If you own farmland, farm buildings, or a farm business, there may be valuable tax savings available when you sell, transfer, or pass your farm on to the next generation.
Many farmers can reduce, or even defer, tax when farm property changes hands, as long as certain conditions are met. These rules can feel complicated, but understanding the basics can make a big difference when planning for the future.

In this article Crowe’s trusted advisors clarify the rules, red flags, and practical steps to protect your exemption.

What is Qualified Farm Property (QFP)?

In simple terms, qualified farm property generally includes:

• Farm land and buildings used in a farming business in Canada
• Shares in a family farm corporation
• Interests in a family farm partnership

To qualify, the property must be used mainly for farming, and it must meet certain ownership and usage rules. These rules depend largely on when the property was acquired.

Why the Purchase Date Matters

The rules are different depending on whether the property was bought before or after June 18, 1987.

Land or Property Bought Before June 18, 1987

This older property usually has more flexibility.

It may qualify if:

• It is being used mainly for farming in the year it’s sold, or
• It was used for farming for at least five years at any point while you or a close family member owned it

There is no requirement to compare farm income to other income for this older land.

Land or Property Bought After June 18, 1987

Newer property has stricter rules.

Generally:

• The land or asset must have been owned for at least two years
• During ownership, there must be at least two years where:

1. You or a close family member were actively involved in the farm, and
2. Farming income was greater than income from all other sources combined

This is an area where good records really matter.

What If Your Farm Is Incorporated?

If your farm operates through a corporation or partnership, you may still qualify for the same tax benefits when selling shares instead of land.

To qualify:

• Most of the company’s value must be tied directly to active farming in Canada
• The shares must generally be owned for at least two years

Why This Can Be Powerful

 In some situations, more than one family member may be able to claim tax savings if they each own shares. This can significantly reduce the overall tax bill when a farm is sold or passed on — but the details matter, and planning ahead is key.

What If Your Property Doesn’t Qualify Yet?

The good news is that eligibility can sometimes be improved with the right planning.

Common steps include:

• Cleaning up the balance sheet: Moving non farming investments or excess cash out of the corporation before a sale
• Confirming ownership timelines: Making sure land or shares have been held long enough
• Documenting farm involvement: Keeping clear records that show who was actively farming and when

Small changes made early can protect big tax savings later.

Major Tax Benefits for Farmers

Reduced Tax on Farm Sales
Eligible farm property can qualify for a lifetime capital gains exemption, which allows up to $1.25 million of capital gains (per person) to be sheltered from tax on qualifying farm sales.

This limit applies to farm property and certain business shares combined over your lifetime.

Passing the Farm to the Next Generation
Special rollover rules can allow farm land, buildings, equipment, and qualifying shares to be transferred to children or grandchildren without triggering immediate tax.

Recent changes to the rules also make it easier to sell a farm business to the next generation and still receive similar tax treatment as selling to a third party — as long as the transfer is structured properly and documented correctly.

What About the Farmhouse?

The farmhouse is treated differently than the rest of the land.

Typically:

• The home and about ½ hectare (just over 1 acre) can qualify as your principal residence
• Extra land around the home may only qualify if it’s truly needed (for example, due to zoning or minimum lot sizes)

Trying to claim the entire farm as a principal residence is a common mistake and can lead to unexpected tax.

Common Pitfalls Farmers Should Avoid

Some issues we see often:

• Assuming rented land or part‑time farming automatically qualifies
• Missing ownership timelines by transferring property too late
• Holding too many non‑farming assets inside a farm corporation
• Transferring a farm to family without proper valuations or paperwork
• Treating the entire farm as part of the family home

Most of these problems are preventable with early planning.

Planning Ahead Pays Off

Whether you’re thinking about:

• Selling farm land
• Transferring shares to children
• Retiring and passing on the operation
• Freezing your estate for succession planning

Understanding how your property qualifies, before a transaction happens, can protect hundreds of thousands of dollars in tax savings.

Our agriculture advisors work with farm families every day to review ownership history, confirm eligibility, and plan transitions with confidence.

Start the conversation with our agriculture team today.