Mr. Speaker, I appreciate the opportunity to participate in this debate. I would assume that all members would agree with the objective underlying the motion which is to support young Canadians who decide to work on the family farm and to take on that generational challenge.
In fact, I too come from a line of farmers. I am the first generation that has not gone into farming. To his dying day, my father thought I was a failure for going to law school instead of the family farm. Fortunately, he died before I entered politics because that would have confirmed his opinion that I was in fact the family failure.
The motion as it is worded is just simply not supportable. To put the motion in context, I would like to outline first of all what the Government of Canada is already doing and then talk about why we think that there are individual problems with the motion itself.
Currently, the Government of Canada provides considerable support for intergenerational transfers of family farms through both existing agricultural programs as well as through income tax measures. Intergenerational transfers of family farms are facilitated through the comprehensive agricultural policy framework. My friend across the way raised the issue that it would be difficult to negotiate that if we were to pursue the latter part of the motion.
These transfers are delivered by Agriculture and Agri-Food Canada in partnership with the provinces and territories. One would have to presume we would have to get the cooperation of all of the other provinces and territories or the formula that my friend referred to in order to accommodate the particular wording in the motion. There is also Farm Credit Canada which provides access to affordable financing options for farmers to buy farms and equipment that they need to make a living.
However, today I would like to focus on the tax measures that support farmers with particular reference to tax matters that facilitate intergenerational transfer of farms.
In the area of income tax, the current rules already allow family farms to be transferred on a tax deferred basis to members of the immediate family and that is, a farmer's spouse, children, grandchildren, or great-grandchildren. That is the wording of the legislation. By deferring the taxation of capital gains on the farm until such time as the farm is actually transferred out of the family, this measure greatly facilitates the intergenerational transfer of farms. This is the major concern of the mover of this motion, that it is difficult to move the farm from one generation to the next.
I would submit however, that paragraph (b) of her motion is more restrictive than what is currently in the Income Tax Act of Canada insofar as there is no restriction with respect to age. I would reference members to paragraph (b) which says: “extending application of the rules governing rollovers to all members of the immediate family under 40 years of age”. Under 40 years of age is not a restriction that is put into the Income Tax Act of Canada as it currently reads. On one interpretation of her motion, she would actually restrict the intergenerational transfer of farms. I am not sure that she intended to do that.
I would add that the current tax deferral mechanism applies regardless of the value of the farm being gifted and the number of children benefiting from the gift. As all members may appreciate, that is an extremely generous measure not available to any other sector, not to fishermen, not available to people in the forestry sector, not available to construction, and not available to people in manufacturing. We have as a point of public policy tried to facilitate the intergenerational transfer of family farms because of their unique value to our society.
In addition to tax rules that accommodate farms that are given to children or are left to them in their wills, tax rules exist to address the needs of farmers who may be unable, for financial or other reasons, to give a farm outright to their children. In these situations, selling the farm to his or her children could provide needed funds for a farmer's retirement. In cases such as these, the farmer already has a $500,000 lifetime capital gains exemption applicable to the sale or other disposition of the farm property.
However, because most farms, certainly if it is a family farm, are owned by more than one person, usually a husband and a wife, the $500,000 lifetime capital exemption is in fact more like $1 million capital gains exemption. In any situation where a farm is jointly owned, whether by a farming couple or two siblings, each owner has, individually and uniquely unto that owner, a $500,000 lifetime capital gains exemption.
So, for example, if a farming couple purchased a farm jointly in 1975 for $300,000, the proceeds on a sale of up to $1.3 million would be exempt from tax if both the husband and wife apply their lifetime capital gains exemption to the sale proceeds. In fact, by the time we adjusted cost base, the gross up on expenses and things of that nature, $1.3 million would probably work up to $1.5 million without a great deal of work on the part of the accountant. That, by any standard, is a very generous tax relief measure.
This motion proposes to raise the $500,000 per person limit to $1 million. However it is important to note that increasing the limit from $500,000 to $1 million would mean increasing the exemption to $2 million for jointly owned farms and would benefit only about 5% of farm sales in each and every year. Effectively, although I am not sure that is the intention on the part of the mover, the bill would benefit the upper 5% of farm sales while effectively having no impact on the other 95%, probably the more vulnerable farms. That is, the existing limits already accommodate 95% of the farmers who already sell their farms. I am not quite sure what would be accomplished by supporting this motion.
I would ask hon. members to consider whether a new tax measure that provides additional preferences to the richest 5% of farmers in Canada is really warranted, considering that such a measure would represent a cost to the average Canadian taxpayer. There is no free lunch in the tax business.
I would like to highlight another tax rule that relates to the taxation of capital gains that may benefit children who cannot afford to pay their parents the entire sale price agreed to for the family right away. In such circumstances, each parent is entitled to defer taxation in respect of the capital gain when the amount is not payable until after the end of the year. The effect of the measure is to allow for the payment of any tax on the capital gain on the farm over a period of 10 taxation years, if that is how long it takes for the child to pay for the farm. This is twice as long as the period of deferral allowed to any other taxpayer. So, again, we are preferencing farmers over all others.
This motion also proposes that the government set up a farm transfer tax savings plan that would enable farmers to accumulate a tax sheltered retirement fund. The lifetime capital gains exemption that I discussed earlier already facilitates retirement planning for farmers, as does the existing registered retirement savings plan system. In this regard, RRSP limits have been increased substantially.
We have the lifetime capital gains exemption, we have a tax deferral arrangement, which pushes it off for 10 years, and they can shelter their money into RRSPs, up to $22,000 a year, by the year 2010. Farmers can take advantage of RRSP arrangements just like any other taxpayer and defer their tax on their capital gains.
Providing farmers and not other Canadians with additional retirement savings opportunities would be unfair, considering that virtually all workers face the challenges of planning for their retirement.
I have outlined the major tax measures that relate most directly to the motion put forward by the hon. member. However there are many tax measures and others that assist with managing their cashflow, including cash based accounting, deferral of income, full deductibility of costs for land, as well as flexibility inventory accounting. All these measures favour farms.
I submit to the House that this motion cannot be supported and that it is, in some respects, a regressive motion rather than a progressive motion. While there are certain attractive elements to the motion I would submit that the preferences that are already enjoyed by the farmers by virtue of the public policy of the government are quite considerable and I urge hon. members not to support the motion.