Ottawa-Weeks of pounding away at the federal government’s modifications to capital gains rules in Budget 2024 has finally produced some changes but a lot more are needed, say farm groups and the Canadian Federation of Independent Business (CFIB).

Following a federal announcement that consultations to advance key budget priorities would be conducted to boost economic growth, improve tax fairness and ensure Canada’s financial sector works for all Canadians, the Canadian Federation of Agriculture said it was pleased that multi-generation farms would be included in eligibility for specific provisions.

While that is what it called for after the budget was presented in April, CFA said it is “engaging with members on the details of what's been proposed to ascertain the full implications for agriculture. We also continue to examine the full implications of the change to the capital gains inclusion rate and need to assess this proposal in light of the broader tax policy dynamic, given our ongoing concerns around how those changes impact ongoing farm transfers.”

Grain Growers of Canada said the government is proposing enhancements to the Canadian Entrepreneurs’ Incentive (CEI) that will benefit some grain farmers. “However, these revisions do not sufficiently address the substantial impact of raising the capital gains inclusion rate from one-half to two-thirds on primary food producers. Additionally, the added complexity introduced by the CEI, alongside the increased inclusion rate, will drive up accounting and legal expenses for farmers, putting further pressure on their finances.

“Patchwork approaches and fragmented incentives won't deliver the economic growth and support that Canada’s grain farmers and rural communities need,” GGC said. “Comprehensive, forward-thinking policies that support farming operations by encouraging innovation are what Canadian grain farmers need. Most importantly, the government must move away from discouraging the ambitions of our current and future grain farmers and instead partner with them to address the productivity and profitability challenges that impact the agricultural sector.” GGC said it still wants he government to revert to the original one-half inclusion rate for intergenerational transfers.

The Canadian Cattle Association said that consulting with tax advisors has shown it the uniqueness – and potential complexity - the latest capital gains changes could have on each producer’s situation. “It appears to affect producers and farmers without solid succession plans in place the most – and mainly at the time of outright sale vs. family succession. The importance of producers doing proactive succession planning and consulting with a strong team of tax professionals for their individual businesses has also been underlined.

“CCA is appreciative of the clarity that the CEI changes have provided and looks forward to the federal government providing further information for producers and farmers in the coming months.

CFIB President Dan Kelly said the CEI will reduce the amount of capital gains paid by some business owners when they sell the shares of their business but does fully offset the negative impact of the hike in the inclusion rate.

The changes mean that farmers and fishers selling property will now have access to the CEI program instead of only those selling shares and it will be phased in over five years instead of 10.

“These are all good moves, but the government did not move on one of the most critical changes - the need to expand the CEI to all entrepreneurs,” Kelly said. “It appears hundreds of thousands of small businesses will continue to be specifically excluded, including owners of restaurants, hotels as well as those in finance, insurance, real estate, arts, entertainment, recreation, and professionals like doctors, lawyers, accountants. It makes no sense to have a different tax treatment between a retail shop and a local restaurant.

“The CEI itself is a positive measure. While the new amendments will help many, they will not benefit the many business owners who sell their assets rather than shares - other than farms and fishers - or those who have capital gains within their corporations. For them, the increase in the inclusion rate will hit hard. CFIB will continue to push Ottawa to reverse the hike in the inclusion rate and expand the CEI to all SMEs.”

This news item prepared for National Newswatch