Some Canadian farmers are dissatisfied with recent changes made to the Canadian Entrepreneurs’ Incentive (CEI), which was intended to help offset the impact of the increase in the capital gains inclusion rate. The original plan was to reduce the rate by half, up to a $2 million limit by 2034. However, the Department of Finance has now advanced the timeline to 2029, with incremental increases starting in 2025. The eligibility requirement for the incentive has also been expanded to include more individuals beyond just founders of a business.
Farmers are particularly concerned because the inclusion rate for taxable capital gains has increased from 50 to 67 percent for individuals realizing over $250,000 annually in gains. This increase also applies to gains made by corporations and many trusts. The Grain Growers of Canada argue that these changes will result in many farmers facing a tax increase, as they will still be subject to the higher inclusion rate on gains realized from the sale of farmland. While primary residences are exempt from capital gains tax, farmland sales will be impacted.
To illustrate the potential impact, the Grain Growers provided an example of an Alberta farm purchased for $1,385,000 in 1996 that could potentially sell for $17,250,000 in 2023. However, farmers may not see a significant profit from these sales due to debts that need to be paid off before realizing any profit. John Oakey, vice-president of taxation with the Chartered Professional Accountants of Canada, explained that changes to the lifetime capital gains exemption are meant to help mitigate the effects of the capital gains increase and make it more accessible for farmers and fishers.
The decision to reduce the phasing-in period of the CEI to just five years means that individuals will not have to wait until 2034 to access the full $2 million incentive. This is especially beneficial for those involved in the farm and fishing industries, where significant transitions between generations of businesses are taking place. While some organizations, such as the Canadian Federation of Independent Business, have praised the changes for providing more access to farmers and fishers, others have criticized the exclusion of certain entrepreneurs, such as restaurant owners or those in the arts.
Statistics Canada’s 2016 Census of Agriculture revealed that 97 percent of Canada’s farms are family-owned, and many farmers want to keep their businesses within the family. However, the capital gains tax changes are increasing the financial stress on young farmers who are already facing significant debt during the transition period. These concerns highlight the ongoing challenges faced by Canadian farmers in navigating tax policies and regulations that can have a substantial impact on their businesses and livelihoods.
