The capital gains tax changes will make it just about impossible to pass on farms to new generations
Pity the family farmer. Once – many years ago – a shining centrepiece of Canada’s economic growth, our farmers are little more than an afterthought in our urban-focused world. And the federal government, which once supported small farms through a cornucopia of helpful policies, is landing a new and devastating blow through federal capital gains tax changes.
The planned tax changes, which I’ll explain in a minute, will make it costlier and harder to sell or pass on farms to new generations, grain growers say.
Abandoned grain elevators and near-empty prairie towns provide stark testimony to the decades-long decline of what we know as the traditional single-family farmer. Between 1941 and 2021 the number of farms in Canada fell by approximately 75 percent. Like many others, I left the family farm for the comfort, prosperity, and opportunity of big cities.
People have left farms because the workdays are long and hard, the capital investment is ever-larger and the margins are narrow. Most people could make more money by taking the cash they have tied up in land and equipment and playing the market instead.
Even as mid to small farms fade, large farms have come to dominate. Just 10 percent of all farms now generate more than two-thirds of the sales in Canada. These farms are large-scale businesses with multiple employees, many thousands of acres of land and many millions of dollars in equipment. Some are still owned by family groups but more and more of them are owned by corporations.
The Trudeau government is not helping those families; in fact, it’s hurting them. The new capital gains tax, which took effect this week, introduces significant changes to how capital gains are taxed in Canada. Now, capital gains over $250,000 are subject to a new 66.67 percent inclusion rate for individuals, and all capital gains generated through a corporation are also subject to this rate. Although the lifetime capital gains exemption for eligible property has increased from $1 million to $1.25 million, the benefit of this exemption is largely negated by the sharp rise in property values.
“With over 40 percent of farmers nearing retirement over the next decade, this tax increase introduces substantial uncertainty into their retirement planning,” said Andre Harpe, Chair of the Grain Growers of Canada (GCC) and an Alberta-based grain grower. The changes “will actually burden the next generation of farmers, who are already grappling with costly transfers.”
The GCC has done a deep dive into what the federal tax changes will mean to farmers. It’s an eye-opener. It calculates that an 800-acre farm purchased in 1996 in Ontario would incur nearly $1.2 million in additional taxes if sold today. A 4,000-acre farm in Saskatchewan would face an increase of more than $900,000. That’s a 30 percent spike in capital gains taxes on family-run grain farms.
The GGC has asked the government to exempt intergenerational transfers and allow them to be taxed at the original capital gains inclusion rate. “This will ensure that … the next generation can afford to take over, enabling family farms to continue being the backbone of Canada’s agriculture sector,” said Kyle Larkin, the GGC’s executive director.
So, why should an urbanite care about the fate of family farms? The best reasons can be found in your local grocery stores and farmers’ markets. If you’ve noticed that the tomatoes and carrots imported from massive U.S. agribusinesses don’t taste as good as locally grown ones, it’s not your imagination.
National Geographic reports that small-scale farmers use sustainable agricultural techniques and are best poised to meet global food supply challenges. Study after study has found that food grown in healthy soil actually tastes better and has more nutrients.
The Food Tank report, which drew on data from the United Nations Food and Agriculture Organization (FAO) and other sources, concluded that smallholder farms “are not only feeding the world, but also nourishing the planet.” That’s because small-scale farmers tend to forego chemical fertilizers that deplete the soil and rely on organic practices that improve soil conditions instead.
There are other important reasons why family farms deserve our support. The rural lifestyle is a positive social alternative to the urban experience. And, in a world of ever-growing insecurity, it makes absolute sense to ensure we avoid becoming overreliant on food imports, lest those suppliers one day decide – for whatever reason – to cut us off.
Which brings us back to federal policy. Most farmers will tell you that, while the loss of rail subsidies and other incentives has hurt, they know how to make a living. Today, many of Canada’s big farms are run by corporations composed of family members educated in best agricultural and business practices.
What they don’t need is a cash-squandering federal government imposing new levels of taxation that hobble the transition to the next generation of family farmers. They need the feds to get out of the way and let the farmers operate as efficiently as possible in a narrow-margin business.
Finance Minister Chrystia Freeland grew up on an Alberta farm and should know that. But then, she serves a government that has allowed spending to run so far amok it has to tax citizens more and more just to stay afloat.
Farmers would go broke if they spent like the federal government does. Fortunately, they don’t. To turn things around, maybe Freeland can pick up some tips from her dad, Don, and his neighbours, who still run family farms in Alberta’s Peace Country.
Doug Firby is an award-winning editorial writer with over four decades of experience working for newspapers, magazines and online publications in Ontario and western Canada. Previously, he served as Editorial Page Editor at the Calgary Herald.
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