New Farm Property Owners & Property Taxes: What You Need to Know

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Table of Contents

1. Policy
2. What you need from the vendor
3. Next Steps
4. What if MPAC re-classifies your new property?
5. Applying for reduced rate for the future
6. What is a gross farm income start-up exemption?
7. Further information

Policy

Under the Assessment Act regulation that came into effect in January 1998, eligible farmlands can be classed in the Farm Property Class and taxed at 25 per cent of the municipal residential rate. Eligibility criteria for this class are:

1. The property must be assessed and valued as farmland. This is determined by the Municipal Property Assessment Corporation (MPAC).
2. The property must be used as part of a farming operation generating Gross Farm Income (GFI) of at least $7,000 as reported to Canada Revenue Agency for income tax purposes.
   • If the GFI is less than $7,000, you may still be eligible for the Farm Property Class tax rate if you satisfy the requirements for an exemption.
3. More than 50% of the property must be owned by Canadian citizens or permanent residents of Canada.
   • If the property is owned by a business which is a sole proprietorship, the owner must be a Canadian citizen or permanent resident.
   • If the property is owned by a business which is a partnership, more than 50% of the profit or loss of the partnership must be allocated to the partners who are Canadian citizens or permanent residents.
   • If the property is owned by a business which is a corporation, more than 50% of the voting shares must be owned by one or more individuals who are Canadian citizens or permanent residents.
4. A valid Farm Business Registration number is required for the farm business operating on the land, unless one of the exemptions applies and is granted. Under the Farm Registration and Farm Organizations Funding Act, a farm business generating Gross Farm Income of at least $7,000 as reported to Canada Revenue Agency for income tax purposes must register annually with Agricorp (1-866-327-3678). Continued eligibility for the Farm Property Class tax rate requires the yearly renewal of your Farm Business Registration number.

A farm property that does not meet these eligibility criteria is classed in the Residential Property Class, and taxed at the full rate set by the municipality.

The Ministry of Agriculture & Food and the Ministry of Rural Affairs administers the application process for the Farm Property Class Tax Rate, and is responsible for reviewing the above eligibility criteria before a property can be placed in the Farm Property Class.

What you need from the vendor

In order to confirm the current assessment and tax rate classification for the property, the documentation that would assist in providing the complete picture includes:

• Most recent Property Assessment Notice.
• Most recent property tax bill.
• Copy of completed Farm Property Class tax rate application.
• Information on what has been done to ensure that the farm property remains eligible for the 25 per cent tax rate for the next year (e.g. did the vendor register the farm business in the current year, to be eligible for the Farm Property Class next year).

Next Steps

On transfers of farm property or a change in the use of the property, actions taken by MPAC and the options available to the new property owner will be based on the status of the property at the time the tax roll closes.

For example, if the property is assessed as a farm by MPAC and in the Farm Property Class (indicated by "Farm" on the property classification section of the Property Assessment Notice) for the 2013 taxation year, at the time the tax roll closes, there are two alternatives:

1. When a new property owner is not going to continue to farm the property, MPAC may issue a Property Assessment Change Notice to reclassify the value of the property and also place the property in the residential property class for tax rate purposes. The new owner will pay the residential tax rate for the remainder of the tax year.
2. When a property is purchased by a farmer who owns other land that has been classified in the Farm Property Class for 2013, or a new owner starts farming and meets the eligibility criteria, MPAC may choose not to issue a Property Assessment Change Notice to reclassify the property. As a result, the property will remain in the Farm Property Class for the remainder of the tax year. This decision is often influenced by the time of year in which the property transfer occurs.

However, if the property is assessed as a farm by MPAC but is in the Residential Property Class (indicated by "Residential" on the property classification section of the Property Assessment Notice) for the 2013 tax year, at the time the tax roll closes, there are also two alternatives:

1. When a new property owner is not going to farm the property, MPAC will not change the property classification and the new owner will also pay the residential tax rate for the remainder of the tax year. This decision is often influenced by the time of year in which the property transfer occurs.
   • If no longer being farmed, MPAC may also update the assessment value for the property. This may occur within-year or at the start of the next tax year.
2. When a property is purchased by a farmer who owns other land that has been classified in the Farm Property Class for 2013 or a new owner starts to farm the property and meets the eligibility criteria, the new owner may contact our office and apply for the Farm Property Class tax rate for the remainder of the tax year.

What if MPAC re-classifies your new property?

If you receive a Property Assessment Change Notice that reclassifies your property so that it's taxed at the Residential Property Class tax rate (full rate), you can:

• Contact the Ministry of Agriculture and Food for an eligibility review. This must be done within the Request for Reconsideration timeframe indicated on your Property Assessment Change Notice.

Applying for reduced rate for the future

Once the purchase is complete, make sure you apply to the Ministry of Agriculture and Food so that your property is classed in the Farm Property Class (the reduced rate) for the next year, as well as future years after that.

If you buy your farmland early in the calendar year, the ministry will normally send you an application, based on ownership change records received from MPAC. This application is used to determine the eligibility of your property for the following tax year. If your purchase date is after June, it's best to contact the ministry to advise the program administrator of the ownership change and request an application. The deadline for sending in your application will be printed on the form itself.

Demonstrating that the eligibility criteria are met and meeting this deadline is very important. If you miss it, you will be required to pay the full residential tax rate on your farm property for the following year.

A list of properties meeting the Farm Property Class eligibility requirements is submitted to MPAC on an annual basis. MPAC then finalizes the property assessment rolls (for all properties, including farm properties) for delivery to municipalities in December in the year in advance of the actual tax year (e.g. December 2013 for the 2014 tax year). At this point, municipalities begin their budgeting process and setting tax rates to meet their local requirements.

What is a gross farm income start-up exemption?

If your new farm operation does not yet generate $7,000 annually, you may still be eligible for the Farm Property Class and reduced tax rate if actively farmed in the year it was purchased.

To qualify, you must clearly demonstrate that the operation is being farmed and will generate the $7,000 income in future years. Information that should be provided includes:

• crop production plans for the first, second and third year, including crops to be grown, acreage, expected yield, and price
• livestock production plans for at least the first, second and third year, including the number raised, market weight/size and price, as well as
• projected income statements for at least the first, second and third year.

You should also include any actual expenses incurred to date. The information should show how the $7,000 minimum income will be made, and the minimum time-frame involved. The length of the start-up period must be realistic relative to the commodity being produced.

If you or your tenant are applying for a gross farm income start-up exemption, please complete these forms and return them with your Farm Property Class Tax Rate application.

Further information

For questions regarding the Farm Property Class tax rate, contact:

Ministry of Agriculture and Food
Ministry of Rural Affairs
Rural Programs Branch
1 Stone Road West, 4th Floor
Guelph, Ontario N1G 4Y2
Phone: 1-877-424-1300 or (519) 826-4047
Fax:     (519) 826-3170
E-mail:  farmtax.omafra@ontario.ca
Web site: www.ontario.ca/farmtax
Please be ready with your owner ID number, name, address, property roll number and telephone number.

For further information about the classification or value of your property, please contact:

Municipal Property Assessment Corporation (MPAC)
Phone : 1 866 296-6722
Web site: www.mpac.on.ca

For assessment or tax rate appeals, contact:

Environment and Land Tribunals Ontario
Assessment Review Board
655 Bay Street, Suite 1500
Toronto, ON M5G 1E5
Telephone: 416-212-6349 -OR- 1-866-448-2248 (toll free)
Fax: 416-314-3717 -OR- 1-877-849-2066 (toll free)
Website: www.elto.gov.on.ca