Last updated: Dec. 20, 2017
Farm Operators and Property Taxes
Farm properties can be quite varied and include working farms, farmland, outbuildings, specialized farms, fruit orchards, etc. On top of that, many Canadian farms also have a house on them that the owner/farmer lives in.
As a farmland owner, you may be eligible to apply for a property tax reduction through the provincial farm property tax rate program.
For example, in Ontario, if a farm property qualifies for the Farm Property Class, the farm residence and one acre of surrounding land is taxed at the municipality’s tax rate; the rest of the farm is taxed at 25% of the residential tax rate.
If the farm property is not eligible for Farm Property Class designation, it is taxed at the residential rate.
Farm Property Class Tax Rate Program Eligibility
Property tax exemption programs for agricultural farm land are designed to identify productive farm land and buildings that may be eligible for tax exemptions from real property tax.
It applies to those who productively use agricultural farm land, whether it is owned, leased, or rented.
Every province has its own municipally owned, non-profit corporation that determines the market value and if the property qualifies as farm property.
In order to save 75% of the municipal residential tax rate on your farmland, farm operators must:
- Ensure their property is considered to be farmland, according to the local municipal property assessment corporation
- The farmland must generate annual gross income of at least $7,000
- Hold a valid Farm Business Registration number
- Be more than 50% owned by a Canadian citizen(s) or permanent resident(s)
Assessment of Farm Properties
All farmland in Canada is assessed by the local municipality on the basis of its productivity value. This rate is determined using a set of values and adjusts for less than optimum conditions. The farmland is then assigned a dollar value for taxation purposes.
When it comes to assessing farm properties, only legitimate farm-to-farmer sales are used to determine the farm’s current value assessment.
The residence on the farmland is assessed based on how much it would cost to rebuild the farm house, taking into consideration the location, size, age, and quality of construction.
If the residence is occupied by the person or persons farming the property, a one-acre parcel of land is valued as farmland. If the house is rented out to someone other than the owner of the farm, it’s assessed as residential land.
A farm outbuilding is used for operating the farm. Outbuildings are assessed on their design and classified by use: barn, grain bin, silo, etc. All other buildings on the farmland are assessed based on their replacement value and are classified by use: commercial, industrial, residential.
Impact on Property Tax Bill
The way the farmland, house, and outbuildings are used and assessed will obviously have a big impact on a farmer’s property tax bill.
For example, if a barn is used for housing livestock, both it and the land underneath will be taxed at the farm rate. If it is assessed at $33,000, the taxes owed on it will be just $105.
If that same barn is used for value-added activities (changing a raw agricultural product into something new) to process something produced by the farmer, the barn and land will be assessed and taxed at the industrial rate. In this example, it has a taxable assessment of $63,000 and the taxes owed on it soar to $2,147.
Should the same barn be used for value-added activities that include processing an agricultural product that was purchased from another farmer, it and the land underneath, will be assessed and taxed at the industrial rate. In this example, the taxable assessment rises to $90,000 and the taxes owed increase to $3,067.
Connect with your Local Tax Consultant to learn more
FBC, Helping Farm Operators Understand Property Taxes
Suffice it to say, the property tax implications of value added activities can be significant, and illustrates how important it is to take into consideration both the immediate uses of the farmland, residence, and outbuildings and potential expansion plans. Fortunately, the tax experts at FBC have a comprehensive understanding of Canada’s provincial farm assessments and property tax rates.
FBC has worked exclusively with Canadian farm operators, small business owners, and contractors since 1952. With offices across Canada, the tax professionals at FBC understand the municipal guidelines used to assess the value of farmland and how farm operators can reduce their property tax.
For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.