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Winter
2018
Grains
West
30
While most of the anti-avoidance
rule changes impacted farmers with
corporations, one change could have
greatly affected unincorporated farms.
“Under the proposal, if you transferred
land to a child and they later sold it,
their capital gains exemption would be
reduced by however much the land
appreciated from the time you first
purchased it to when that child turned
18,” said Good. “So, if you bought
land in 1975, sold it to your 18-year-old
daughter in 2017 and she sold it 10
years later, all the gain in land value from
’75 to 2017 would come off her capital
gains exemption.” Since that gain could
represent 90 per cent of the exemption,
the reason for concern was clear.
Perhaps anticipating some of these
objections, the government provided
a 75-day consultation period—which
ended Oct. 2, 2017—to gather taxpayer
feedback on the proposed changes.
That’s when a potential bad-news story
for agriculture took a turn for the better.
Commodity organizations and individual
farmers from across the country voiced
concerns with the proposals and, more
importantly, had their voices heard.
“Right away, we met with the Prime
Minister’s Office and the Department
of Finance Canada,” said Bonnett. “We
also joined with other groups to have (tax
and legal consultant) MNP evaluate the
impact of the changes and give us hard
numbers to support our position.”
When the smoke cleared from all of the
meetings, phone calls and emails, most in
agriculture liked what they saw.
It began with Ottawa saying it would
move forward on an election pledge to
lower the small business tax rate to nine
per cent from 10.5 per cent by 2019, but it
certainly didn’t end there.
“Proposed rules to discourage using
corporations for passive investing will
move forward, but a new threshold will
allow $50,000 in income a year to be
exempt from the new higher tax,” said
Good.
So, assuming you earn a three per cent
return on your investments, you could
have $1.6 million in cash in your company
and not have it taxed as passive income.
“That’s a lot of cash to have around for
buyingmachinery or your next quarter-
section, which alleviates a lot of worries
we had as a resource-based industry,”
said Good. However, the active farm asset
test remains in place, requiring no more
than 10 per cent of all assets owned by the
company remain inactive. Failing this, said
Good, the company is “offside” for the
family farm rollover and the capital gains
exemption when transferring shares.
The government also pulled the
proposed limit to the capital gains
exemption, meaning children can
once again sell land purchased from a
parent with no risk of their capital gains
exemption being reduced when they go
to sell it themselves. A holding rule also
remains in place, prohibiting the sale of
land for three years after its transfer.
Perhaps of greatest relief to many
farmers is the nixing of the surplus
stripping rules. “There’s no longer the
prospect of paying more tax when you
sell land to your offspring as opposed to a
stranger,” said Good. “That’s a huge deal
for the industry.”
And given what has transpired since
the initial announcement, Good said the
industry should take a collective bow.
“There has been almost a complete
reversal of tone from the government,”
said Good. “That’s a tribute to everyone
involved.”
Last but not least, Good recognized the
government for listening and responding
to industry concerns. “This is a feel-good
story on many levels. Usually we complain
and nothing happens, but this time
everything happened.”
From Bonnett’s perspective, this
saga showcased the value of farm
organizations like the Canadian
Federation of Agriculture that can pull
numbers together quickly and gain access
to decision-makers before it’s too late.
“It also shows you can have a strategic
plan for the next five or 10 years and then
suddenly have to scrap it and make a
new one,” said Bonnett. “To succeed at
anything you must be able to adapt, and
farmers are very good at that.”
Through all the ups and downs, many
observers say the industry showed its
true colours with perseverance and
teamwork. And in the process, it turned
what could have been a black mark on
business-government relations into a red-
letter day for all concerned.
Federal FinanceMinister Bill Morneau, left, during a visit to Crasdale Farms in South Rustico, P.E.I.