Planning For The Family Farm with Dane ZoBell | E046

Selling or passing along the family farm to the next generation.

In this episode of Financial Planning for Canadian Business Owners, Jason Pereira, award-winning financial planner, university lecturer, and writer, interviews Dane ZoBell, Partner of Felesky Flynn, where he specializes in farm sales and estate planning!

Episode Highlights:

  • 1:16 – Dane ZoBell introduces himself and what he does.

  • 1:55 – Dane discusses how farms differ from other assets.

  • 3:32 – How does estate planning for farms differ compared to other businesses?

  • 5:30 – Dane breaks down the benefits of the Income Tax Act, specifically in regard to farm properties.

  • 7:45 – Jason and Dane discuss the Capital Gains Deduction for qualified farm property.

  • 13:53 – How much of Dane’s planning is around estate freezes and multiplication of that exemption?

  • 16:41 – Dane explains the Intergenerational Rollover provision laid out in the Income Tax Act.

  • 20:54 – When does it make sense to use the Intergenerational Rollover provision instead of the Capital Gains Deduction?

  • 26:03 – What does the sale of a family farm look like for the next generation?

  • 28:10 – Jason and Dane discuss the rules for farmers and younger generations when it comes to estate/sale planning.

  • 32:00 – What are the biggest challenges that Dane faces with farm planning?

  • 36:40 – Dane recaps what’s important to know when it comes to farm planning.

3 Key Points

  1. Land that is owned personally, partnerships interest, and shares of a qualified farm corporation could all qualify for the Capital Gains Deduction.

  2. A big issue that faces farmers right now is that the value of the land has surpassed the shelter provided by the Capital Gains Deduction by a long shot.

  3. Generations that inherit property as a gift are not allowed to take advantage of the Capital Gains deduction until they have owned the property for at least 3 years.

 

Tweetable Quotes:

  • “Not many other things get passed along over centuries...We might be talking about the 1st generation on a farm or we might be talking about the 6th generation on a farm.” – Jason Pereira

  • “The problem these days, with the price of farmland having gone up substantially...the capital gain often will be greater than the capital gains deduction that we have.” – Dane ZoBell

  • “If you’re transferring the land down to a subsequent generation, the objective is always to try to bump up the cost–base of that land.” – Dane ZoBell

  • “No one likes paying taxes. Let’s be honest...You’re going to do it through gritted teeth.” – Jason Pereira

  • “When it comes down to land owned personally, the general rule is once qualified always qualified for the Capital Gains Deduction.” – Dane ZoBell

Resources Mentioned:

Transcript:

Producer: Welcome to the Financial Planning for Business Owners podcast, where you will hear about industry  insights with award-winning financial planner and entrepreneur Jason Pereira. Through the interviews  with different experts with their stories and advice, you will learn how to navigate the challenges of  being an entrepreneur, plan for success, and make the most of your business in life. And now here's your host, Jason Pereira. 

Jason Pereira: Hello, and welcome to Financial Planning for Canadian Business Owners. I'm your host, Jason Pereira.  Today on the show I brought on Dane ZoBell, partner at Felesky Flynn. Dane is a specialist in planning for  farms, specifically around their sale and estate planning. And I brought him on to specifically talk about  the nuances of farm sales and estate planning, and how they differ from other businesses. And with  that, here's my interview with Dane. 

Jason Pereira: Dane, thank you for taking the time today. 

Dane ZoBell: Yeah. Thanks, Jason. I'm glad to be here. 

Jason Pereira: So, thank you very much. This is going to be equally as educational for me because I have had about all  of five minutes of education surrounding farms. So, this has been a kind of gray area for me in terms of  my knowledge and I'm very interested in seeing what you have to say. 

Jason Pereira: So Dane, tell us a little bit about you and what it is you do. 

Dane ZoBell: Yeah, you bet. I'm a partner at Felesky Flynn in the Edmonton office. Felesky Flynn specializes in tax  planning and estate work and we have offices in Calgary, Edmonton, and Saskatoon. 

Jason Pereira: Excellent. 

Dane ZoBell: Yeah. My specific area, I focus on tax planning and estate planning, and I have a specialty in farm work. 

