Ottawa-The federal government’s proposed capital gains tax changes could force farmers to sell off parts of their operation to pay for the transfer of the farm to the next generation, says Jack Chaffe, past president of Beef Farmers of Ontario and co-chair of the domestic agriculture committee of the Canadian Cattle Association (CCA).

Chaffe told the Commons agriculture committee, which is studying intergenerational farm transfer issues, that smooth intergenerational transfers on beef operations within farming families are critical to maintaining the sector's reputation as a major contributor to global and domestic food security.

The proposed measures will increase the requirement to sell off pieces of farms, he said. “The federal government needs to ensure that this does not happen and jeopardize the current tax policies that allow continuing of the intergenerational transfers of beef operations within families. These include mechanisms such as employment ownership trusts and small business corporation shares.”

CCA is “concerned about the lack of meaningful consultation time in advance of this announcement in the budget. Beef producers did not have time to analyze the changes and their impact on their family operations. It is important that the government recognize the undue consequences to each operation. It is difficult to quantify the changes of the sector within the proper consultation time.”

While proposed changes to the capital gains tax announcement were welcome, increasing the capital gains inclusion rate risks weakening smooth intergenerational farm transfers to the younger producers, he said.

“The majority of Canadian cattle farms operate under family-run businesses. Each farm has its own unique operational structures. To address the vast differences between those structures, producers need greater clarity” on the impact of the capital gains tax changes.

“As our sector continues to adopt and create new business structures, such as those where aunts, uncles, nieces and nephews are now working together, we need to ensure that these new structures are realized and reflect the government's tax policy when it comes to succession planning. By recognizing these new realities, the government can demonstrate that it is meeting the needs and expectations of our sector and not jeopardizing the existing exemptions at a time when we need all tools at our dispose to streamline asset transfers to that next generation.”

Without changes the beef sector “is at risk of losing a significant portion of the workforce, as farmers may retire without a viable succession plan. This also places Canada's rural economy at risk of declining. We need to ensure that government policies do not unintentionally contribute to the decline in agricultural production in Canada.”

Farmers also need better risk management products because AgriStability does not help small or large farms, he said. “It doesn't work for diverse farms, where you may be involved in beef and cash crop and one offsets the other.”

Normally on a farming operation, any profit that is made “is all invested back within the farm, whereas a lot of small businesses would be taking a wage out of that, and, as well, building a retirement fund.” The margins are so tight “within farming that a lot of times there just isn't the capital to put away for investment for retirement. The investment is the farm. When they have to give up a huge portion of that on their sale to the government, a lot of farmers could be left in poverty after building their empires throughout their lives.”

This news item prepared for National Newswatch