Capital gains changes: Farmers say federal government’s latest push ‘doesn’t go far enough’ – National

Some Canadian farmers say changes to a federal incentive touted as a way to soften the impact of the capital gains rate hike “don’t go far enough” and are calling on Ottawa to return the rate for farmers to what it was before this year’s change.

On Monday, the Treasury Department provided more details about the Canadian Entrepreneurs’ Incentive (CEI), which when first announced in April said it would halve the capital gains tax — to 33 per cent — up to a cap of $2 million by the time it was fully rolled out in 2034.

The new amendment moved that forward to 2029, with incremental increases of $400,000 starting in 2025.

The scheme also meant that only founders of a company were eligible, but that has now been abolished and the requirement to own 10 percent or more of the shares has been lowered to 5 percent.

Under Ottawa’s changes, the tax rate for taxable capital gains has been increased from 50 to 67 per cent for individuals who realise more than $250,000 of those gains annually. However, that same increase will also apply to all such gains made by corporations and many trusts.

“It certainly doesn’t go far enough,” Kyle Larkin, executive director of Grain Growers of Canada, told Global News. “It will benefit some farms in Canada, but most farmers will not benefit from it and they will still see a tax increase.”

According to the Grain Growers of Canada, which is based in Canada, while there is no capital gains tax payable on a farmer’s primary residence, he still pays a 67 percent rate on any profits he realizes from the sale of farmland.

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To give perspective, Grain Growers calculates that a farm in Alberta Of the approximately 2,500 acres purchased in 1996 for $1,385,000, the potential sales volume could be approximately $17,250,000 in 2023, for a pre-tax profit of $15,865,000.

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“But that money doesn’t go directly to the farmers,” Larkin said. “They have debt that they have to pay off, a lot of the equipment is leased … so there’s a lot of debt that has to be paid off before they actually make a profit on their sales.”

John Oakey, vice-president of tax at the Chartered Professional Accountants of Canada, told Global News the changes to the lifetime capital gains exemption — which exempts up to $1.25 million in realized capital gains — are an adjustment to a program designed to “mitigate the impact” of the increase in capital gains.

He says the biggest impact is that more farmers and fishermen can apply for the program, since the previous requirements were to have shares in a company, something that not all farmers have.

“By opening the door to agricultural and fishing lands, it aligns more closely with the criteria used for the capital gains exemption,” he said. “It’s broader for them and it should make it more accessible for agriculture and fishing.”

Oakey added that by reducing the phase-in period to just five years, people would not have to wait until 2034 to receive the full $2 million stimulus payment.

“Especially because we are in a period of major transitions between generations of businesses, including farming and fishing businesses,” he said.

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Some organizations are cheering the decision. The Canadian Federation of Independent Business, for example, said it was pleased with a number of changes, including greater access for farmers and fishermen and the addition of businesses that offer personal services.

However, there was criticism of the decision that not all entrepreneurs, such as restaurant owners or artists, were included.

According to Statistics Canada’s 2016 Census of Agriculture, about 97 percent of Canadian farms are family-owned. Larkin says many people want to keep the business in the family, but the capital gains add to the stress.

He said young farmers are already struggling with “millions of dollars” in debt from the transition, but the tax changes will only increase that amount.

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