Bequets of farm or fishing property

March 23, 2015

Author: Pooja Kapoor

Special rules apply to farm or fishing property passing to a beneficiary who is a child, grandchild, or great – grandchild of a deceased person. The definition of a "child" of a taxpayer includes a person who was, at any time before he or she attained the age of 19 years, wholly dependent on the taxpayer and under the taxpayer’s custody and control. The rules apply if all the following conditions exist:

(a) the farm or fishing property must be in Canada;

(b) the beneficiary must have been resident in Canada immediately before thedeath of the person;

(d) Before the taxpayer’s death, the property in question was used principally in afarming or fishing business in which the taxpayer, the taxpayer’s spouse or common – law partner, or any of the taxpayer’s children were actively engaged on a regular and continuous basis; and

(e) The property must vest indefeasibly in the beneficiary within 36 months after thedeath of the person. (The vesting period can be extended where the legal representative applies in writing to the Minister within the 36- month period and theMinister considers that a longer period is reasonable in the circumstances.)

Property leased by a taxpayer to his/her family farm or fishing corporation or to a family farm or fishing corporation or partnership of the spouse or common – law partner or child qualifies for the tax- free transfer if the property is used in the business of farming or fishing by any such family or fishing corporation or partnership at the time of the transfer.

At the time of writing, draft legislation proposed similar rules for property transferred or disposed of in 2014 and subsequent years, when that property was used for both farming and fishing.

FLOW – THROUGH SHARES

Flow – through shares are financing vehicles used in the oil and gas and mining industries and are issued by companies that need cash but do not need tax deduction. Instead, the investors in these issues receive the tax deductions. The investors can use the deductions to offset against other income. Because investors receive tax deductions, the shares acquired are deemed to have a cost base of nil. In the vent of death, there is no provision in the Act to pass unused deduction on to the deceased’s estate or beneficiaries. At the time of death, the shares are deemed to be sold for fair market value unless they are bequeathed to the spouse or common – law partner.