Tax issues at home: Farmhouses

This article was first published on December 1, 2023 and was revised on January 14, 2026. 

Farmhouse ownership creates unique tax considerations that many farmers encounter as they structure their operations. Whether you own your farm individually, through a partnership, or within a corporation, understanding the tax implications helps you make informed decisions. 

Here are the key implications of some common structures. 

Personally owned farmhouses

When you purchase a farm property as an individual—for example, a 100-acre farm with 80 acres of workable land, a barn with 18 acres of barnyard and bush, and a house with 2 acres of laneway and yard—the tax implications begin at closing. 

Farmland is generally subject to GST/HST, so you'll need to register for GST/HST before the closing date. You'll then self-assess GST/HST on the commercial portion of the purchase price, which is often the entire non-residential portion of the value.¹ 

Allocating the purchase price between commercial farm property and exempt residential property requires careful attention, especially when you don't have an itemized appraisal. While it's generally the vendor's responsibility to determine the portion of the purchase price subject to GST/HST, the agreement of purchase and sale is often silent on allocation. Start by allocating value to the portion of the property that can be valued most reliably, such as a comparable house on a half-hectare lot or comparable farmland values per workable acre. You can then allocate the remaining purchase price between the remaining assets. 

The land available for the principal residence exemption is generally limited to 1.24 acres (half a hectare). You may be able to claim more land if it's necessary for the use of the residence—for example, where a municipality dictates a minimum lot size or you need a long laneway to access the residence.³ 

There's also a special rule that permits farmers to claim $1,000 per year of ownership as the capital gain eligible for the principal residence exemption.⁴ Most houses in Canada increase in value by more than $1,000 per year, so this election is rarely beneficial today. However, it could still provide value in unusual circumstances, such as when you own another house eligible for the principal residence exemption and want to maximize use of the lifetime capital gains exemption on this property. 

Partnership-owned farmhouses

Consider the same scenario, but with a farm couple purchasing the property to operate a partnership business. The GST/HST requirements remain the same: you would register for a partnership GST/HST account and self-assess the GST/HST. 

However, an important question arises: is the farmhouse an asset of the partnership or jointly owned by you as individuals? Many farm couples exclude the house from partnership financial statements and tax returns, treating it as a personal asset. While this approach simplifies the partnership's tax reporting, it's not always feasible. 

In most cases, the entire property purchase is financed together, with the farmhouse, farmland, and farm buildings all serving as collateral against the mortgage. Land title usually doesn't distinguish between the farm partnership portion and the personal farmhouse. Since you hold legal title for your own benefit, a trust relationship typically wouldn't exist. Therefore, the farmhouse is often considered a partnership asset when acquired in these situations. 

On disposition, the partnership realizes a capital gain or loss on each component of the property. Since a partnership is not a taxpayer in Canada, the tax implications flow to the partners and are reported on your T1 personal tax returns. While the Income Tax Act is unclear on this point, CRA treats a partnership's disposition of your principal residence as eligible for the principal residence exemption as though you owned the property personally.⁵ Each partner would claim the principal residence exemption on their portion of the residential part of the gain. 

This structure can also impact whether you meet the definition of a family farm or fishing partnership eligible for the capital gains deduction or intergenerational farm rollover rules.⁶ To qualify for these tax-preferential rules on the farm partnership interest where the partnership owns the farmhouse, you need to show either that the farmhouse is provided primarily for operating the farm business, or that the farmhouse value is no greater than approximately 10 percent of the total partnership asset value. 

Corporate-owned farmhouses

Now consider the same scenario, but with farmers incorporating a family farm or fishing corporation to purchase the property and operate the business. 

The GST/HST requirements remain the same: the corporation registers for a GST/HST account and self-assesses the GST/HST. 

