July 9, 2025 | Selling
Is there Capital Gains Tax on Farmland in Canada?
When you are planning on selling a farm, you will want to consider the capital gains on your land and how this is going to impact you. The first step in determining if Capital Gains Tax applies to you is determining if you own a Qualified Farm Property (QFP).
This is a designation used by the Canada Revenue Agency (CRA) to conclude whether the sale of farmland (or related assets) is eligible for special tax treatment, including the Lifetime Capital Gains Exemption (LCGE).
Here are some examples of Qualified Farm Properties
- Farmland
- Buildings used in farming [Barns]
- Specific Quota [Dairy or Poultry]
- Shares in a farm cooperation
- Interests in a family farm partnership
Eligibility Rules for Farmland in Canada
The two main factors influencing whether you will qualify for capital gains are: the amount of time you have owned the farmland and the specific usage of that land.
Ownership: For your farmland to qualify, it must be owned by you or an immediate family member for a period longer than 24 months. This is the basic requirement of ownership before it is sold.
Usage: The second requirement is that in at least two of the last five years, the property must have been used in an active farming business where you, your spouse and your common law partner or an immediate family member is on title for the farm land and has maintained in for more than 24 months and benefiting from that land as their primary source of income.
Looking for more farm-related real estate resources? Check out these blogs next!
- Your Guide to Starting a Farm in Ontario
- What to Know About Buying a Horse Farm
- Where Can I Buy a Hobby Farm Near Toronto?
Do You Pay Tax When You Sell Farmland?
The short answer is yes, but you won’t always have to pay a full amount. When you sell Farmland for more than you paid for it, the Government sees this difference as “profit,” and that “profit” is called Capital Gains. In Canada, Capital Gains on farmland are usually taxable.
So, how does this work? Here is a common circumstance to break things down:
Let’s say you bought a 10-acre property for the price of $300,000 five years ago. Now that you are looking into selling, you have been informed that this land is now highly desirable due to the expansion of the nearby town. The Realtor provides an Opinion of Value that reads $600,000. You list and sell the property shortly after for asking ($600,000), and the difference between the original purchase price and the new sold price is $300,000.
This difference is called Capital Gains, it is the amount of profit you have made off of your farmland.
However, you will NOT pay tax on the entire $300,000; instead, you will register some of this amount as taxable income, which will be taxed. Now, this may not be the happy answer you were looking for, so let’s switch gears and focus on avoiding and reducing Capital Gains tax in Ontario.
Capital Gains Exemption for Farm Properties
If you wish to reduce or avoid Capital Gains tax, you will want to:
Consider if your property qualifies based on duration of ownership and usage of the farmland as a Qualified Farm Property. If so, this will open up doors for you, meaning a portion or the entire amount (in some cases) will be taken off your taxes. There is something in Ontario called a Lifetime Capital Gains Exemption, and it can protect up to $1.25 million in profits from farmland (if you qualify).
What if you are Passing the Farm to a Family Member?
Then this process is much easier because you can title transfer the property over to an immediate family member and or a spouse. This process is often referred to as a rollover, and it will delay the taxes until they sell in the future.
HST or GST on Farmland Sales
Ontario’s harmonized tax rate is 13% and whether this is something charged at the time of the sale depends on what you are selling, who you are selling to and how the land is used.
Selling Bare Farmland to a Farmer
If you are just selling bare land to a farmer, not one with outbuildings or residences, and that farmer will continue to use that land for the purpose of commercial farming, then you are typically exempt from HST.
If part of what you are selling qualifies as an ongoing farm business then you and the buyer can file whats called a GST44 form, which will assist in the chances of a tax-free transaction- however, at least 90% of the farming assets such as the (land, barns/auxiliary buildings and or equipment) must be included in the sale.
On the flip side, if you are selling bare land on the open market and it does not sell to a farmer who will not be using it for farming, then it will be taxed, and you have to change the applicable amount.
Thinking about buying a rural home? Check out these related blogs next!
- How to Buy a Rural House in Ontario
- Acreage Landscaping Ideas to Increase Property Value
- Tips For Transitioning to Rural Living
Selling Farmland Without a House
If you are planning on or selling a farm property that has a home on the land, you will proceed with the transaction as two separate residences. The house and the yard area can be exempt from HST that is applicable to the farmland.
The farmland portion of the property will be taxed or exempted based on the buyer’s intent (if they are continuing the use of the land as commercial farmland) or if it is sold to a non-farmer, to which taxes will apply.
Breaking it Down
Here is a breakdown of the scenarios.
- Bare farmland sold to a farmer: NO
- Bare farmland sold to a NON-farmer: YES
- Farmland with a house and barn sold to ANY buyer: YES, but this will be considered two transactions, and the farmland part will depend on the continued use.
- Sold to family for personal use: NO
Sold to family for the purpose of farming: YES, but you can apply for a roll period where the tax can be paid at a later date while the ownership is in the process of transferring
The Bottom Line of Capital Gains Tax on Farm Land in Ontario
This blog post has broken down how Capital Gains tax is applied in various selling circumstances and how this will impact you, the current owner and the future owner. Always due your diligence and check to see if there are any additional buildings on the property that may be except from taxes– then the sale can be split accordingly.
However, the BEST option if you are unsure is speaking with a Licensed Salesperson who specializes in Agricultural Real Estate so that you, first of all, know the arrangement of taxes previous to selling and can then seek out the best option that’s right for you. I
In the long run, hiring a seasoned Realtor with a degree in Agriculture ensures that you have a highly skilled Salesperson who will always have your best interest at heart and, more to that, be able to back up their interests with real-time results.
So if you are considering selling your Farmland, whether this is to a close friend, family member or on the market, we would love to align you with our agriculturally educated agents who will have the skill set necessary for your property.
Reach out and start your selling journey today: operations@capstonereps.com or call us at 519-824-9050.
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