By Connor Lynch
OTTAWA — The Canadian Federation of Agriculture is throwing its weight behind a private member’s bill, tabled by Quebec NDP MP Guy Caron on May 19, that would change the succession rules on the farm.
The change would end what Caron calls a “blatantly unfair situation that puts . . . farmers . . . at a disadvantage when they want to pass their business on to a child rather than a stranger.”
The current rules charge a dividend tax to a farmer selling the farm to his child or a sibling. However, a farmer selling to a stranger pays a capital gains tax. The tax rate is determined by one’s income and is applied to the difference between what the farmer paid for the farm and what he sold it for.
So a farmer earning about $85,000 a year would pay a 22 per cent dividend tax on the sale of a farm if he sold to a son, daughter or sibling. Or if he sold to a stranger, he would pay a 17 per cent capital gains tax but it’s actually lower than that. The capital gains can only be taxed on 50 per cent of the difference between what the farmer paid for the farm and what he sold it for, minus $1 million.
For example, as it stands, a farmer who bought a farm for $1 million and sold it for $3 million to his son, would pay a dividend tax of $440,000 ($2 million x 0.22 = $440,000). However, Caron’s bill would change the rules so that a farmer selling his operation to his son would pay a capital gains tax of $85,000, ($2 million – $1 million x 0.5 x .17 = $85,000), a big savings to the farmer.
To prevent tax evasion, the Caron bill would include a clause saying the new buyer has to own the property for at least five years.
The bill is expected to come up for debate in the fall.