Corporate-owned farmhouses can also impact access to the capital gains deduction and intergenerational farm transfer rules.⁸ CRA requires that a farmhouse may be considered an eligible farm asset of the corporation only where its primary use is "accommodation for persons who are actively employed in the farming business or their dependants. Furthermore, the residence must be provided to the persons in their capacity as employees, rather than as shareholders."⁹ 

Alternative approaches for corporate structures 

If corporate ownership makes sense for other aspects of your operation, there are strategies to address these farmhouse challenges. You may be able to isolate the house from the farm property by acquiring beneficial ownership of the farmhouse from the corporation at fair market value, ideally supported by an independent appraisal. On future sale of the property, the corporation would sell legal title to the entire farm, with the proceeds allocated between the corporation for the farmland and you for the farmhouse. 

Key requirements include:

• Enter into a properly drafted agreement of purchase and sale for the building 

• Prepare a long-term land lease agreement with the corporation for the land subjacent and contiguous to the farmhouse, with fair market value lease payments that are exempt from GST/HST 

• Document a trust agreement showing that all beneficial interest, including rights of possession and alienation, pass to you, while legal title remains with the corporation as bare trustee 

• File an annual T3 trust income tax and information return to report the trust relationship¹⁰ 

• Address your terminal wishes for the farmhouse in your wills  

• Claim the principal residence exemption on any disposition¹¹ 

These arrangements require careful legal and tax structuring to ensure they meet all regulatory requirements while achieving your goals. 

Finding the right structure for your farm 

The best ownership structure for your farmhouse depends on your overall farm operation, your family's situation, and your long-term plans. Each approach—individual, partnership, or corporate ownership—creates different tax implications and planning opportunities. 

Evaluating factors like succession planning, liability protection, and tax efficiency helps determine which structure aligns with your goals. Whether you're purchasing a new farm property or restructuring an existing operation, we're here to help you implement a solution that protects both your home and your farming operation. 

Technical references: 

¹ To self-assess GST/HST, you would typically report GST/HST deemed collected on line 205 and GST/HST deemed paid on line 108 on the GST/HST return for the filing period including the purchase date. Where the entire commercial (farm) property will be used in the commercial activity of the purchaser, both amounts are equal to the applicable GST/HST rate times the purchase price, so there is no net impact on GST/HST payable for the period. 

² You can find a discussion of select issues related to qualified farm or fishing property eligible for the capital gains deduction here. 

³ See paragraph (e) of the definition of "principal residence" in section 54 of the Income Tax Act and CRA's interpretation of these rules in Income Tax Folio S1-F3-C2, "Principal Residence", paragraphs 33-35 (accessed January 7, 2026). 

⁴ See subparagraph 40(2)(c)(ii) of the Income Tax Act and related Regulation 2300. CRA's commentary on this election is found in Income Tax Folio S1-F3-C2, "Principal Residence", paragraphs 43-46 and Appendix B (accessed January 7, 2026). 

⁵ The preamble to the definition of "principal residence" in section 54 of the Income Tax Act specifies that the property must be "owned, whether jointly with another person or otherwise, in the year by the taxpayer". CRA's relieving administrative position concedes that a partnership is not a taxpayer and is found in Income Tax Folio S1-F3-C2, "Principal Residence", paragraph 73 (accessed January 7, 2026). 

⁶ You can find an introduction to the intergenerational farm rollover rules here. 

⁷ See Underused Housing Tax Notice UHTN7 for CRA's comments on fair market value rent in another context. Tax court cases have ruled that fair market value rent could be higher than 5 percent and calculated as a reasonable return on equity for the investment in the house. 

⁸ You can find more details on issues connected with corporate-owned farmhouses here. 

⁹ CRA Interpretation Bulletin IT-268R4, "Inter Vivos Transfer of Farm Property to a Child", paragraph 22. This position was confirmed in CRA Technical Interpretation 2016-0652921C6, with the clarification that the farmhouse residents must be employees of the corporation and not only shareholders. 

¹⁰ Reporting requirements for bare trusts have changed frequently over the past few years, with current proposals expected to require T3 filings beginning with the December 31, 2026, trust year-end. 

¹¹ CRA accepts the possibility of this approach in Income Tax Folio S1-F3-C2, "Principal Residence", paragraphs 79-81 and 91 (accessed January 7, 2026). However, CRA Technical Interpretation 2017-0687961E5 indicates that scenarios lacking the right to sell or transfer the house would not be eligible for the principal residence exemption has been its "longstanding view".