Ottawa-The Commons agriculture committee has launched a study of the capital gains tax inclusion rate change and intergenerational family farm transfers that will include hearings with various agriculture organizations.

Kyle Larkin. executive director of Grain Growers of Canada (GGC), told the first hearing that the study is critical for family farms, which constitute more than 97 per cent of the country’s agriculture operations. “Canada is losing 500 to 1,000 family farms each year … due to an increase in the challenges that farmers are facing, which includes increasing input prices, changing weather patterns and increasing taxes. When operating a farm is already so difficult, the last thing farmers need is increased taxation from the federal government.”

GGC has opposed the capital gains tax increase since its introduction in budget 2024 because a study with farm tax accountants found “farmers would generally pay 30 per cent more in taxes due to the increased capital gains inclusion rates,” Larkin said. “This capital gains tax increase targets farmers' retirement plans, moves the goalposts for the next generation of farmers and prices out many families from their own operations.”

National farmland values appreciated 11.5 per cent in 2023 further increasing the burden. “The capital gains tax increase moves the goalposts for these future farm owners, adding hundreds of thousands or even millions of dollars to the cost of taking over family farms.”

Julie Bissonnette, a director of the Canadian Federation of Agriculture (CFA), said with 40 per cent of the current farmers expected to retire in the next 10 years, many challenges face the sector beginning with higher land values and the increased fixed assets on farms. 

“Farmers invest everything in their operations to innovate, adapt or become more efficient. They rely on these fixed assets to fund their retirement. That said, they must also face climate, market and supply chain risks largely beyond their control. They must be able to count on an effective risk management program to ensure the long term financial health of Canadian agriculture. Every dollar lost to uncontrollable risks means a dollar no longer available to support the financial health of the next generation. Remember that cash flow remains a key issue for the next generation of farmers.”

The complexity of farm management can discourage farmers from handing over the reins to the next generation, or even from simply passing on management advice, she said. “This may discourage the next generation and create additional risk for the business. Farmers are discouraged by the idea of spending years planning to successfully hand over their farm.”

Larkin said the draft capital gains legislation will continue to represent higher taxes for most farmers. It “will further complicate the tax code at a time when most economists and financial experts are asking for a simpler code. The added complexity introduced by these changes will drive up accounting and legal expenses for all farmers, putting further pressure on their finances. While larger accounting firms will benefit, grain farmers will be forced to spend more in fees.”

GGC wants the government to allow intergenerational farm transfers to be taxed at the original one-half inclusion rate. “This will ensure that government can be an equal partner in supporting family farms, ensuring they remain the backbone of Canadian agriculture.”

Bissonette said increased capital gains inclusion rate has only made matters worse for people preparing to transfer or sell their farms. “For large farms, the tax owed will likely be much higher than anticipated. This could compromise the financial health of a future business.”

CFA wants the inclusion rate increased to be reviewed to avoid compromising the financial health of family farms and the rules for transferring family farms more flexible. As well, there should be an immediate review of the agriculture business risk management programs “to ensure that they keep pace with changing risks, while also taking measures to support young farmers.”

The government should work the provinces to invest in suitable childcare in rural areas and invest in young farmer networks to promote peer to peer learning and information sharing and to help prepare the next generation of farm managers.

This news item prepared for National Newswatch