Property Taxes and Farm Transfers

If you are considering purchasing a farm property or if you are in the midst of a farm purchase you should be aware that a lower “farm lands property class” tax assessment enjoyed by the current owner may not be transferrable to you as a purchaser unless certain formalities are observed.

If the new farm property owner fails to take steps to ensure that he or she will be registered under the Farm Registration and Farm Organizations Funding Act, 1993 and submits a farmland property class application, the local assessment office could effectively quadruple the municipal and school tax owing on the farm property.

As part of the new Ontario Fair Tax Assessment System farm properties are subject to two levels of taxation as follows:

  • The residential/farm property class (the full tax rate), which applies to a residential home plus one acre of surrounding farm; and
  • A “farmlands property class” (the reduced tax rate), which applies to other farm use, lands and buildings. The reduced rate is 25% of the full rate.

In order to enjoy the reduced rate property, owners or their tenants must meet certain eligibility requirements which are:

  • The farm must have been assessed as a farm under the Assessment Act;
  • The farm must be carrying on a farming business generating a certain level of gross income (this is currently $7,000.00);
  • The property owner must be a Canadian Citizen or resident; and
  • The farm business must have a valid farm business registration number under the Farm Registration and Farm Organizations Funding Act, 1993.

It is important to note that any farm owner who fails to properly register under the Farm Registration and Farm Organizations Funding Act, 1993 by September 1st of the year prior to the tax year will lose the reduced rate for the tax year. Therefore if you are purchasing farm property you should confirm that the vendor has properly registered so that the property may be eligible for the reduced rate in the year your transaction closes and you should register before September 1st for the next year. If however the transaction closes after September 1st, 2012 the new purchaser would not be able to register by September 1, 2012 and would be taxed at the full rate for the entire 2013 tax year. The reduced rate would not restart until January 1, 2014 assuming the new purchaser registered by September 1, 2013. This could impose a real hardship on an unsuspecting purchaser who expected the taxes to be at the lower rate. Subject to certain transitional provisions in 2012 there appears to be no mechanism to appeal or review the higher assessment should this situation occur so it is very import to make the necessary inquires through your lawyer or the assessment department.

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