Jason Pereira: Excellent. So, let's start off by talking about the family farm. This is a complicated topic. Tell me about  how this differs from other assets. There's a lot of emotion and family dynamics tied up in this, is there  not?

Dane ZoBell: Yeah, absolutely. So, in farm planning, the benefits under the Income Tax Act for farmers are very  specific and very nuanced. So, as you can imagine, the way the West was settled and homesteaded,  many families have been here for at least a few generations. And so farm land, in particular, often has a  special place in the hearts of the family members and children, there's a lot of nostalgia. And I myself  probably romanticize the farm a little bit more than it needs to be, but definitely there is a little bit to  that kind of special part in the heart for many people, especially when it comes to their estate planning  and what they're going to do with the family farm for subsequent generations. 

Jason Pereira: Yeah. Not many other things get passed along over centuries, quite honestly, right? 

Dane ZoBell: Yes. 

Jason Pereira: [inaudible 00:02:59] talking about the first generation of a farm, or you might be talking about the sixth  generation of a farm. We don't know. And especially when we're talking about family dynamics and  running this, it's not just a business, there is a lot of sentiment to it because it's where people grow up.  So, talk to me about, let's actually start with the, probably, I would think the more likely scenario, which  is around the estate planning, wanting to keep it in the family. So, how does estate planning for farms  differ from that of other businesses? 

Dane ZoBell: Yeah. So, like any other estate plan, when parents are looking at what they're going to do with their  assets, of course, in a normal situation, or any situation, you would be looking at values and who in your  world you would like to be giving those assets to. In the farming context, often the farm or sharers of a  farming company or interests in a farming partnership, they comprise a significant amount of the value  of that estate, and so it becomes somewhat difficult, often, to determine who is going to receive that  farming property. 

Dane ZoBell: And if you're able to equalize, perhaps the other children who aren't going to receive the farm property,  and the complications and dynamics there often get very interesting. They can cause a lot of angst and  perhaps future hard feelings. But definitely, there is a lot of planning that needs to be considered if  we're going to try to equalize an estate if a significant amount of the value is in the farming assets. And  the other complication, of course, that arises is do you even have any farming kids? Or, if you have more  than one farming child, then how is that going to work? 

Jason Pereira: Very true. 

Dane ZoBell: So, yeah. Those are some of the difficulties that arrive in the farm world when we're trying to do an  estate plan. And then, of course, it's trying to jump into whether or not we can get one or both of the  two beneficial rules in the Income Tax Act for farmers. 

Jason Pereira: Okay. So, we're [inaudible 00:05:14] first off, all I hear is an insurance salesperson's dream. Large  equalization issues are definitely sizable policies. Tell me about the beneficial aspects of the Income Tax  Act and how they impact farm properties. 

Dane ZoBell: Yeah, you bet. So, this discussion, we present on it often because the rules are quite nuanced and  they're a little bit different because the legislation is a bit of a patchwork, it was drafted at different  times with different criteria, and you also need a pretty thorough review of any given situation to make  sure that you can qualify. But in a nutshell, the two main beneficial rules for farmers is the  intergenerational rollover provisions. And you can liken that, or it would be comparable to, a spousal  rollover. Most people are familiar with the rule that if one spouse dies, then they can transfer the  property on a tax-deferred rollover basis to the surviving spouse. So, in a farming context, that is  extended (if certain conditions are met) to children, so you would be able to transfer certain qualifying  farm property to the child on a tax-deferred rollover basis. 

Dane ZoBell: The other one is capital gains deduction. And for farm land now, there is a $1 million limit for qualified  farm or... In Alberta, we simply [inaudible 00:06:48] qualified farm property, but the definition is  qualified farm or fishing property. Not too many fishers, of course, here in Alberta, so the focus, of  course, is on the farming. 

Jason Pereira: At least they don't have much [inaudible 00:07:01] quite frankly, right? 

Dane ZoBell: Exactly. So, those are the two main benefits that farms have. And so the planning of often simply  involves making sure we qualify under the various different tests for those two provisions. And although  they're somewhat similar, the nuances is where it becomes interesting. 

