Levelling the playing field for a new generation of family farms
- In 2016 the average age of a Canadian farmer was 55.
- According to StatsCan, 92% of farms have no written plan for who will take over when the operator retires.
- According to the latest census, estimates suggest upwards of $50 billion in farm assets will be transferred over the next decade.
- In certain situations, the Income Tax Act makes it more expensive and difficult to transfer your farm assets to a family member than to transfer them to a third party.
- Increased capital requirements for those entering the industry have limited the pool of potential successors; less than a third of farms have identified a successor.
- Many family farms are now complex operations supporting multiple families, further complicating the farm transfer process.
As the average age of the Canadian farmer continues to increase, effective succession planning is critically important, particularly for a sector that will transfer tens of billions of dollars in assets to the next generation in this decade alone. It’s undeniable that COVID-19 has fundamentally affected Canada and the world’s economic outlook, and while Canadian agriculture is certainly not immune to those effects, the sector is uniquely well-positioned to drive Canada’s economic recovery.
In many cases farmers plan to hand their farm down to their children who have grown up on the farm and are willing to take it over. However, tax laws in Canada have created an environment where it can be more expensive to transfer your farm assets to a family member than it is to transfer them to a third party.
With new entrants into the industry seeing a variety of difficult obstacles to entry, including massive capital costs, tax laws in Canada should not disincentivize willing entrants into the sector nor the continuation of multigenerational family farms.
This is in the interest of all Canadians, as studies show that family farming encourages sustainable growth, environmental stewardship, and increased spending within one’s local community, not to mention its contributions to the social fabric of rural Canada.
Working Toward Solutions:
CFA has voiced its support for the Private Bill C-208. This bill would make it so that siblings are not deemed to be dealing at arm’s length and that, under certain conditions, the transfer of shares by a taxpayer to the taxpayer’s child or grandchild who is 18 years of age or older is to be excluded from the anti-avoidance rule of section 84.1.
CFA has stressed this issue as an emerging crisis to the federal government for many years. As a sector where the vast majority of businesses remain family owned, maintaining the financial health of these businesses across generations is critical.
Creating a tax policy conducive to future generations of farm families continues to be one of the three key pillars of CFA’s pre-budget consultations for the past several years.
- Facilitate the smooth and efficient transfer of family farms: That the government amend Section 84.1 of the Income Tax Act to remove disincentives facing small family businesses and family farms when looking to transfer their businesses to the next generation.
- Ensure agricultural rollover provisions recognize the breadth of family relations required to maintain family farming across Canada. By replacing the word “child” in subsect 73(3) of the Income Tax Act with the phrase “family member”, these important provisions would reflect and address demographic pressures facing the industry, creating opportunities for the next generation of farm families.
- Create a level playing field between siblings and other family farm reorganizations. Anti-avoidance legislation currently prevents sibling-owned family farm corporations from being able to reorganize on a tax-deferred basis, an option available to most family farm members. Farms regularly support multiple households and to ensure farm families have the flexibility they need to maintain financially viable family farms, section 55(2) of the Income Tax Act must deem siblings as non-arm’s length for farm corporations.
- Amend restrictions on claiming farm losses to encourage new entrants and investments in agriculture. Section 31(1) of the Income Tax Act unduly restricts many farmers with off-farm income from being able to claim more than $17,500 in farm losses, limiting investments and creating financial challenges for new entrants with full time off-farm work. In 2013, the federal government amended this provision to require that non-farm income be subordinate to farm income, contrary to an interpretation from the Supreme Court of Canada that outlined a more comprehensive income test (Craig v. the Queen). CFA recommends that the Supreme Court of Canada’s interpretation be reinstated, encouraging a more comprehensive test that considers multiple factors, beyond the predominance of farm vs. non-farm income.
See our policy manual for more details on taxation in agriculture