Anonymised, illustrative composite. A farming parent's estate held shares in two family corporations — one that ran the working farm, one that simply owned a parcel of land rented out to a neighbour for fifteen years. The rollover-at-cost that exists only for farming and fishing property followed the farming, not the family.
At a glance
A farming parent's estate plan left two corporations to two children. FarmCo owned the working farm — land, equipment and quota — and had been run day to day by Child A for twenty years. RentalCo owned a separate parcel the parent had inherited years earlier and never personally farmed; for the past fifteen years it had been cash-rented to a neighbouring farmer with no family connection to the estate. The will left FarmCo's shares to Child A and RentalCo's shares to Child B, each valued independently: $4,200,000 and $1,650,000.
The estate's first assumption was that both sets of shares would roll over to the children at the deceased's cost, the way farm property typically does. That assumption tracks the property, not the recipient — and RentalCo's property had never been farmed by anyone in the family. The rollover is not a benefit attached to being a farmer's child; it is a benefit attached to a corporation whose own property meets a specific, defined test.
FarmCo: fair market value $4,200,000, deceased's adjusted cost base $310,000. Rolled to Child A at the $310,000 cost — no capital gain on the terminal return in respect of these shares, with the gain deferred until Child A eventually disposes of them. RentalCo: fair market value $1,650,000, deceased's adjusted cost base $290,000. Deemed disposed of at fair market value on the terminal return: a $1,360,000 capital gain realised immediately, with no deferral available.
ITA s.70(9.2) sets out when the rollover in s.70(9.21) is available, and paragraph (a) is where this file turns: the rollover applies only where “the property was, immediately before the death of the taxpayer, a share of the capital stock of a family farm or fishing corporation of the taxpayer…”. That is a defined term, not a description. The Act defines a “share of the capital stock of a family farm or fishing corporation” as a share where “all or substantially all of the fair market value of the property owned by the corporation was attributable to… property that has been used principally in the course of carrying on a farming or fishing business in Canada in which the individual, the individual's spouse or common-law partner, a child of the individual or a parent of the individual was actively engaged on a regular and continuous basis”.
That test attaches to the corporation's property, not to which child later receives the shares. FarmCo qualified because Child A — “a child of the individual” in the definition's own words — had been actively engaged in the farming business FarmCo carried on. Once FarmCo's shares met the definition, the rollover was available to whichever child the will named, regardless of whether that child had personally farmed a single acre.
RentalCo failed the same test on its own facts, not on Child B's. Cash-renting land to an arm's-length farmer is not the family carrying on a farming business through RentalCo; it is a stranger carrying on his own farming business as tenant. Neither the deceased, the deceased's spouse, a child, nor a parent was actively engaged in a farming business through RentalCo at all — so RentalCo's shares were never “a share of the capital stock of a family farm or fishing corporation” in the first place, and s.70(9.2)(a) was never met. It does not matter which child inherited those shares; no version of the rollover was ever available for them.
Conditions (b) and (c) of s.70(9.2) — that the child be resident in Canada immediately before the death, and that the property vest indefeasibly in the child within 36 months — were satisfied for both sets of shares. They were never the issue. The property-character test in paragraph (a) decided the outcome entirely, and it decided it corporation by corporation.
FarmCo's shares rolled to Child A under s.70(9.21) at the deceased's $310,000 cost, with no election required and no capital gain realised on the terminal return in respect of them. RentalCo's shares were reported on the terminal return as disposed of at their $1,650,000 fair market value, producing the $1,360,000 capital gain — not because Child B was treated differently from Child A, but because RentalCo itself had never carried on a farming business any specified family member was engaged in.
Had the estate simply assumed both corporations qualified and reported neither disposition as taxable, the RentalCo shortfall would have surfaced on reassessment rather than in the plan — the same $1,360,000 gain, plus interest from the original filing deadline, discovered after the estate had already been distributed and the cash to pay it was no longer sitting in the estate's hands.
The estate's advisers described the plan as leaving “the farm” to both children in different forms. RentalCo had never grown anything the family sold — it collected a cheque from a tenant every March. Calling it “the farm” was the description that made the rollover look automatic. Reading the actual definition is what caught that it was not.
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