Evidence of meeting #150 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was income.
A video is available from Parliament.
Senior Economist, Canadian Labour Congress
I would say it's incredibly unfair and, frankly, deleterious to every aspect of our society.
NDP
Don Davies NDP Vancouver Kingsway, BC
Thank you.
Mr. Jochum, thank you for farming. My grandfather farmed from 1926 to 1960. He was a grain farmer on the border of Alberta and Saskatchewan. Thank you for growing our country's food.
I want to talk to you a little bit about family farms. My understanding is that this budget would increase the lifetime capital gains exemption on the sale of family farms from $1 million to $1.25 million. Are you aware of that?
NDP
Don Davies NDP Vancouver Kingsway, BC
I also understand that when you sell a farm, you can also benefit from the principal residence deduction, meaning that you can eliminate entirely from capital gains your home plus 1.24 acres. That's completely tax-free. Are you aware of that, sir?
President, Wheat Growers Association
Yes, I am. However, it doesn't always work that way in a family farm transfer. That's what I'm really concerned about. Our daughter came back from working in the agriculture industry, and we're in the process of family farm transfer, and this new tax will add a lot of tax implications.
NDP
Don Davies NDP Vancouver Kingsway, BC
That's what I'm trying to explore. I know that when we put assets in joint ownership and then that property passes, it can simply avoid tax and disposition at all. Could you add your daughter's name as a joint owner to the farm and avoid that disposition entirely?
President, Wheat Growers Association
That I'm not sure of. I would have to check that out with my accountant.
President, Wheat Growers Association
We're working on that. I am a farmer, not a tax lawyer.
President, Wheat Growers Association
I did call him before this meeting here today, and he said absolutely it would increase my tax burden going forward.
NDP
Don Davies NDP Vancouver Kingsway, BC
I have just two other quick questions. I understand—and we'll get into this with another witness—that with stacking if you were passing your farm to three children, each of those children could add cumulatively their capital gains exemptions. Were you aware of that, sir? Maybe you have only the one daughter. Is that right?
President, Wheat Growers Association
No, we have four daughters, but it's only the one daughter who's interested in farming.
NDP
Don Davies NDP Vancouver Kingsway, BC
Right, but if you were to transfer your farm to your four children, are you aware that those four people can cumulatively stack their capital gains exemptions? In this case, it would be a total of $5 million of lifetime exemptions.
President, Wheat Growers Association
I was not aware of that. However, spreading it out to non-farming family members, the other kids, is a pretty surefire way of destroying the family farm because—
NDP
Don Davies NDP Vancouver Kingsway, BC
I'm not suggesting that. I'm not suggesting it for your personal situation. I'm talking about just the structure of it.
Finally, I don't know if you're aware, but when capital gains were imposed or brought into this country in 1972, the rate was 50%. In 1988, the Mulroney Conservative government raised it to 66.6%, and in 1990 they raised it again to 75%. Today this proposal will actually bring it back to the 50% rate that still was in place in 1972, but raised to 66.6% only on that amount over $250,000.
Are you suggesting, sir, that we should go back to the 1972 rates in this country?
President, Wheat Growers Association
I'm suggesting that this budget is not fair to multi-generational farms. My farm is my retirement. Just like Mr. Stefanec said, I don't have a fancy RRSP because I invested everything into my farm, and now I get penalized for doing that, versus you or some of my other kids who have very good jobs. They pay into an RRSP and their employer pays into an RRSP, and they do not face this tax increase.
NDP
Don Davies NDP Vancouver Kingsway, BC
Sir, 33% of your capital gain is still tax-free, so you still retain that benefit.
Mr. Stanford, can you please explain the way that stacking might work under this new provision? To give you an example, many people are concerned how this might affect a second property, rental property or a second home. In the case of couples whose secondary residence is 50% owned by each spouse, each of them is entitled to a $250,000 exemption, making a $500,000 exemption. It's the same thing with the farm. Can you explain that to us?
Economist and Director, Centre for Future Work
Since the capital gains on the individual, personal tax return is defined according to each individual, not according to a family or a household—that's how our tax system works—then each individual claiming a capital gain will be able to access all of those exemptions and thresholds. That includes the $1.25-million lifetime exemption for farms and small business that can go to each member of a family. Then, the annual $250,000 threshold before you move into the 66% inclusion rate can also be claimed by each member of a family.
A good example is a cottage. We hear a lot about cottage owners and a cottage that's in the family: Well, if it is in the family and owned jointly, then that $250,000 threshold can apply each year for each individual in the family. On top of that, we, of course, have a bit of an income-averaging system in our capital gains system, the capital gains reserve, which generally allows you to average out one-time capital gains over five years or, in the case of passing property to your children, even longer. The stackability across members of the family and the potential for averaging over multiple years means that most people with a second home are going to be able, I think, to avoid the 66% inclusion rate entirely and to continue to pay capital gains at the existing 50% rate.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Davies. That's the time, members.
We move into our second round of questions. Times are a little different in this round, and we start with MP Lawrence for five minutes.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you.
I start by just correcting a bit of incorrect tax advice that Mr. Davies offered from the floor here. Number one, simply by putting in a property—
NDP
Don Davies NDP Vancouver Kingsway, BC
On a point of order, I wasn't giving tax advice, just to be clear.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you, Mr. Davies.
Simply by putting something in joint tenancy or putting someone's name jointly actually triggers the tax at that point. In fact, stacking would work for the next generation, which means his kids could multiply the capital gains exemption, but he cannot unless his wife also owns the corporation.
I would strongly advise Mr. Davies to review tax law before he starts making commentary.
Now, I'm also struck by the fact that we have a series of individuals who either get their money from government or are tenured or otherwise who are making pronouncements about the lives of business owners, and we actually have business owners here who directly contradict what they've said.
I think anyone at home would be well aware of the facts here. We've heard from a tenured professor that, no, this won't discourage business investment. We've heard from business owners that in fact it will reduce investment in businesses. This is costing people jobs. This is costing people real lives. This is hurting people financially.
Mr. Jochum, my first questions will be for you, sir.
You talked a little bit about the effect of the tax changes. I want to go back a little bit. First of all, if you don't mind sharing with me, does your family farm pay carbon tax?
President, Wheat Growers Association
Yes, we do.
There are certain segments that are exempt, but there is a lot of hidden carbon tax that's paid. About 75% to 85% of what I produce is exported, and it is transported on the Canadian rail system, by either CP or CN. They pay carbon tax on the fuel they use and they do pass it on to the farmer.
It's the same with the grain elevators that receive our grain. Anything they use within their system that adds cost—which includes the carbon tax—again is passed on to the farmer.
There's lots of hidden carbon tax that we pay that is not a line item within our bookkeeping, but it is there.
APAS out of Saskatchewan did a great study on how much carbon tax we pay, and it's staggering.
Conservative
Philip Lawrence Conservative Northumberland—Peterborough South, ON
Thank you very much.
Now this Liberal government is adding insult to injury for farmers. In addition to the thousands of dollars—sometimes tens of thousands of dollars—of carbon tax, they're now increasing the capital gains inclusion. The capital gains inclusion, from the advice that you've received from your tax professionals, will increase your tax burden and make it more difficult to pass the family farm on to your daughter.
Is that your understanding?