Jason Pereira: So, let's talk about both of those. Let's start with the second one first. So, the qualified farm deduction,  or whatever the... [inaudible 00:07:37]. 

Dane ZoBell: Capital gains deduction. 

Jason Pereira: Yeah. So, the capital gains deduction around qualified farms, that is basically a lifetime capital gains  exemption that applies to other businesses only with a million-dollar limit versus the $860,000 or something we're at right now, which is [inaudible 00:07:53] inflation, and it also comes with the  provision of it being a qualified farm. What constitutes a qualified farm? 

Dane ZoBell: Well, so, good question. So, the capital gains deduction for qualified farm property actually could apply  for generally three main types of property. So, the first would be land that is owned personally by an  individual. The second would be partnerships that are farm partnerships that qualify that is owned by an  individual. And then the third is shares of a qualified farm corporation. And again, that's owned by an  individual. And the thing to remember here is that the capital gains deduction only applies on an  individual basis, so it has to be the individual that is selling or transferring that property being the land  itself, the partnership interest, or the shares. So, you have to have individual ownership in order for you  to qualify for that capital gains deduction and it would apply to each of those types of land. 

Dane ZoBell: So then, each of those types of property have their own tests as to whether or not it would qualify for  the capital gains deduction. And, in a nutshell, if you want to be looking at land that's owned personally  then you would have to have, in most cases, three basic tests that would need to be met. But this all  depends on when the land had last been purchased by the owner. So, if you had the land purchased  prior to June of 1987, then you're under an easier test to qualify the land. If the land had been acquired  after 1987, then you're under a somewhat more stringent test in order for the land to qualify. 

Dane ZoBell: And so again, in a nutshell, what we're looking at for that land is, has it been owned by family members  or the individual for 24 months preceding that period of time? In two years, while the land was owned  by that individual or family members, was the land used actively in a farming business carried on in  Canada in which that person or other family members were busy and active farming the land? And then,  you're into either one of two tests: one is a revenue test, which would say that in the two years that it  had been farmed and owned by those people, was the income from farming greater than all other  sources of income? And if you can't meet that test, then actually you can jump into a different type of  test that talks about, well, was the land farmed throughout a 24-month period by a qualifying farm  corporation or a qualifying farm partnership? 

Dane ZoBell: So, as you can see, there's all these different tests 

Jason Pereira: Lots of ways to skin a cat, eh? 

Dane ZoBell: Yeah. And frankly, any time we go through this analysis for clients, you are going back to basically the  wording of the Act to make sure that on a property-by-property basis all of those properties that they're  wanting to claim the capital gains deduction on, or the specific one that we're looking at, you can  actually meet each of those tests and they have to get the check mark for each of those requirements in  order for you to get there.

Dane ZoBell: So, you had also mentioned the, it's $883,000 and change for the capital gains deduction for qualified  small business corporation shares. And so those two amounts, of course you get the higher amount for  the capital gains deduction on the farm property, but if you've used it with regards to qualified small  business corporation shares, then you'll be eating into that deduction room [inaudible 00:11:55]. 

Jason Pereira: Yeah, it's one deduction for both of those depending on, yeah, you don't get to double up and make it 

Dane ZoBell: Exactly. 

Jason Pereira: Make it both. 

Dane ZoBell: Yeah. 

Jason Pereira: So, okay. So, how much 

Dane ZoBell: And so again, that's... Sorry. 

Jason Pereira: Yeah. You finish. You finish your point. 

Dane ZoBell: Well, I was just going to say, so that's just [inaudible 00:12:11] and again, a very high-level analysis for  farm land that's owned personally. Of course, the analysis is quite different if you were going to claim  the capital gains deduction on shares of a farm corporation or a partnership interest. So again, those  requirements generally require you to look and see if the farming property in that corporation or  partnership meets the 90% good asset test. And so in that situation, you'd have to look at each property  that is owned by the partnership or the corporation and determine whether or not it's a good asset or a  bad asset for purposes of calculating that 90%. 

