Canadian Federal Tax Changes

On July 18th, the Finance Minister, Bill Morneau, announced significant proposed changes to the Canadian tax structure.  During the months that followed there were a number of farm groups actively lobbying for revisions to the proposal.  It seems that the lobbying paid off, as Minister Morneau announced a set of updates to the proposed changes in mid-October.  Many of the proposed changes reflect revised thinking about some of the hot button topics for farmers and farm families.  

Income Sprinkling

In the original proposal family members who received and “unreasonable” amount of income relative to their business contributions would be taxed at the highest personal income tax rate.  The revised proposal promises to continue to address these concerns, but the details are unclear.  This issue is very significant for many farm extenders who often struggle to quantify their business contributions.

Passive Investments

Originally the government announced that they wanted to limit this tax deferral strategy, however they are now allowing passive investment income of up to $50 000 inside an incorporated business before a much higher tax rate kicks in.  The intention of this passive investment is to allow people to develop their own personal safety net for changes in business circumstances (unanticipated slow down in business) or personal circumstances (retirement).  While there are still many questions about the details of the revised proposal, the recognition of the importance of passive investments was a welcome change for farmers.  

Converting income to capital gains

The original proposal would have discouraged the inter-generational transfer of businesses.  The government has since decided not to move forward with this measure.  

In following through on previous promises, the original federal tax change proposal included allowing incorporated small businesses a lower tax rate on their first $500 000 of income.  The current rate of 10.5% will be reduced to 10% (Jan 1, 2018) and then to 9% (Jan 1 2019).  This election promise affects many farm families, as well as many other agriculturally oriented small businesses.

As agvocates and farm extenders it is our responsibility to educate ourselves about potential changes so that we can lobby effectively for the farming industry.  Here are 3 ways to start:

  1. Work with your tax planner to determine the impacts the changes could have to your farm

  2. Lend your voice in your constituency to support what’s best for your farm

  3. Explain the impact - your personal story and/or pictures of your intergenerational farm, or as a farm extender our voice matters and it needs to be heard by non-farmers

Comment below or send us your story at teresa@farmfemmes.com or karen@farmfemmes.com and we will put together a series of posts of what this means to farmfemmes readers