Farmland Ownership: Personal VS Corporate
Any farmer – new and experienced alike – who has made the decision to incorporate will come across the topic of land ownership. Should the farmer sell his land to the corporation? What about buying new land? The corporation is the one using it to generate revenues after all.
Just based on that statement, some people might think it’s a no-brainer and that the corporation should own all the land.
The real answer is sometimes.
I know what you’re thinking: “I don’t read business articles for the mystery.”
Well then let’s dig into that ‘sometimes’ and hopefully clear things up a little.
Should Your Corporation Own Your Farmland?
It’s uncommon for all fingers to point at having the corporation own all the land but not impossible. One of the key factors for doing so is the fair market value of the land when you’re considering selling it to your corporation or even purchasing new land.
Selling land to your corporation could also mean passing the assigned debt to your corporation too which, given the current price of land, could mean a lesser burden on your personal after-tax dollars. The same can be said for purchasing new land where it’s the corporation taking on the financial debt and having higher cash flow available to repay it as current corporate tax rates are lower than personal tax rates.
Often times it will make more sense to try and keep as much of the land owned personally.
As a farmer, you have likely heard the term ‘capital gains exemption’ before and with good reason. That good reason being the main reason why you want to keep land out of the corporation.
Without getting caught up in the details, it can be a useful tool when farming children come of age and you may want to start thinking about retirement. Passing the family business (your farm) down to the next generation is one of the areas farmers have an advantage over other business owners and can be very tax-efficient when done correctly.
In summary, each farmer’s situation will require a unique touch when going over the options and one farmer’s solution might not be correct for another’s. One of the topics that were briefly mentioned above is succession planning and that requires a whole process on its own. Given the continued increase in value that land has seen in recent years, it’s become one of the core pieces when doing succession planning, and any transaction involving it must be structured and well-thought-out.
If any of the topics discussed above are currently relevant to your farm and you require assistance, please contact our office where a member of our Agriculture Team will be happy to help you.