Dane ZoBell: And basically, for it to be good property, the farming years of that property have to be greater than 50%  of the ownership years. So, for example, if you had land that's in the corporation or the partnership, and  the corporation or partnership had farmed the land for 10 years actively farming with family members  doing the work, and it had been rented for eight years, well, that would still be a good property for  purposes of the 90% test. 

Jason Pereira: Excellent. So, how much of the planning you do is around estate freezes and multiplication of that  exemption? Because, at least as I'm familiar with it, the same kind of strategies we use in small business  where we do an estate freeze and pass on gains to the next generation in order to access their  exemption is pretty doable with farms. Is that the case? 

Dane ZoBell: Yeah, you bet. So, the objective there, of course, is to multiply that capital gains deduction to lineal  descendant, lineal family members. And the problem these days is, with the price of farm land having  gone up substantially, probably, from when grandpa or great-grandpa originally homesteaded the land  or even when your mom or dad first acquired the land, the capital gain often will be greater than the  capital gains deduction that we have. 

Dane ZoBell: And so in order for you to be able to multiply the capital gains deduction, there has to be some planning  to be done, most likely to make that we can get you into the intergenerational rollover provision, which  means that we can perhaps shelter some of the gain to increase the cost based on the land when we  transfer it down to the next generation but then have some room left available for those children so  that when on-sell, or if they want to bump up the cost base of the land for their children, then they  would also have it qualified. So, definitely, that is a huge issue that's facing farmers right now, just for  the mere fact that the value of the land has probably in most cases far, far surpassed the shelter that  you can get with the capital gains deduction. 

Jason Pereira: Yeah. So, it's a good problem to have, let's be honest. Right? 

Dane ZoBell: For sure. 

Jason Pereira: Don't get me wrong, it's a little bit... No one wants to carve off part of the family farm in order to pay a  tax bill, but let's not all be, "Boo-hoo. I'm wealthier than I thought." That's the reality of it, right? 

Dane ZoBell: No. 100%. And it's funny to say, "Oh, you only got $1 million tax-free." Of course, that's a boon to 

Jason Pereira: That doesn't play very well in certain circles. 

Dane ZoBell: No. And again, that comes more down to a policy decision, of course. Historically and even, I would  argue, today, the objective here is to keep family farms running to make sure that if you have to sell a  couple of quarters now, that might actually significantly impact the viability of that farm. And so it does  come into play as to whether or not the subsequent generation would be able to carry on the farming  business. So it gets interesting, for sure. And I'm not too much of policy guy, so play with the rules  [inaudible 00:16:26].

Jason Pereira: Avoid the controversy. 

Dane ZoBell: Exactly. 

Jason Pereira: There we go. So, okay. Fair enough. So, let's get into the intergenerational rollover provision. That is  something I'm far, I'm going to say not even far less familiar with, I am not familiar with. So, tell me  about how that works. 

Dane ZoBell: Yeah, you bet. So again, like I mentioned, it's similar to a spousal rollover in that if you have land,  partnership interest, or shares of a corporation that qualify, you would be able to transfer that to  children or other lineal family members on a tax-deferred rollover basis. And there's some nuances  there with regards to how that works and whether or not if you're doing it during your lifetime or if  you're doing it on death. 

Dane ZoBell: Quick caveat with regards to requirements, though: in all cases, you're looking at transferring this to  lineal family members, so we have to have that, you can't transfer it to nieces and nephews or just  anybody else that you want. The individual has to be resident in Canada when we're transferring the  land over to them. And then after that, what you're really looking at is the principal use test, we call it.  So, again, you're just simply looking at whether or not we have more farming years by family members  during the ownership of that land as compared to non-farming years. 

Dane ZoBell: And so again, this is where it gets complicated for some families. If we have a situation where the land  has been rented or it has simply been crop-shared for a significant period of time, then it might be that  you trip over the non-farming years as compared to the farming years. And that test generally applies  for all of those types of properties. So, personally owned land, land that's in a corporation or in a  partnership. For the partnership and the corporation, you're also looking at whether or not you have  more farming years than non-farming years. But again, in that situation, if it's in a corporation or a  partnership we're looking at the 90% good property test again. 

