Farmers will take hit from new capital gains tax

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Farming organizations are joining the chorus of concern over the federal government’s capital gains tax changes, with one group warning a House of Commons committee Tuesday that family-owned farms will be negatively affected.

“This policy inadvertently targets farmers who produce food to meet domestic and global demand and, as small businesses that are family-run, they do not represent the wealthiest among us,” Wheat Growers Association president Günter Jochum told the house finance committee. “By making farming financially less attractive, the number of farms will continue to dwindle, leading to greater consolidation and fewer family-owned farms.”

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The federal government’s capital gains tax changes were introduced in April’s budget and increase the inclusion rate from 50 per cent to 66.7 per cent for individuals with more than $250,000 in capital gains in a given year. Corporations will face the higher rate for all capital gains.

Jochum noted that most Canadian grain farms are structured as corporations and thus will be affected by the changes.

Last week, Finance Minister Chrystia Freeland tabled a separate motion to approve the changes, which passed with support from the NDP and the Bloc Québécois. The changes are set to take effect on June 25 and the government has projected they will bring in $19 billion in revenue over the next five years.

These changes have faced heavy criticism by professionals, including doctors and certain independent business owners, who frequently incorporate and use their businesses for retirement planning purposes.

The Canadian Medical Association and the Canadian Federation of Independent Businesses have repeatedly expressed concern over the impact the changes will have on their members’ future financial plans.

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Similarly, Grain Farmers of Ontario, which represents 28,000 farming members, said the new rules will hit farmers when they try to pass down their properties to their children.

“Family farm succession faces enough challenges without forcing new tax measures on farmers during planting season,” the group said in a statement released June 14. “It is critical that the government fully assess the impacts of these changes, consult those who are impacted, and work to mitigate the impact on Ontario farms.”

Farm property owners such as Jochum can take advantage of the Lifetime Capital Gains Exemption (LCGE), which allows tax-free capital gains up to a new limit of $1.25 million on the sale of qualified farming and fishing properties. But he argues it’s not enough in the face of rapidly appreciating farm property values.

Canadian farmland values increased by an average of 11.5 per cent last year, according to a report published by Farm Credit Canada.

My farm is my retirement, and a family farm transfer is a very difficult job to do

Günter Jochum

While farmers do not have to pay capital gains on the sale of their primary residences, farmland sales are taxed.

“My farm is my retirement, and a family farm transfer is a very difficult job to do to satisfy everyone’s needs within the family,” Jochum said. “On the advice of my accountant, I did pay a little bit into RRSPs, but he said you are better off investing in your farm.”

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There are other tax benefits that farmers can take advantage of, including a capital gains tax deferral. Farmers are also entitled to what’s called a capital gains reserve, which allows them to average capital gains income from a farm transfer over a number of years.

Nevertheless, Jochum said he expected a tax hit.

“When I consulted my accountant, he told me I will pay 30 per cent more in taxes,” he said.

A study conducted by Grain Growers of Canada backs up Jochum’s claim. In partnership with farm tax accountants, the study concludes that farms bought in 1996 and sold after the changes take effect, will see an increase of 31 per cent in taxes in Alberta, Saskatchewan, Manitoba and Ontario.

The study also looked at a case study in Alberta, with the practice of a farmer and spouse both being shareholders in the farm, allowing for both to use their capital gains exemptions. While these help decrease the amount of taxes owed, it still showed a substantial increase in taxes owed.

The finance committee was meet to hear from witnesses regarding the capital gains tax and other budget measures.

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• Email: jgowling@postmedia.com

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