canada Revenue Agency (Income Tax Act ), farming income is defined as income earned by: soil tilling, livestock raising or showing, racehorse maintenance, poultry raising, dairy farming, fur farming, tree farming, fruit growing, beekeeping, cultivating crops in water or hydroponics, Christmas tree growing, operating a wild-game reserve, operating a chicken hatchery, operating a feedlot.
In certain circumstances, farm income may also include: the raising of fish, marketing gardening, operating a nursery or greenhouse. It may also include some value-added food manufacturing, or sales from a retail outlet/farm stand or restaurant on-farm provided these sales are related to the farming activity on the
property, are on a small scale and are considered incidental to the total farm income. To be sure your activity fits this category you must obtain an advance ruling from Canada Revenue Agency.
Farming income does not include income earned from working as an employee in a farming business or trapping.
Q4. I grow a non-traditional crop or raise non-traditional livestock; does this count as farming income?
Yes, as long as you can meet the basic program criteria.
Q1. How do I apply?
We receive the names of new property owners from the Municipal Property Assessment Corporation (MPAC) and mail applications throughout the year. If your property is assessed as a farm and you have not received an application by approximately 90 days after your purchase, you should contact our office. If your property is not assessed as a farm, you should contact MPAC.
Q2. What is the deadline and what happens if I don't return my application by the deadline?
If there are mitigating circumstances involved, the Program Administrator may accept an application until December 31 of the actual taxation year. The Program Administrator has no legal authority to accept an application after this date. If this deadline is missed, you maybe unable to qualify for the Farm Property Class Tax rate.
Q3. Why can't I obtain an application from the website?
The farm property class administrator does not issue blank applications on the website or by mail. All applications issued are custom printed which include property roll numbers, legal descriptions and ownership information provided by MPAC.
Applications also contain a unique program and owner barcode which allows for more accurate and timely application processing and to provide specific responses to a property owner about the status of their personal/individual application.
Q4. Where do I find the form to apply for a start-up exemption?
The exemption form is available online (PDF or HTML ). Please return with your application.
Newly Purchased Lands
Q1. I have purchased a new property, how will it be taxed?
For properties assessed as farmland by MPAC, the default tax rate is residential. A new property owner must complete and return an application to show that all of the criteria have been satisfied, prior to the upcoming tax year.
If the property transferred is currently at the Farm Property Class Tax Rate, MPAC will normally allow the property to remain in the farm property class for the remainder of the tax year.
You should contact MPAC. To confirm the assessment and tax rate for the property prior to the purchase, you should contact MPAC.
Q3. I have purchased property that is not currently in the farm property class, can I get the farm property class rate?
A new property owner or an owner who commences to farm the property, and who meets the eligibility criteria, may contact our office and request an eligibility determination and approval for the farm property class tax rate for the remainder of the tax year and to see about eligibility for the next year.
Q1. Do I need to apply if I rent out my land?
The person who owns the land must apply for the Farm Property Class Tax Rate.
The owner is responsible for ensuring that the tenant has a valid Farm Business Registration Number. If the tenant farmer does not pay the fee, then the property is not eligible for the Farm Property Class.
Q3. What if I cant get a hold of a tenant farmer to sign my application?
The signature is important to verify that a tenant is really farming the property. Applications without a signature will be returned.
Q1. How do I interpret my property assessment notice?
You should contact MPAC to confirm, but in general, the property assessment notice will confirm two things:
- Property Class Tax rate: If the property is taxed at the Farm Property Class Tax Rate, the property classification should read "Farm". If it is being taxed at 100% residential rate it will read "Residential". If there is a house on the property it will be taxed in the residential rate, even if the rest of the property is taxed in the Farm Property Class.
Phased-In Assessment is the dollar value of the property as assigned by MPAC. It should be comparable to other similar properties in your area.
Assessment notices are issued by MPAC late in the year in advance of the tax year.
Q2. I have received my Property Assessment Notice and I disagree with the assessed value of my property. What should I do?
If there appears to be an error with the phased-in assessment (either the dollar value is wrong or there is a suspicion that the property is assessed as something other than a farm), you should contact MPAC to file a Request for Reconsideration before March 31 of the tax year.
Q3. I have received my Property Assessment Notice and I disagree with the property classification as 'residential' and think it should say 'farm'. What should I do?
If there appears to be a problem with the tax class and the property is not in the farm property class, you can contact our office. You may also be required to file a Request for Reconsideration with the ministry before March 31st of the tax year.
Q4. How do I file an appeal?
You must file a Request for Reconsideration before March 31st of the tax year. Filing a Request for Reconsideration is a mandatory step prior to filing an appeal. If your Request for Reconsideration is declined, you will be provided with a decision in writing and may then file an appeal with the Assessment Review Board within 90 days of the decision date.Source: www.omafra.gov.on.ca