Selling Farmland to a Family Member in Ontario: Key Rules

Many farmers want to pass the land to a son, daughter or other relative, often for less than market value. The deal touches tax, planning, land transfer tax and property tax, and a mistake in one area can undo the benefit of another.

This article outlines the main Ontario and federal points to raise with a lawyer and accountant. It cannot say how a below-market price will be taxed in your case, because that depends on the facts and the current tax rules.

Are you transferring the whole farm or a piece?

If the family member is taking only part of the property, a consent (severance) under the Planning Act is generally needed to sell, mortgage or charge part of it. The exception is land already divided, for example by a public road or railway.

New residential lots generally cannot be created in prime agricultural areas, except one lot for a surplus farm dwelling after a farm consolidation. A plan to give a child a house lot from the farm may therefore be refused.

If a consent is granted, its conditions have a deadline, and the consent can lapse if the transaction is not completed in time. Confirm the exact time limit with the consent authority and your lawyer.

Capital gains on the sale

The capital gains inclusion rate remains one-half. The proposed increase to two-thirds was cancelled on March 21, 2025.

For qualified farm or fishing property, a lifetime capital gains exemption may reduce the tax. CRA figures for 2025 show an exemption of $1,250,000 of capital gains, which is a maximum capital gains deduction of $625,000, with indexation resuming in 2026. The limit is shared with small business shares, and whether your land is qualified farm property depends on its history and use, so an accountant should confirm this.

The farmhouse may be treated differently. A family can designate only one home as its principal residence for each year. Where the land under the home is larger than one-half hectare, the excess generally does not qualify unless the owner shows it was needed for using the home as a residence. The sale must be reported on Schedule 3 and the property designated on Form T2091(IND).

How a price set below market value is treated for tax is a question to take to an accountant before you sign anything.

Land transfer tax and farm tax status

Regulation 697 under the Land Transfer Tax Act exempts certain transfers of farmed land, including from an individual to a family farm corporation that will keep farming the land. A holding corporation that rents the land to another farming entity does not qualify.

Eligible farmland is taxed at no more than 25% of the municipal residential rate under the Farm Property Class Tax Rate Program. MPAC must assess the land as farmland, it must be used for a farm business with a valid Farm Business Registration number, and it must be owned by Canadian citizens or permanent residents. New owners must check eligibility with Agricorp and apply or reapply.

Other things that travel with the land

• Municipal drains: they are not registered on title, assessments go to whoever owns the property when the bill is issued, and unpaid assessments have priority lien status. Ask the municipality for written confirmation.
• Non-resident sellers: a non-resident who sells Canadian real property must notify the CRA within 10 days of the sale, and the buyer may become liable if no certificate of compliance is issued.
• Farm-worker housing: the Residential Tenancies Act, 2006 does not apply to living accommodation a person may occupy only while employed on a farm, but other farm house tenants are generally covered. The Act has recently been amended, so confirm the current rules.

Documenting the transfer and next steps

A clear paper trail protects everyone in the family. Written agreements, the price, any mortgage or payment terms, and the reasons for the price should all be recorded, and the transfer should be registered properly.

• Decide whether you are transferring all of the farm or part of it.
• Ask an accountant to model the capital gains and the lifetime exemption.
• Check whether the buyer will be a person or a corporation, and whether the land transfer tax exemption fits.
• Plan for the new owner to reapply for the farm tax rate.
• Ask the municipality for written confirmation about municipal drains.
• Have a lawyer prepare the agreement and the transfer, and consider independent advice for each family member.

Frequently asked questions