Farmers, get ready for some better planned and less panicky tax analysis.
With the federal government abandoning its plans to eliminate some key farm tax provisions, farmers and their advisers can assess the remaining proposals with less anxiety.
For tax advisers, it means they can assess the impact of the re-maining proposed changes and focus on the most pressing concerns. Until now, tax experts have had to cover a broad waterfront of implications.
“You wouldn’t believe the amount of hours professionals across the country have been putting into this,” said Ron Friesen, a farm tax specialist with Meyers Norris Penny in Saskatoon.
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“You’ve got to give the government credit for listening, but … why didn’t they consult and plan ahead of time, rather than having to go through all the stress and reams of work people had to go through to convince the government that their plan was faulty?”
Over the course of a week, Morneau provided more details on the government’s proposals, beyond announcing that the capital gains tax exemption would not be touched by this set of proposals.
Those include:
- Allowing non-core investments within a company (“passive investments”) to earn up to $50,000 per year before being hit by a higher tax rate;
- Proceeding with preventing dividends being paid out to non-contributing members of the family at the dividend tax rate, but promising to carefully detail what will count as contributing and not contributing.
“They’re adamant they don’t want any sprinkling unless the individual is involved (in the business),” said Friesen.
“They’re sticking to it.”
The passive income rules might not be as simple as might seem, because Morneau said old investments and the income from them won’t be touched by the new rules.
But does the $50,000 earning limit apply to old investments? Can old invested money be shifted into different investments and still count as protected money?
“We see how (passive income rules) get legislated in,” said Friesen.
Before Jan. 1, when the rules are planned to come into force, farmers might have to make some tax decisions. Farmers can now pay out dividends to children in post-secondary education, but that probably won’t be allowed from 2018 onwards.
“They’ll still need to do their one last planning event in the next couple of months” if they want to take advantage of the lower dividend tax rate, Friesen said.
With the incoming rules appearing less threatening, Friesen hopes the government can work more co-operatively with small businesspeople and tax planners.
