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$1 of earned income. When you’re paying half a million dollars
for a combine, you need a rainy-day fund from passive income
to make a reasonable down payment. Equating farmers to
professionals who just pay office rent is a classic case of apples
and oranges.”
One of the most concerning proposals for many in agriculture
related to succession planning. This
change, which Good said impacted
incorporated farmers, related to the anti-
avoidance rule and something called
“surplus stripping.”
“For the first 40 years of their lives,
farmers sacrifice income to create capital
wealth,” said Good. “When they retire,
they want to convert that capital wealth
into income using the capital gains
exemption. Since a farmer doesn’t have
a company-paid pension plan, this is the best option for funding
their retirement.”
Using the example of someone selling a quarter-section of
land to his or her company for $500,000 to claim the capital
gains exemption, Good explained the problemwhen tax
changes prohibit that practice: “Under the new rules, that
$500,000 would have been taxed as a deemed dividend at up
to 36 per cent even if I sold the land to my incorporated son or
daughter, as many farmers are inclined to do. But if I sold it to a
neighbour or complete stranger, I [would have] paid no tax.”
Ron Bonnett, president of the Canadian Federation of
Agriculture, shares Good’s concern about altering succession
rules. “This change could be where farmers [would have felt]
the most impact,” he said. “If you can’t
take full advantage of the capital gains
exemption for transferring your business
to the next generation, you may not have
enough money to retire and your son or
daughter will have to pay more for the
operation. So, it’s really a double whammy
affecting both buyer and seller.”
For Alberta Barley board member
Dave Bishop, who farms near Barons,
this change epitomized what was wrong
with the proposal and the process. “I’ve invested a lot of time
and money in succession planning so I can pass the farm to my
sons, and I did that based on the provisions of the Income Tax
Act,” he said. “If they were to change key elements of the act
without considering all the consequences, how could I plan
for the future and play by the rules when I don’t know what
they are?”
“In farming, it takes at least
$9 to $11 of capital to create
$1 of earned income.”
–Merle Good
Canadian Federation of Agriculture president Ron Bonnett believes the alteration of the proposed federal tax changes illustrates the value of farmorganizations as industry
advocates.