Levelling the playing field for a new generation of family farms
Quick Facts:
- In 2016 the average age of a Canadian farmer was 55.
- More than 40% of the current agriculture domestic workforce is projected to retire by 2030
- 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.
- 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 complex operations supporting multiple families, further complicating the farm transfer process.
Issue Overview
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.
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, new entrants into the industry face a variety of difficult obstacles to entry, including massive capital costs.
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 advocated its support for the Private Bill C-208, which has since received Royal Assent. This Bill has made 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.
CFA was pleased to see Budget 2024 respond to CFA’s recommendation to increase the Lifetime Capital Gains Exemption to $1.25 million, a critical tool in supporting intergenerational farm transfers. However, the increase to the inclusion rate on capital gains realized annually above $250,000 by individuals and on all capital, gains realized by corporations and trusts from one-half to two-thirds, holds the potential to make these same transfers more challenging for younger generations given the amount of capital required to remain competitive in modern agriculture.
CFA Recommendations:
- Build on the Budget 2023 legislative amendments to the Income Tax Act which expanded the definition of a “child” to also allow sibling shareholders to pass a non-controlling share of their ownership to the next generation. The new measures announced in Budget 2023 to regulate the transfer of incorporated business between family members while taking advantage of the capital gains deduction, only apply when the parent selling their share has control of the company. However, many farm family companies have multiple shareholders (e.g., siblings) with equal ownership rights. The CFA recommends that additional flexibility be introduced to these rules allowing the transfer of farm shares from one generation to the next, while remaining eligible for the capital gains exemption.
- 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