Government backs off on biggest farm tax proposal

After hearing the federal government is backing off from re-engineering capital gains tax exemptions, Ron Bonnett breathed a sigh of relief.

“They seem to be responding to those concerns,” said Bonnett, president of the Canadian Federation of Agriculture said in an interview Oct. 16.

“When they introduced the proposals, I don’t think they realized what some of the broader effects would be.”

The comments about capital gains taxes were made Oct. 16, as the Prime Minister Justin Trudeau and Finance Minister Bill Morneau offered a broad vision of how they are hoping to overhaul small business taxes now that that the finance department has had a chance to consider public feedback. It includes:

• Not limiting access to the Lifetime Capital Gains Exemption, as previously proposed.

• Continuing to move forward with eliminating the ability of business operators to “income sprinkle” by paying dividends to family members not actively engaged in the operation.

• Defining better who does and does not qualify to receive dividends from a company, based on their contribution of labour, capital, risk and previous investments.

• Dropping the small business tax rate from 10.5 percent to nine percent over the next few years.

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The last point delighted Bonnett, who said “That’s good news for everybody.”

The previous Conservative government had promised to drop the tax to nine percent and the Liberals had promised to match that, but after being elected, the government had not yet moved forward with the tax cuts. It now intends to deliver the cut in stages, culminating in a nine percent rate by Jan. 1, 2019.

Federal Agriculture Minister Lawrence MacAulay, in an Oct. 16 news conference call, said “I’m pleased with anything that can be an asset for the agriculture sector and of course it will be an asset to the agriculture sector…. We want more people to invest more dollars to make sure their business or their corporation expands and hire more people.”

Farm succession adviser and author Elaine Froese said many farm families are upset by the uncertainty created by the looming overhaul of the tax system and the lack of clarity about what the changes will mean at the farm level, but she urged families to continue to plan for the future and not become paralyzed.

“You’re just going to have to make decisions based on the best information you have at the time,” said Froese.

“You’re not going to get certainty from the federal government for a very, very long time.”

Whatever the eventual rules, it will take years for the Canada Revenue Agency to make clear how it is interpreting them, and for the courts to make decisions on the CRA’s decisions.

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Froese counselled farmers to work with their advisers because taxes are only one area that has to be sorted out with farm transfers and sometimes they are not the most important consideration.

The federal government’s changes to its tax proposals were seen by many as a damage-control response to the wave of outrage created by the finance department’s July 18 release of the proposals.

The previous hard-line taken by Prime Minister Trudeau and defiant tone of Finance Minister Morneau were replaced with a more compassionate tone, as they talked about their intentions and support of small businesses as they visited a Toronto-area family-owned pizzaria.

Some polls suggest the government has lost support in the past two months, and the Conservatives gained, as the tax proposals ignited a firestorm of anger and concern from small business operators, including farmers.

The finance minister has made a number of statements that his intentions were only to affect tax “loopholes” exploited by the wealthiest Canadians, and made particular mention of his desire to not hurt farm families.

Bonnet said analysis done by the CFA and others helped the government realize it needed to fix some of the proposals for more than just political reasons.

“When they saw that they realized that there were unintended consequences,” said Bonnett.

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  • Sue Michalsky

    I just hope not to be one of the court cases! CRA will hire an army to audit everyone.