Tax proposals inspired constructive debate between government, agriculture and small businesses
By Kaitlynn Anderson
Staff Reporter
Farms.com
Earlier this week, the Senate Finance Committee held hearings on proposed small business taxation changes that will affect the agricultural industry.
And Mark Wales, an Ontario Federation of Agriculture director who presented to the Senate on Tuesday, gave Farms.com the inside scoop.
The discussion ranged from the possible consequences of the original proposals to how far the government has come in hearing input from the public.
If the federal government had approved the proposed tax changes, there would have been no reason to sell the farm to the next generation, Wales said.
The restrictions would have made the process of transferring the farm to a family member more expensive, according to a release by the Canadian Federation of Independent Business.
“The financial reasons would have driven farmers to sell (their land) to an unrelated third party.”
However, Finance Minister Bill Morneau announced last week that the federal government will not move forward with the proposed changes to the Lifetime Capital Gains Exemption (LCGE).
“The government has done a major reversal. They recognized that they were going down a bad path,” Wales said to Farms.com. “(The government is) willing to admit that there were a lot of unintended consequences for farmers and small businesses, and they’ve made corrective changes.”
Participants in the hearing also discussed income sprinkling.
Originally, the government proposed a reasonableness test for income sprinkling, which would have determined whether a family member could receive income from the family business without being subject to the highest tax rate, according to the Financial Post.
The government has since decided to use another means of assessment, according to Wales.
That method of assessment is still under discussion.
However, the real changes will come in the guidance documents on income sprinkling that are provided to auditors, he explained.
These documents would explain what is and is not considered “fair.”
“In the original proposals, the (Canadian Revenue Agency) acknowledged that they would only accept contributions by 18- to 24-year olds that are employed full time,” said Wales.
“However, most farms do not have any full-time employees. But, they need that help from family members at planting and harvest – those key times. (These contributions are) critical to the operation.”
When individuals in this age range are not helping out on the farm, they may attend school or work off-farm, he said.
“If you don’t have any employees to start with, you’re not going to start up a payroll account just for your children that come home and help during those key periods.”
The group at the Senate hearings also had a positive discussion on the LCGE.
In fact, Wales provided a suggestion that was widely supported.
Currently, the LCGE for farmers is set at $1 million. Wales would like to see it indexed similarly to the LCGE for small businesses.
The LCGE “needs to go up over time to reflect (changing asset values). We know land isn’t going to get any cheaper and we know a lot of the assets are going to get more expensive, so that number needs to move forward over time,” he said.
Overall, Wales is optimistic about the discussions.
“I’m a farmer, so I have to be an optimist,” he said.
Photo: Goddard Photography / iStock Unreleased