Some Canadian farmers are expressing dissatisfaction with recent changes to a federal incentive aimed at mitigating the impact of an increase in the capital gains inclusion rate. These farmers, particularly represented by the Grain Growers of Canada, argue that the modifications do not adequately address the challenges faced by the agricultural sector and are calling on the government to revert the inclusion rate for farmers to its previous level before this year’s adjustments.
Kyle Larkin, Executive Director of Grain Growers of Canada, voiced his concerns to Global News, stating that while the changes might benefit some farms, the majority of Canadian farmers will still experience a tax increase.
He emphasized that many farms are incorporated, and while a farmer’s primary residence is exempt from capital gains tax on sales, they will still be subject to a 67% inclusion rate on gains realized from the sale of farmland.
To illustrate the impact, Larkin provided an example of an Alberta farm, approximately 2,500 acres in size, which was purchased for $1,385,000 in 1996. This farm could potentially sell for $17,250,000 in 2023, resulting in a profit of $15,865,000 before taxes. However, Larkin pointed out that the substantial gains do not translate directly to the farmers’ pockets, as they have significant debts to pay off, including equipment leases.
John Oakey, Vice-President of Taxation with the Chartered Professional Accountants of Canada, explained that the changes to the Capital Gains Exemption Incentive (CEI) are intended to mitigate the effect of the capital gains increase. He noted that the adjustments make the program more accessible to a broader range of farmers and fishers, especially those who do not have shares in a corporation.
Additionally, the phasing-in period for the incentive has been reduced to five years, allowing eligible individuals to access the full $2 million incentive sooner.
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Some organizations, like the Canadian Federation of Independent Business (CFIB), have welcomed the changes, particularly the expanded access for farmers and fishers. However, the CFIB also criticized the exclusion of other entrepreneurs, such as restaurant owners and those in the arts, from the incentive program.
According to Statistics Canada’s 2016 Census of Agriculture, approximately 97% of Canadian farms are family-owned. Larkin highlighted the additional stress placed on these families by the capital gains tax, particularly for younger farmers who are already burdened with significant debt during generational transitions.
In summary, while the changes to the federal incentive have been met with some approval, many Canadian farmers believe that they do not go far enough in addressing the financial pressures of the capital gains inclusion rate increase, leading to calls for further revisions.
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