As I think you have heard from all the speakers, farming is intergenerational, passed on from one generation to the next. My grandfather emigrated to Canada in 1888. He was a farmer when he came, and he remained a farmer. My grandfather farmed all of his life. My father started farming in 1936 with six heifers, a team of horses, a horse and a buggy, and a rented farm.
In 1960 I decided that I wanted to farm after I graduated from school. My father advised me to go and get a job, since farming had had good years and bad, and he had experienced those and felt it was going to continue.
I often think of my dad's advice as I work with farmers struggling with their financial affairs. I went to Toronto and got a job. I progressed through the chartered accounting field and became a chartered accountant. That's my profession, but my passion is farming. I've been able to mix the two of them, because I specialize in farm accounting.
The years of the sixties and seventies were years of increased production, when the boys and girls who came out of the agricultural colleges were to produce for a starving world. The marketplace was there. We could do so much to feed the world.
It didn't happen. It takes money to buy food, and those countries don't have the money.
In the early eighties, the high interest rates took out a group of those farmers. As we started to rebuild after the high interest rates, we entered into an area of specialization, and bigger was better. We've seen the result of that. It just hasn't worked.
Being intergenerational, to have a successful succession plan requires three things: financial readiness, management readiness, and communication readiness. I think the farming community is well situated with management readiness. I think that the youth of today are better educated and more knowledgeable on all aspects of farming. With communication readiness, it depends on your family. It doesn't necessarily always flow, but I think that certainly the government programs that have been around have assisted in developing that. As for financial readiness, I always say it's tough to will debt. That's really where we're situated with regard to the succession plan. It's tough to bring in the new generation when the old generation is in dire financial straits.
The Income Tax Act has given favourable treatment to farmers and farm families. This is a great benefit in succession planning. The capital gains exemption of $750,000 on qualified farm property allows for retirement of parents without taxing their retirement funds. Keith alluded to that, that they...in their intergenerational transfer, why they used that. Most farmers rely on their real estate for retirement funds. The capital gains exemption greatly assists in intergenerational transfers.
I think from time to time there is a lobby to have that increased. I don't feel that it needs to be increased. A husband and wife get $1.5 million; my own personal opinion is that it shouldn't be used as a tax shelter, and I think it's quite adequate where it is.
The capital gains exemption should be extended to qualified farm real estate owned by family farm corporations. Corporations have to sell out their shares. Most farmers divide up their real estate to their family, and it prohibits them from going into a corporation if they have to dissolve the corporation at the end and there's no mechanism to take that property out of the corporation other than at fair market value and pay the capital gains tax on it.
Alternative minimum tax has a negative impact when attempting to use the capital gains exemption. Qualified farm properties and qualified small business shares should be exempt from alternative minimum tax. I don't think when the alternative minimum tax was brought in that the intention was to catch qualified farm property, but certainly that's the way it works. We struggle with it all the time. Whenever seniors are selling their property they're caught with this alternative minimum tax, even though they have the capital gains exemption.
Taxpayers who sell qualified farm property should likewise be exempt from the clawback of the old age security. Any farmer who's over 65 and getting the old age pension who sells his farm, or tries to transfer it and make use of the capital gains exemption, loses his old age pension for the year he sells it. It's a kind of an ongoing thing because the year for the old age pension runs from July to July.
Consideration should be given to allowing for transferring farm real estate from farm corporations on a tax-exempt basis when it is transferred to the next generation for the purpose of farming. Again, that's going back to the previous one, but on a little different point.
Presently it is not possible to transfer qualified farm property to siblings, nieces and/or nephews without extensive tax planning. If these relatives are to farm the properties, the requirement of the transferring at fair market value should be removed.
Cash basis accounting is a great benefit for the farmers, and in particular it is beneficial to young farmers, deferring income taxes until inventories are sold.
I feel there are a lot of positives under the Income Tax Act. I've enjoyed working with the income tax in the farm community. There are a lot of good points in there.
With respect to some other issues, I guess every speaker has talked about how profitability, financial security, long-term financial stability are what are necessary to attract the next generation to stay on the farm. I'll repeat that. Profitability, financial security, and long-term financial stability are necessary to attract the next generation to stay on the farm.
This challenge for financial security is not unique to the Canadian farmers. We have to be able to compete on a global market. The stability and future farm profitability cannot be dependent on government programs alone.
Programs such as NISA, CAIS, AgriInvest, AgriStability, and risk management that provide payments have been very necessary but do not produce viable farming operations or long-term stability. In my opinion, NISA and AgriInvest have done more to assist young farmers and small to mid-sized farmers than CAIS or AgriStability have.
More must be done to assist farmers in marketing their products, not just selling what they produce. I think over the years marketing has been the weakness of farmers, and I think it's still the weakness of farmers today. We produce for a market we hope is going to be there and we take the price that is provided at that point in time.
Production of quality farm products has been achieved. Financial management has continued to improve. Marketing of the product on the world market at a profit remains the challenge. Diversification of commodities may help in levelling the ups and downs.
Secondary income, be that farm related or non-farm related...today there's a lot of pension money flowing in to keeping the farms going. Off-farm employment, other business ventures, or added value to the farm products are necessary for the short term to obtain financial security for young farmers. I would say this current year that the people who have that secondary source of income, whether it be custom work, selling farm machinery, or whatever, are the only ones.... There was a lot of red ink out there this year, and those were the people who tended to do the best, with that diversification.
The well-being of the rural business community is dependent on a profitable agricultural business to support it, and the farmers benefit from profitable rural businesses in our local towns. Government incentives to rural business indirectly benefit the farmers. These businesses can be a source of off-farm income.
I want to thank you for coming to the town of Wiarton, north of the gates. I wish you well in your challenges ahead, because the average farmer is getting older and older. I know that my son, who I believe is here today, would love to farm, but he and his wife just bought a small farm and they're both working off the farm to support that farm.