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Family farms face 30% tax hike

Family farms face 30% tax hike

Capital gains inclusion rate change raises concerns

By Jean-Paul McDonald
Farms.com

The upcoming changes to the capital gains inclusion rate are poised to significantly impact family-owned grain farms across Canada. Set to take effect on June 25, these changes could increase taxes by as much as 30% for these farms, according to recent findings by the Grain Growers of Canada (GGC).

Kyle Larkin, Executive Director of GGC, explained that the research conducted in collaboration with farm tax experts shows a substantial increase in tax burdens, particularly affecting family-run operations.

"An average family-owned grain farm will see a 30% increase in taxes due to the revised two-thirds capital gains inclusion rate. This not only complicates retirement planning but also the transfer of farms to the next generation," Larkin stated.

The impact is stark, with examples showing a dramatic rise in potential taxes.

For instance, an 800-acre farm in Ontario purchased back in 1996 would face about $1.2 million in additional taxes if sold today. Similarly, a larger 4,000-acre farm in Saskatchewan would see an increase of just over $900,000 in taxes.

This tax change comes at a critical time as over 40% of Canadian farmers are nearing retirement age within the next decade, introducing significant uncertainty into their financial planning.

"Despite the government's claims of 'Fairness for Every Generation' in Budget 2024, these tax increases unfairly burden the next generation who already face high costs in farm transfers," added Andre Harpe, GGC Chair.

Farmers, often described as "cash poor, asset rich," invest heavily in their operations. They continually upgrade facilities and equipment, which contributes to their high asset value but does not necessarily translate to liquid wealth.

The proposed tax increase not only threatens the viability of existing farms but also makes it more challenging for new families to enter the farming industry.

The decline in family-owned farms, a trend noted by Statistics Canada with a 2% decrease from 2016 to 2021, could be exacerbated by these tax changes.

To mitigate these impacts, GGC is urging the government to consider exemptions for intergenerational transfers to maintain the affordability and feasibility of continuing family farming operations in Canada.

"In doing so, we can help ensure that family farms remain a vital part of our agriculture sector's backbone," Larkin concluded, emphasizing the need for policies that support the transition of farms between generations without prohibitive costs.

Photo by: pexels.com


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