Dane ZoBell: So, you have to watch what the assets in the corporation actually are, and you can trip over the test if  you start to have more non-farming assets, so, too much cash that gets built up. And this is actually  where we see a lot of problems where the farming operation has maybe wound down a little bit or they  just start accumulating too much cash, then you have a big problem. And it's a very easy thing for CRA to  do, to look at a corporate financial statement and say, "Tell us why this qualifies because we see much  too much cash in this company." 

Jason Pereira: So, okay. Explain to me, then, the Venn diagram of when it makes sense to use the rollover provision  reversed as the capital gains exemption. 

Dane ZoBell: Yeah. Good question. So, it depends on the situation and 

Jason Pereira: For the record, the only answer to any financial planning question ever is always, "It depends." 

Dane ZoBell: Exactly. So, if you're transferring the land down to a subsequent generation, the objective is always to  try to bump up the cost base in that land or the cost base in the shares or the partnership interest, in  most circumstances. Because you want to have that subsequent generation shelter any future gain on  that land with their capital gains deduction but also utilizing your cost base so that they have less tax to  pay. However, if the farm is not going to be carried on by the subsequent generation, there are  circumstances where you would look to say, "Well, maybe it doesn't make sense to use the capital gains  deduction." And the reason for that is simply because if you're going to be paying the tax anyway...  Sorry, we'll have to redo that [inaudible 00:20:34]. 

Jason Pereira: You want to start the entire answer over again? 

Dane ZoBell: Yeah. We're going through an example that I was trying to get into but I don't think it'll work. So, sorry,  where were you [inaudible 00:20:41]? 

Jason Pereira: Okay. So, why don't you start from the beginning of the question, which is where I ask you where the  Venn diagram when you decide to use one or the other, and you can start fresh from there. Okay? 

Dane ZoBell: Yeah. That's [inaudible 00:20:50]. 

Jason Pereira: So, editors, please go back to that question and he will pick it up from here. 

Dane ZoBell: So, whether or not you're going to use your capital gains deduction or the intergenerational rollover will  often depend on the situation, as we said. So we, in most cases, would want to increase the cost base of  the land, the partnership interest, or the sharers of the corporation, by using that parents capital gains  deduction so that the child would have less tax to pay if they subsequently on-sell it to someone else.  Or, the child themselves could use their capital gains deduction so that we keep increasing the cost base  of that property for subsequent generations.

Dane ZoBell: You would have to use the intergenerational rollover provision if the value of the land was greater than  the capital gains deduction. Because, by way of example, if you're transferring land that has a $2 million  value but you only have $1 million of capital gains deduction available, then by definition, the remaining $1 million over and above that capital gains deduction you would have to pay tax on if you couldn't  shelter with the intergenerational rollover provision. 

Dane ZoBell: And so this, as I mentioned before, creates a bit of a nuance for the intergenerational rollover provision  because if you are transferring farm land during your lifetime, you automatically fall under the rollover  provision rules, which means that you can't utilize, unless you do some different type of planning, your  capital gains deduction because that transfer from the parent to a child will automatically happen on a rollover basis. If you transfer the land on an intergenerational rollover basis on your death, then the  income tax legislation has provisions that would allow you to [inaudible 00:22:39] an amount between  the cost base and the fair market value so you could trigger a portion of a gain, and typically the portion  of the gain to use up your capital gains deduction, whilst rolling the remaining appreciated value of the  land to the children. And so that nuance between gifts during lifetime and gifts during death requires  some careful planning if the parent wants to transfer the farm land to the child during their lifetime. 

Dane ZoBell: And there are sometimes reasons for you to want to do that. If you know that the land is going to  continue to be rented, and so you know that your non-farming years are going to be greater than your  farming years at some point, or you have reached that point almost, then the parents might say, "Well,  it makes sense for us now to transfer this land to our children to utilize the intergenerational rollover  because we know that in a few years we won't qualify for that." In that situation, of course, as I  mentioned, you can only transfer the land on a rollover basis unless you do other planning. 

Dane ZoBell: So, that other planning involves having the children purchase the land, typically with a promissory note,  and in that way the parents can trigger a capital gain because the land has been purchase by their child.  And the nuance with that is, of course, well, now you have a child that owes the parent money with a  promissory note. Is it going to be repaid? What are the terms of payment if it is? But typically we see  that promissory note simply forgiven on death. And it's important to forgive it only on death, because if  you do it during your lifetime the debt forgiveness rules will kick in with negative tax result. 

