Jake LeGee knows the fields of Saskatchewan’s grain farms well. He’s one of the third generation to help harvest the land, and at 36, he’s already preparing to eventually hand the business over to his three young sons.
“Really, the goal of every farmer, especially while the kids are young, is to get their kids interested at some point,” said Ruge, who farms 6,400 hectares near the small town of Fillmore, about 100 kilometres southeast of Regina.
But he fears they could face difficulties as costs rise, including recent changes to capital gains tax.
“They’re going to be paying more when it comes time to move to Gen 4,” he said. “It’s definitely something we’re already looking at.”
Farmers like Ruge have joined national farm groups in opposing the tax reform, arguing that adding additional burdens to land transfers will discourage the next generation from taking over farming and lead to the decline of family farms.
But the federal government says the changes are intended to bring “tax fairness” and include carefully designed measures to protect family farms.
Ottawa is now raising the tax rate on capital gains, such as profits from the sale of a farm, to two-thirds from an initial rate of 50 per cent, a change that took effect last week, just months after being announced.
As the capital gains tax changes come into force, The National spoke to Andrew Chan for more details: Who will pay it? How much will they pay? And is it really just a tax on the super-rich?
Groups including the Canadian Federation of Agriculture, the Canadian Cattlemen’s Association and the Canadian Seed Growers Association have voiced opposition to the new tax rates. The Grain Growers of Canada has called on the government to maintain the original tax rates for family farms.
The group’s executive director says rising costs are complicating retirement planning and making things even harder for farmers’ children.
“It increases the costs for the next generation who are thinking about taking over. If they don’t have the means or the funds to take over, then the big corporate farms will come in and buy up all the land,” Kyle Larkin said.
Rising farmland values
Based on historical land values, a 320-hectare farm purchased in Ontario in 1996 for $1.28 million would sell for about $15 million today.
As a result, farmers will receive an initial profit of more than $13 million before paying taxes.
Under the previous capital gains tax regime, the family would have paid $3.79 million. Now they would pay $4.79 million, an increase of $1 million.
The federal government says the change is a way to ensure the wealthiest Canadians pay their fair share.
Finance Minister Chrystia Freeland told reporters on June 19 that the reforms were carefully designed to make the tax system fair and support farmers.
She said raising the lifetime capital gains exemption from $1 million to $1.25 million and the new Canada Entrepreneurs Incentive for families who found farms would make the change easier. An exemption for land passed down through generations is also being implemented. A transfer to allow tax deferral.
“Under the new system, individuals, new farmers and entrepreneurs, will be better off than they were before,” she said.
“These are important measures that we implemented carefully as we planned. It was important that the measures were very targeted.”
The impact varies widely: tax professionals
Every farm situation is different and the changes will affect it differently, said Ryan Kehlig, national leader of agricultural tax at accounting firm MNP, who is based in Saskatoon and works with clients on sales, tax returns and intergenerational transfers.
“Even companies that are pretty close to the finish line in terms of implementing succession plans are a bit surprised by this last-minute blockage,” Kelig said.
When a farm is passed down from one generation to the next, the parents usually transfer the property to their children, who then repay it in installments from their daily profits to fund their retirement.
But if capital gains tax on installments is high, your parents will receive less money, putting a strain on the entire household finances.
Kelig said the farmers he works with, especially those approaching retirement, are most concerned about the short time between the tax changes being announced and them taking effect, and some are reassessing their plans.
“It’s causing stressful conversations among some particular customers and industry players,” he said.
Ruge said he was glad he took over his grain farm long before the reforms were implemented, and is now considering how to facilitate intergenerational succession once his children join the business.
“Everything we have here is thanks to the efforts of my grandparents and parents,” he said.
“It only makes sense to carry on this tradition and continue building this farm for the next generation,” he said.
