On June 25th, the government increased the capital gains inclusion rate from 50% to 66%. While the intended goal was to target the “wealthiest Canadians,” unfortunately, this tax increase will impact most grain farmers and their succession planning.
On August 12th, the government announced changes to the Canadian Entrepreneurs Incentive (CEI). Notably, they changed the criteria for founders of the corporation to allow intergenerational farms to gain access. They also shortened the phase-in period of the CEI from 2034 to 2029, and extended the incentive to include qualified farm and fishing property
While the enhancements to the CEI will benefit some farmers, most farmers who produce the majority of the food that Canadians and the world rely on will face an increased tax burden.
Not only will this cost primary food producers millions of extra dollars, but it also:
01
Targets Farmers Retirement Plans
Today, the average age of Canadian farmers is over 55 years old, and many will be retiring over the next decade. For most, their land and assets are their retirement plan, as they do not have access to pensions or RRSP matching programs like other Canadians.
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This tax increase will introduce uncertainty into farmers' retirement planning by targeting those funds.
02
Increases Cost for Young Farmers
Budget 2024 was titled “Fairness for Every Generation,” but these changes will have the opposite effect on the next generation of farmers who are already facing expensive transfers.
National farmland values appreciated 11.5% in 2023 alone.
With the average cost per acre increasing year-over-year, the next generation is already facing financial hurdles. This tax increase moves the goal posts for the next generation to take over the family farm by hundreds of thousands or even millions of dollars.
03
Prices Out Many Families
A 30% tax increase dramatically increases the cost of farms, pricing out many families. With agriculture land already so expensive, the only ones that will be able to afford to pay millions of extra dollars will either be corporate farms or development companies.
04
Further Complicates the Tax Code
The added complexity introduced by the CEI, alongside the increased inclusion rate, will drive up accounting and legal expenses for ALL farmers, putting further pressure on their finances. While large accounting firms will benefit, grain farmers will be forced to spend tens of thousands of dollars more in fees.