Misleading analysis on capital gains tax increase

Farmers now have another reason to bash the Trudeau Liberals – the increase in the capital gains tax inclusion rate. Unfortunately, many of the arguments against the tax don’t withstand scrutiny.

Certainly, taxes of all kinds are too high in Canada. In the case of the federal government, the public employee contingent has ballooned, expanding much faster than the overall population.

So, it’s fair game to complain about taxes and it’s popular among farmers for the Grain Growers of Canada to be complaining about how much extra producers will now be paying in capital gains tax when they sell.

But don’t expect the complaints to garner much sympathy from non-farming Canadians especially when the analysis is superficial and misleading while painting farmers as being very wealthy.

Grain Growers of Canada has established a website at protectfamilyfarms.ca to lay out its “research” and give producers a platform from which they can email Members of Parliament.

Tax rules are complicated and every farm is in a different situation so the GGC has assumed a typical farm size for each province and used the increase in the value of land from 1996 to the present to show the potential capital gain and the increase in potential tax with the capital gains inclusion rate going from 50 per cent to 66 per cent.

In the Saskatchewan example, a 4,000-acre farm goes from a 1996 value of $342 an acre to a present value of $3,443 an acre. Both the acres owned and the current land value are much higher than the provincial average, with the example farm generating a capital gain of $12.4 million. The Lifetime Capital Gains Exemption for farmers has been increased to $1.25 million per individual, so when that is deducted the capital gain comes to about $11.2 million.

The analysis shows the tax paid at the 50 per cent inclusion rate as $3 million. After the inclusion rate increase, the tax is $3.9 million, 30 per cent more. With such a capital gain windfall, most Canadians are not going to shed crocodile tears over the tax increase that needs to be paid.

Most farms have more than one owner or shareholder, often a husband and wife, so it may have been more accurate to show two Lifetime Capital Gains Exemptions in the analysis. For a husband and wife combined, a $2.5 million nest egg on which no tax is paid is a pretty sweet deal, one of many farmer-friendly provisions in the tax rules.

“With the average cost per acre increasing year-over-year, the next generation is already facing financial hurdles,” says the GGC on its website. “This tax increase moves the goal posts for the next generation to take over the family farm by hundreds of thousands or even millions of dollars.”

This ignores the rollover provision which enables a farm to be passed to the next generation at any price up to market value. Dad and Mom typically sell the farm or shares in the farm corporation to their sons and/or daughters at less than market price so that it can remain a viable operation. That won’t change. A lower sale price means a lower capital gain.

“With agriculture land already so expensive, the only ones that will be able to afford to pay millions of extra dollars will either be corporate farms or development companies,” warns the GGC. However, the truth is that Dad and Mom can sell their average-sized farm to their kids at less than market rate and still retire very comfortably.