Dane ZoBell: But that is actually a pretty good plan for most folks if they get into this situation because it allows us to  bump up the cost base of the property by using the parents' capital gains deduction. Of course, the  parents don't get any cash out of this, so we have to tell them, "Look, basically, you're just bumping up  the cost base of this property for the kids." But sometimes it's still worth doing. 

Dane ZoBell: The kids have a little bit of protection because, of course, they now owe money to their parents. So, if  things go sideways in their relationship or with the land itself or they have other creditors, then  hopefully you've protected that promissory note going back to the parents and they would be able to call back that debt that's owing to them. So, it does give a little bit of family dynamic protection as well.  And then they simply have to update their will or their codicil so that it says, "I forgive this promissory  note that's owing to me from the child." And that can be a good way to kind of get into both worlds for  the intergenerational rollover and capital gains deduction if it's done during the lifetime. 

Jason Pereira: So, all right. The one thing you're teaching me from all this is that I am not handling any farm planning  any time soon. There's no way I'll get any level of proficiency any near time in the future. Oh, man. So  many complexities there. So, talk to me about the sale of a family farm. How does that planning differ  from the estate planning side and passing it on to the next generation? 

Dane ZoBell: Yeah. So, the interesting thing about the sale of the farm, of course, is now we would have cash that's  coming in to the family, which, the old kind of joke is, of course, if you're using the capital gains  deduction to bump up the cost base for subsequent generations, of course there's no cash in your  pocket, you're just putting more cash in the pocket of your children. Whereas, if you're doing the sale  planning during your lifetime, then obviously getting the land, the interest in the corporation or  partnership, to qualify for it would be somewhat similar to any planning that you would be doing for  qualified small business corporation shares and just making sure that the assets in the corporation are  the right mix, that the ownership tests, et cetera, have been met, and activity tests for the act of  farming. And then when you sell it, of course, you're looking to capitalize that $1 million capital gains  deduction in order to shelter the gain on that appreciated value. 

Dane ZoBell: So, somewhat similar to other types of sale planning that we would be doing. But of course, as farmers,  they're often quite fee-adverse. They don't like to ever pay tax whenever they can. And so it becomes  interesting to try to do that type of planning with them. But most of them appreciate the work that you  do, and so it just does become interesting that 

Jason Pereira: No one likes paying taxes, let's just be honest. No one ever says, "Look at me! I'm happy! I'm sending  CRA a bunch of money." No one has ever said that. And if they did, they need to get their get head  checked. 

Dane ZoBell: No one. Well, those who want to pay their fair share, I guess. 

Jason Pereira: Yes. but you're going to do it through gritted teeth, let's be honest. 

Dane ZoBell: For sure. 

Jason Pereira: Like, "I'm paying my fair share." That's for sure. Excellent. So-

Dane ZoBell: So, I did say I wasn't a policy guy, so I'll stop. 

Jason Pereira: Fair enough. Yeah. I would say there's many planning topics that are not for the faint of heart: cross border, proper corporate restructuring and planning, which I have a lot of experience in, but farm  planning [inaudible 00:28:15] clearly falls into one of those realms as well, differs very heavily from just  standard business succession planning. Because again, for various reasons, you don't have the large  amount of capital invested in land in most businesses, you don't have the family dynamics issues that  are further... well, you have that in business, but they're further complicated by the fact that these kids  were raised on that business, they were raised living on it. And then the rollover provision is also  incredibly unique in that that doesn't really exist intergenerationally in other aspects of Canadian  taxation, from what I can see. 

Dane ZoBell: No. Farmers are very special when it comes to these types of rules. It is something that is near and dear  to their hearts, too. They all know about it, they all want it, they all want to make sure that they can  capitalize on the beneficial rules that they have. The other thing, as we were talking about, kind of  [inaudible 00:29:13] the sale planning is, of course, if we know that a sale is going to occur, then trying  to get yourselves into avenues where you can potentially multiply that capital gains deduction can be  beneficial as well, of course. 

