Proposed tax changes for private corporations: a threat to farmers

November 8, 2017

 

Farmers are still out there harvesting, but many are hearing about the proposed federal tax changes for private corporations – and they are seething.

 

The proposed changes are complex, but what is known is that they will bring uncertainty for family farms that have incorporated. In Manitoba, we see that a quarter of the farms have incorporated, following a country-wide trend to address succession planning.

 

It’s apparent that changes to the lifetime capital gains exemption will create disincentives to passing on the family farm to the next generation. Many farmers look at this as akin to stealing from their children.

 

Many farmers’ assets are tied up in land and buildings. In the proposal, if these assets are turned over to the next generation, it will be at increased tax rates. There could be huge tax bills associated with these transfers.

 

Changes to the capital gains exemption will threaten the future financial health of multigenerational farms – if they survive – and will encourage young people to leave an aging industry. The average age of Manitoba farmers is 55.

 

This does not speak well to the long-term viability of the industry.

 

The proposed plan also does not take into account the financial risk farmers take each year. If these tax changes are implemented, farmers will also face higher costs, with fewer options to manage business risk – which is inherent to farming because of climate challenges and global price pressures.

 

Furthermore, tax planning helps farmers build resiliency to withstand year-to-year instability as a result of crop loss, low livestock prices, and natural disasters. Although small businesses, farmers must invest in millions of dollars of machinery and inputs to operate their farms, and are at prey to rising interest rates.

 

Tax planning for farmers is a legitimate practice to even out losses – and transfer the assets necessary to run the family farm to the next generation. It is not a loophole as the government is calling it. I think the government is targeting those who use a corporate structure to hide income and avoid being taxed, but I can assure it this is not the case with farmers.

 

The prime minister has indicated in the recent past that agriculture and agri-food are key sectors for growth opportunities, but I can`t see how this growth will happen when farms may not be sustainable and may not be passed reasonably to the next generation.

 

It may come as a surprise, or possibly a shock, that the prime minister said: “Agricultural policy must be developed from the farm up, not from Ottawa down.”  

 

However, he did say this at the 2014 Canadian Federation of Agriculture annual meeting in Ottawa.

 

This was certainly not the case with these tax proposals. The complexity of the changes require a thorough analysis by farmers and their financial advisors. However, the federal government only provided an 11-week window for the industry’s input, and this was from mid-July to October 2 – one of the busiest times of the year for farmers.

 

It’s clear that a meaningful consultation can’t happen during harvest. 

Many tax practitioners have had over a month to review these highly technical changes to the Income Tax Act, and they are still studying them.

 

Farmers weren’t consulted before these tax policies were developed either, and I’ll argue that the government isn’t going to do any meaningful consultation with our industry after they’ve been announced. So much for the farm up, and not Ottawa down.

 

Targeting farms with these tax policy changes clearly demonstrates a lack of understand about how and why farms across Canada are structured the way they are. The prime minister and finance minister need to shelve this tax plan they’ve announced, go travel to some farms, and spend serious time listening and learning about the complex challenges we face managing our operations.

 

 

Dan Mazier is president of Keystone Agricultural Producers. He farms grains and oilseeds near Justice, Manitoba.

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