Are you ready to sell your land? Key considerations for farmers

Selling your farmland is one of the biggest financial and personal decisions you’ll ever make. Whether you’re thinking about retirement, diversifying your investments, or simplifying your estate, it’s essential to weigh all your options before making a move. Getting the highest price is just one piece of the process — maximizing your return, minimizing taxes, and ensuring the sale aligns with your long-term financial goals.

This guide breaks down what to consider before, during, and after selling your land, so you can make an informed and strategic decision.

Before you sell: Key considerations

Is selling the right move?

Historically, farmland has been a reliable investment, appreciating capital while generating rental income. But past performance doesn’t always predict the future. Consider:  

• Will land values and rental rates continue to rise, or are they plateauing?
• Are better investment opportunities providing a higher, more stable return?
• Are you willing to manage the land's maintenance costs, including irrigation upgrades, infrastructure improvements, and other large capital expenses?

If the answer to these questions suggests a change in direction, such as the return on your land diminishing, selling could be the right step.

Diversifying your investment portfolio

Many Canadian ag producers hold a large portion of their wealth in land. While this strategy may have worked well in the past, concentrating too much on a single asset can be risky. Selling all or a portion of your land can free up capital for:

• Higher cash-yielding investments that provide a more predictable income stream
• Stocks, bonds, or real estate investment trusts (REITs) that offer liquidity and diversification
• Business opportunities or expansion in another sector

Simplifying your estate plan

Selling while you are still alive can significantly reduce the burden on your executor and heirs. Land passed down and put in multiple names can lead to conflicts about when to sell, and possibly have unexpected tax burdens. By selling your land before your passing, you can:  

• Avoid future tax law changes that may impact your estate
• Ensure liquidity for estate payouts
• Minimize family disputes

During the sale: Tax considerations and financial strategy

Understanding the Capital Gains Exemption

One of the biggest financial considerations when selling farmland is taxes. In Canada, the Capital Gains Exemptions (CGE) can significantly reduce your tax burden if your land qualifies. Questions to ask:

• Does your land meet the criteria for tax-free gains under the CGE?
• Is there an ability to use multiple CGEs?

Allocating sale proceeds

The way your proceeds are allocated can impact your tax liability. When structuring your sale, categorize assets properly:

• Land: The primary asset being sold
• Depreciable assets: Equipment, irrigation systems, and grain-handling infrastructure
• Water rights: If applicable, these may have a different tax treatment
• Standing crop: The value of an unharvested crop needs to be accounted for separately
• Principal residence: If a home is part of the sale, different tax rules apply

Proper allocation ensures you don’t overpay taxes and that your filings are compliant with tax laws.

Choosing the right payment

 Deciding how to receive your money can affect your tax liability and financial flexibility. Options include:

• Lump sum payment: Full payment at once, but potentially higher immediate tax exposure
• Installment payments: Spreading income over multiple years to reduce tax impact
• Rent-to-own agreements: Providing a buyer with gradual ownership while securing ongoing income
• Supporting family or neighbours to purchase the land

Minimizing tax implications  

Beyond capital gains, selling land comes with other tax considerations:

• Alternative minimum tax (AMT): Selling in a way that reduces AMT exposure
• Government program clawbacks: Avoiding reductions in Old Age Security (OAS) and other benefits
• Replacement property rules: Using replacement property rules to defer tax implications if you reinvest in new land

Strategic tax solutions are critical to keeping more of your sales proceeds in your pocket.

After the sale

Where to invest your money

Selling your farmland generates a significant influx of cash. To ensure financial security, consider tax-efficient investment options:

• Tax-Free Saving Account (TFSA): Provides flexibility and tax-free growth
• Registered Retirement Savings Plan (RRSP): Defers taxes until withdrawal, ideal for retirement planning
• First Home Saving Account (FHSA): If supporting family in buying a home
• Registered Education Savings Plan (RESP): If funding education for children or grandchildren
• Registered Disability Savings Plan (RDSP): A beneficial tool for those with dependents who have disabilities

Consulting with a financial advisor can help match investment strategies with your risk tolerance and long-term goals.

Updating your estate plan

A land sale can drastically change your estate planning needs. Now is the time to:

• Update your Will to reflect new assets
• Consider trusts or foundations for tax efficiency
• Plan for fair vs. equal distribution among beneficiaries
• Ensure adequate cash flow for retirement
• Evaluate charitable giving options to reduce tax burdens

Remember, there are only three places your wealth can go: the government (CRA), charities, or your beneficiaries. A well-structured estate plan ensures it goes where you intend.

Selling your farmland is a chance to turn years of hard work into a strong financial future. The right strategy can help you maximize your wealth, minimize tax burdens, and create a legacy.

Before making a decision, connect with a financial, legal, and tax professional who’s experienced in farmland sales. With the right plan in place, you can move forward with confidence, knowing your assets are working for you and the next generation.  

Need guidance on your land sale? Speak with an experienced advisor today to explore your options and ensure your financial strategy aligns with your goals.