Dane ZoBell: And so that, of course, needs some foresight, some planning, often with some complicated anti avoidance provisions that we would need to watch out for because if we're going to be gifting property,  for example, under an intergenerational rollover to a child, that child can't just turn around and sell the  property and claim their capital gains deduction. The reason for that is because the anti-avoidance rules  in '69 would kick in to say you have to actually have held that property for at least three years, there  can't be any anticipated sale that was on the horizon. 

Dane ZoBell: And of course that makes sense, because then you would simply have parents gifting farmland to their  children, different pieces to different children, and then the children just simply turn around and they  could all perhaps shelter the entirety of the gain with a capital gains deduction. So, there are some anti avoidance type rules that would kick in depending on the planning that we're trying to do. But at the  same token, if we know that 10 years down the road, 20 years down the road, a sale might be on the  horizon, then there's some planning you can do, and sometimes even under shorter time periods, but  again, that goes into how the planning is actually orchestrated for the family. 

Jason Pereira: Yeah. That provision is interesting because I've had a couple of interesting cases around that. One client  who insisted that their business was never going to be sold because that type of business never sells,  and then six months later had a very lucrative offer to buy the business, in which case they're like, "Can  we go back and fix that now?" I'm like, "Nope." My favorite line on that is, short of a Delorean or a phone booth that travels through time or a blue police box, you are paying that tax bill. So, that's not  happening. 

Jason Pereira: And the second one, the funnier one I had was, "Well, what if I just talk to them and get them to hold off  on the purchase for two years?" And I'm like, "What buyer is going to do that?" Like, "No, I want to sell  to you, but let me get some planning done. I want to enter into an agreement just so I can sell it to you  in 24 months." No one's going to do that. Why should they? There's way too much risk to that. Are you  kidding me? 

Dane ZoBell: Oh, for sure. 

Jason Pereira: So, anyway, that's [inaudible 00:31:49]. So, what do you think the bigger challenge, there's clearly  complexity here, what's the biggest challenge you encounter in dealing with people in farm planning? 

Dane ZoBell: I think the biggest challenge that we have is when people aren't on the ball for meeting the different  requirements, especially in the corporation. And so what happens often is, as I mentioned, also just  people get a little bit lackadaisical on the assets that are in the mix, they're not watching the cash being  built up in the corporation. And then something unforeseeable happens like a death, and then all of a  sudden we're stuck in a position where we might not be able to qualify for these beneficial provisions  for that farmer. And that, to me, is somewhat frustrating because there's nothing, of course, we can do  at that point to go back and try to fix things. You're simply in a situation where the interest in the  corporation just no longer qualifies. I'd say that's one of the main ones. 

Dane ZoBell: The other one is individuals putting personally owned farmland into partnerships or corporations.  There's often a good reason to do that, and we might have to do that, but the general rule of thumb is  always try if you can, and especially if you already own the land personally, keep it owned personally. It's  much easier to qualify the land for the capital gains deduction if the land is owned personally. Often for  intergenerational rollover, it can be a little bit easier, but keeping the land owned personally would be  the other takeaway. If you're doing planning, try to do that. Often, the banks want the land [inaudible  00:33:49] the company for various reasons, but if we can avoid that 

Jason Pereira: The number of times I've seen banks [inaudible 00:33:56] something because it's [inaudible 00:33:57]  way they wanted and then there was an adverse tax impact because they had no consideration for the  tax issue, it outnumbers the times that it hasn't happened. So, yes, never just take the bank at face value  for telling you want they want you to do because they're not looking at the long game. 

Dane ZoBell: Exactly. And again, there are reasons to put it in there, and sometimes you have to. Often, if you're  buying new land it's better, not better, it's cheaper to often buy it in the corporation because you're using after-tax corporate dollars rather than after-tax personal dollars to buy the land, so that makes  sense. But when it comes down to land owned personally, the general rule is "once qualified, always  qualified" for the capital gains deduction. And so if you had your great-great-grandpa qualify this land,  then perhaps it can continue to be qualified for subsequent generations even if those people have never  farmed the land, which is a great result for people if they can look back to that prior lineal ownership  and say, "Oh, no. My dad or my grandpa qualified the land, so therefore it still qualifies for me even  though I've never farmed the land." 

