Thank you very much, Wayne. It's great to see a Maritimer up there. It's a nice friendly face. We are in the middle of harvest but it's great to be here all the same.
Thank you, Mr. Chair and committee members, for the opportunity to share my thoughts on the proposed tax plan to use in private corporations. I am speaking to you today as an individual apple producer from New Brunswick and not as a representative of any farm organization. My farm is River View Orchards. I'm a first generation farmer and the 2016 Canadian Outstanding Young Farmer Award recipient. My wife and I have two children, a son who is 12 and a daughter who is five.
I want to start off by saying that there are nearly 200,000 farms across Canada, almost entirely small businesses. They contribute a little over $108 billion a year to Canada's GDP and employ approximately 2.2 million Canadians. Canadian agriculture has been a resilient economic driver for years in Canada. This government acknowledges its immense potential but doesn't seem to acknowledge the contribution that farmers make to our economy, food security, and climate change.
I appreciate the comments made recently by Mr. Morneau and Mr. MacAulay noting that farmers aren't the intended targets of these proposed changes, but it doesn't seem to be clear. Unless these proposals are dramatically reformed they will negatively impact family farms across Canada and we will see a decline in the number of farms in our country, adding to our unemployment rate and a decrease in GDP. Both of these will require more tax increases to the middle class to compensate for the increased expense of lost jobs and the lost revenue from the GDP.
On that note I want to share some thoughts on the fact that these proposals were released on July 18 with a 75-day consultation window during harvest when most farmers don't have time to sit down and review tax changes with their accountants. I hardly have time to spend with my family sometimes. For many farmers it was weeks before the potential consequences for farmers started to become clear and I'm still hearing of new ways they could affect my business. Since that time, I don't think I've had a conversation with another farmer where this issue hasn't come up.
While the target may be a select group of wealthy individuals, the current proposals don't line up with that mark. To give you a sense of what I mean I'll lay out a few potential issues.
There's income sprinkling. Family farming isn't a nine-to-five job. Families live on their farms and work takes place at all hours of the day with family members contributing in countless ways. There aren't any punched cards here. I understand the intent is to account for those contributions but the intent and the reality of the test are very different things. How can any test truly account for all the ways in which family members help out on the farm, not to mention the subjectivity introduced through the CRA? Farming is definitely a family affair. Making decisions to invest in the future requires capital and certainty. Even playing by the book, the vagueness and uncertainty this test introduces creates new risks and questions I need to consider. It leaves me wondering if it is worth it to expand or to even keep going.
The strict test applied to 18- to 24-year-olds further complicates this. Farm children don't take the ownership of farms in a vacuum. My son Robert has been involved in the operation from a young age and he's 12 today. Even when he goes away for school as he gets older or works off farm, I know he's still going to come home and contribute to the farm that he loves. In fact, he already grows his own strawberries and gourds, which he sells himself. Will these contributions pass the CRA test?
If Robert were to have shares in my farm corporation would any dividends he received be reasonable? I ask about him, alone, for now because my daughter is still a little young to work, although she certainly keeps her mother and I working. These questions affect my ability to plan for the future.
Then there are the changes to the capital gains exemption and the treatment of capital gains. The new limitations on access to the capital gains exemption also complicate passing farms from one generation to the next. I need to plan succession. I have to do this in advance to ensure my farm stays within my family. How is doubling my tax fair if I want to pass the farm on to my children?
Farming is capital intensive and my business is my retirement savings plan. Passing along the farm is already complicated and this just limits the options I have to make it work for both parties. When you factor in the proposed changes on converting income to capital gains that incentivize selling the farm outside the farm, difficult financial decisions must be made as to whether to maintain the family farm, take on punitive tax liability, or simply sell to a stranger.
These aren't decisions that farmers or parents should have to make. Farming is part of our heritage. Traditions would direct us, as farmers, to pass the farm to our children. Are my children valued less today than they were 100 years ago? I don't think so.
On passive investment income, investments are held within corporations for a variety of reasons. They can help manage income declines or ensure you have capital gain to invest when the opportunity arises. Passive investments are already taxed at 50%, and I've seen tax rates of over 70% identified with these proposals. Again, this raises new questions around how to plan for the future.
Farming already faces volatility from weather, diseases, pests, and the market, just to name a few. Canada's tax policy should be not about introducing new barriers, but about managing risk and growing my business. This year, we had a drought in New Brunswick. I am facing huge crop losses. How do I plan for Mother Nature?
I'd like to speak a little about my thoughts on potential solutions.
First and foremost, farmers across Canada have no issue with ensuring that everyone pays their fair share, or with government addressing abuses in the tax system. In fact, when we look at dollars generated on farms, they are probably multiplied five or six times inside our economy. However, changes extend far beyond tax avoidance among wealthy Canadians. They impact all private corporations. Some of the capital gains changes would even affect qualified farm property residing outside of corporations. It's not just incorporated farms that are affected.
I appreciate Mr. Morneau's comments when he said that he wanted to see family farms succeed, and that family farms weren't the intended target of these changes. There is a wide gap between that intent and the reality of what the current proposals would do to farms and other small businesses. While these may be unintended consequences, they are not minor, and they would have an impact on farms across Canada unless significant changes are made. This means exempting farm income from income sprinkling proposals, exempting farm property from the new capital gains rules, and working to find a way to truly differentiate real intergenerational transfers.
Farm groups across Canada are ready to work on solutions, but timelines are a concern. I suggest taking a step back and considering removing all farms from this proposal so they don't end up as collateral damage.
With that, I would like to thank you for your time. I welcome any questions you might have.