Farmers will take hit from capital gains tax changes

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Farming organizations are becoming a member of the refrain of concern over the federal authorities’s capital gains tax changes, with one group warning a Home of Commons committee Tuesday that family-owned farms might be negatively affected.

“This coverage inadvertently targets farmers who produce meals to satisfy home and international demand and, as small companies which are family-run, they don’t characterize the wealthiest amongst us,” Wheat Growers Affiliation president Günter Jochum informed the home finance committee. “By making farming financially much less enticing, the variety of farms will proceed to dwindle, resulting in larger consolidation and fewer family-owned farms.”

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The federal authorities’s capital features tax adjustments had been launched in April’s finances and improve the inclusion fee from 50 per cent to 66.7 per cent for people with greater than $250,000 in capital features in a given yr. Companies will face the upper fee for all capital features.

Jochum famous that the majority Canadian grain farms are structured as firms and thus might be affected by the adjustments.

Final week, Finance Minister Chrystia Freeland tabled a separate movement to approve the adjustments, which handed with help from the NDP and the Bloc Québécois. The adjustments are set to take impact on June 25 and the federal government has projected they’ll herald $19 billion in income over the subsequent 5 years.

These adjustments have confronted heavy criticism by professionals, together with medical doctors and sure impartial enterprise homeowners, who steadily incorporate and use their companies for retirement planning functions.

The Canadian Medical Affiliation and the Canadian Federation of Unbiased Companies have repeatedly expressed concern over the influence the adjustments may have on their members’ future monetary plans.

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Equally, Grain Farmers of Ontario, which represents 28,000 farming members, mentioned the brand new guidelines will hit farmers after they attempt to move down their properties to their youngsters.

“Household farm succession faces sufficient challenges with out forcing new tax measures on farmers throughout planting season,” the group mentioned in a statement launched June 14. “It’s essential that the federal government absolutely assess the impacts of those adjustments, seek the advice of those that are impacted, and work to mitigate the influence on Ontario farms.”

Farm property homeowners corresponding to Jochum can reap the benefits of the Lifetime Capital Beneficial properties Exemption (LCGE), which permits tax-free capital features as much as a brand new restrict of $1.25 million on the sale of certified farming and fishing properties. However he argues it’s not sufficient within the face of quickly appreciating farm property values.

Canadian farmland values elevated by a mean of 11.5 per cent final yr, in accordance with a report printed by Farm Credit score Canada.

My farm is my retirement, and a household farm switch is a really tough job to do

Günter Jochum

Whereas farmers don’t have to pay capital features on the sale of their main residences, farmland gross sales are taxed.

“My farm is my retirement, and a household farm switch is a really tough job to do to fulfill everybody’s wants throughout the household,” Jochum mentioned. “On the recommendation of my accountant, I did pay a bit of bit into RRSPs, however he mentioned you’re higher off investing in your farm.”

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There are different tax advantages that farmers can reap the benefits of, together with a capital features tax deferral. Farmers are additionally entitled to what’s referred to as a capital features reserve, which permits them to common capital features revenue from a farm switch over quite a lot of years.

However, Jochum mentioned he anticipated a tax hit.

“Once I consulted my accountant, he informed me I’ll pay 30 per cent extra in taxes,” he mentioned.

A research performed by Grain Growers of Canada backs up Jochum’s declare. In partnership with farm tax accountants, the research concludes that farms purchased in 1996 and offered after the adjustments take impact, will see a rise of 31 per cent in taxes in Alberta, Saskatchewan, Manitoba and Ontario.

The research additionally checked out a case research in Alberta, with the observe of a farmer and partner each being shareholders within the farm, permitting for each to make use of their capital features exemptions. Whereas these assist lower the quantity of taxes owed, it nonetheless confirmed a considerable improve in taxes owed.

The finance committee was meet to listen to from witnesses concerning the capital features tax and different finances measures.

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