Farm Property Capital Gains Exemption in Canada 2025

Updated March 2025 · 10 min read

Canadian farmers and fishers benefit from one of the most generous capital gains exemptions in the tax system. The Lifetime Capital Gains Exemption (LCGE) for qualified farm and fishing property allows eligible Canadians to shelter up to $1,250,000 in capital gains from tax — a critical tool for farm succession planning and intergenerational wealth transfer.

This guide covers what qualifies as eligible farm and fishing property, the conditions that must be met, how the exemption interacts with the QSBC exemption, and planning considerations for farm families.

The 2025 LCGE for Farm and Fishing Property

What Is Qualified Farm Property?

Qualified farm property includes the following types of assets used in a farming business:

Real Property (Land and Buildings)

Land and buildings used in a farming business in Canada qualify if:

• The property was owned by the individual, their spouse/common-law partner, or their child for at least 24 months before the sale, AND
• In at least two years while owned by the individual or family, the gross revenue from the farm exceeded the individual's net income from all other sources (the "principal occupation" test), OR the property was used by a family farming corporation or partnership in which the individual or family member was actively engaged

Shares of a Family Farm Corporation

Shares of a Canadian family farm corporation qualify if the corporation was controlled by the individual or family, and all or substantially all of the FMV of the corporation's assets was used in carrying on a farming business in Canada. A 24-month ownership and active use test also applies.

Interests in a Family Farm Partnership

Partnership interests in a family farm partnership qualify under similar conditions to family farm corporation shares.

Qualified Fishing Property

Similar rules apply to fishing property — real property used in a fishing business, shares of a family fishing corporation, and interests in a family fishing partnership all qualify under parallel conditions.

The "Used Principally in Farming" Requirement

One of the most common issues in farm property LCGE claims is whether the property was "used principally in farming." If a portion of a farm property is used for non-farming purposes (a rented residence, commercial use, recreational land), only the portion used in farming may qualify. A proper apportionment analysis may be required.

Intergenerational Farm Transfers

One of the most important applications of the farm property LCGE is facilitating the transfer of a farm from one generation to the next. Canada's tax rules specifically accommodate intergenerational farm transfers:

Section 73 Rollover

Under Section 73(3) of the Income Tax Act, a parent can transfer qualifying farm property to a child at the property's adjusted cost base (ACB) rather than fair market value — deferring any capital gain to the child. The child takes over the property at the parent's ACB and will eventually realize the deferred gain on a future sale.

Alternatively, the parent can elect out of the rollover and transfer at FMV, triggering the capital gain personally and using their LCGE to shelter it. This resets the child's cost base to FMV, reducing future gains when the child eventually sells.

Choosing Between Rollover and Triggering the Gain

The decision depends on:

• Whether the parent has LCGE room available
• The child's anticipated future LCGE availability
• The expected future appreciation of the property
• The parent's other income and tax position in the year of transfer

There is no single right answer — model both scenarios with your tax advisor before making the election.

The Interaction Between Farm Property LCGE and QSBC LCGE

The $1,250,000 LCGE limit is a combined lifetime limit. If you use $500,000 of your LCGE on the sale of farm land, you have $750,000 remaining for QSBC shares (or additional farm property). If you use the full $1,250,000 on QSBC shares in a business sale, no LCGE remains for farm property.

For farmers who also own incorporated businesses, careful sequencing of dispositions can maximize total LCGE utilization across family members.

Family Member LCGE Stacking

Each eligible Canadian resident family member has their own $1,250,000 LCGE. A farm owned jointly by spouses — or sold through a family farming corporation with shares held by multiple family members — can multiply the available exemption.

Example: A farm corporation with shares held by two parents and two adult children could provide up to $5,000,000 in LCGE coverage on a sale — sheltering the full gain on many farm dispositions.

Rented Farm Land and the Principal Occupation Test

A common issue arises when a retiring farmer has rented their land to another farmer for several years. Land that has been rented out for an extended period may fail the "principal occupation" test or the active use requirement. The history of the property's use matters: land that was actively farmed by the family for decades but rented for the last few years before sale may still qualify, depending on the specific facts.

CRA has issued several interpretations on rented farm land. If your situation involves recently rented land, get a specific ruling or detailed advice before relying on the LCGE.

Key Planning Steps for Farm Families

1. Determine whether current assets meet the "qualified farm property" definition
2. Assess each family member's available LCGE (check CNIL balances)
3. Consider corporate structure if not already incorporated (family farm corporation structure)
4. Plan intergenerational transfer strategy well in advance of retirement
5. Determine rollover vs. triggered-gain election decision with your tax advisor
6. Consider life insurance to cover any residual tax obligations on death