Many farmers are getting nervous about the future of their family farms under the Liberal government’s proposed tax changes.
Mike Farrer is a chartered professional accountant with Great Plains Accounting in Regina. He has been on the phone with many farm clients.
He explained that there may be major unintended consequences on the transfer of farmland from one generation to another.
“The number being bandied about is around 72 per cent, I don’t think it would actually be that high when the rubber hits the road,” Farrer commented. “But that’s certainly enough to shock people into looking at the structures that they have and maybe calling people like me, or calling their MP and saying, ‘OK what is going on here?'”
While these changes are mainly aimed at farms that are incorporated, Farrer said it could also possibly apply to land that is held in partnerships.
“We’re hoping that it’s not enforced as it’s written and they go more with the spirit of the intention, rather than the actual bones of it and what is in there,” he said. “The spirit would be that if you want to transfer your farm to a farming child, there shouldn’t be a giant tax burden associated with that.”
He noted that to get to the 70 per cent mark you have to add a few elements together, but the base would be 50 per cent.
Farrer explained that the current Canadian tax law allows for close to a tax-free transfer of land from one generation of farmers to the next. He said the current tax regime allows for a peaceful easy transfer of land.
“The reason we’ve had that in place is because farms are expensive to operate, and if you need to borrow enough money to finance the purchase of the operation, you’re going to have a tough time borrowing any money to operate.”
He said it has become more common for farmers to incorporate for many reasons beyond paying lower taxes. For example, with the high price of land, he said it’s easier to pay down your debt in a corporation.
Farrer would like to see the government take more time on the consultation before implementing these proposed reforms.
“Seventy-five days during the summer is simply not enough, especially when you’re talking about the kind of sweeping changes that these proposals are putting forward.”
The proposed tax reforms have also drawn criticism from small business owners who are worried about the impact of restrictions on income sharing.