Jason Pereira: Yeah. I do find it amusing that the, just like it is with business, is the biggest hindrance is people not  being organized or just haphazardly managing their affairs. Because that is also the problem when it  comes to organizing people for the sale of businesses [inaudible 00:35:26] like, "I want to sell the  business." Okay, great. You have no operations, you have no procedures, you've been basically running  all kinds of personal expenses through here, and now you want full value for this thing? Let's get a little  bit realistic. So, no different. No different. There's time to be paid for being organized, and there's a  price to be paid for not. And that definitely comes home to roost when tax time rolls around. 

Dane ZoBell: Yeah. And often, people don't want to pay the expense or have the accountant do annual review or  more in-depth reviews of the financial statements and where things are at. But at the end of the day,  you might suffer the consequence for that. 

Jason Pereira: Yeah. It's penny-wise and pound-foolish, right? That's the saying is, "Congratulations. You managed to  save on the accounting fees and everything else." But sooner or later, it's going to come home to roost.  The things with the greatest value are the things that are organized and properly taken care of, not  things that have been neglected. So, with that, this has been very informative, is there anything else  people should know around this planning topic before we sign off? 

Dane ZoBell: No. I don't think so. I think, again, it's one of those nuanced topics that each of the tests, because  they're slightly different, they can lead to different results. And so being on top of that and finding  somebody that can help clients work through that process and those different requirements is often  important. But [inaudible 00:37:03]. 

Jason Pereira: So you're advocating for financial planners who specialize in farming? Is that what you're saying? 

Dane ZoBell: Hey, anyone that can help with this is definitely beneficial. The final point I guess I would make is, all the  tax planning in the world is great if we can make it work, but as you mentioned earlier, the nuance of  the farm can cause more family... no Christmas dinner type problems if the softer points aren't taken  care of. And so, in the estate planning that I do, a lot of the discussion, for sure, is focused around the  tax planning, but a lot of it is focused on, "Is there something we can do to make sure we equalize?" And  there are a lot of cool plans and a lot of neat things that we can do in order to hive off, for example, certain parcels of land, or even hive off a company on the side that can be given to the non-farming  children. And that company itself, if we do it correctly, can qualify for these beneficial rules, the  intergenerational rollover, the capital gains deduction. But that way, you can start putting different  assets in buckets for the different children so that it has some semblance of fairness, if we can call it  that. 

Jason Pereira: Excellent. So, Dane, before we sign off, where can people find you? 

Dane ZoBell: Yeah, you bet. You can find me on our Felesky website, or you could email at dzobell, D-Z-O-B-E-L-L,  @felesky.com. And happy to take any questions that anybody would have. This is one of my favorite  topics to talk about and present on. As I said, I romanticize it so much that I even went and bought my  own little hobby farm, so. 

Jason Pereira: So, the complexity did not discourage you from [inaudible 00:39:01]. 

Dane ZoBell: You can take that part out. 

Jason Pereira: No, we're going to keep it on there. But so you're telling me the complexity did not basically result in  you shying away from this. Good to know. Anyway, Dane, thank you so much for shining a light on this  area that I'm not very familiar with. I'm sure many people will find it fascinating because unless you're  operating in certain communities you don't get a lot of exposure to this, quite honestly, especially in this  industry. And as an entrepreneur, only farming entrepreneurs ever really touch this issue. So, very much  appreciated. 

Dane ZoBell: Thanks for having me on. I appreciate it. 

Jason Pereira: All right. Take care. 

Dane ZoBell: Take care. 

Producer: This podcast was brought to you by Woodgate Financial, an award-winning financial planning firm  catering to high net worth individuals, business owners, and their families. To learn more, go to  woodgate.com. You can subscribe to this podcast on Apple Podcasts, Stitcher, Google Play, Spotify, and  SoundCloud. Or, find more episodes at jasonpereira.ca. You can even ask Siri, Alexa, or Google Home to  subscribe for you.

FPCBOJason PereiraFarming, Financial Planning