Federal budget boosts tax breaks to farmers

With a new five-year ag policy funding framework for farmers and agribusiness prepped for launch this spring, federal Finance Minister Jim Flaherty’s latest budget largely blew past Canada’s farming sector.

Flaherty’s budget, released Thursday, offers farmers some additional breaks at tax time — but also points to retooling ahead for other programs, including the federal program for imports of temporary and seasonal foreign workers.

Among the breaks pledged Thursday, Flaherty announced an increase in the lifetime capital gains exemption (LCGE) to $800,000, up from $750,000, to apply to transactions in 2014 involving qualified farms and fishing properties, as well as qualified small business corporation shares.

The LCGE, the government said Thursday, “increases the potential rewards of investing in small business, farming and fishing,” helps those businesspeople “better ensure their financial security for retirement, and facilitates the intergenerational transfer of their businesses.”

Also, to ensure that the “real value” of the LCGE is not eroded over time, Flaherty’s budget proposes, for the first time ever, to index the LCGE limit to inflation, with the first such adjustment to take place in the 2015 tax year.

In terms of their tax bills, these changes are expected to save farmers and other eligible businesspeople $5 million in 2013-14 and $15 million in 2014-15.

Farm loss deductions

In a nod to part-time farmers, Flaherty also plans to boost the restricted farm loss (RFL) deduction limit, a tax rule which limits the amount of farm losses that can be applied against income from other sources.

Noting the limit hasn’t changed in 20 years, the budget proposes to double the RFL limit to $17,500 from $8,750, starting in tax years ending on or after Budget Day, to “increase support to Canadian families involved in part-time farming.”

Responding Thursday to the budget, the Canadian Federation of Agriculture (CFA) said the boost in the RFL limit will “only slightly improve the situation” for part-time farmers and instead has called for a “more realistic” limit of $40,000, which would apply to “new entrants to agriculture.”

Flaherty also plans to amend related tax rules to clarify that a taxpayer’s other sources of income must be “subordinate to farming” in order for farming losses to be fully deductible against income from other sources — that is, not limited by the RFL rule.

That proposed amendment would shut a tax loophole that turned up in a Supreme Court ruling last year (Queen v. Craig, 2012), allowing a lawyer to claim full deduction of losses from a racehorse farming operation.

The tax rule, if left unchanged after the Craig ruling, would allow the full deduction of farming losses “where a taxpayer places significant emphasis on both farming and non-farming sources of income, even if farming is subordinate to the other source of income,” the government warned.

The intent of the RFL deduction limit, the government said, has been “to ensure that taxpayers for whom farming is not the principal occupation are limited in their ability to deduct farm losses from their non-farm income.”

The CFA, however, said Thursday it’s “disappointed with the reinterpretation” and argued that for most small-scale farmers and new entrants to farming, off-farm income is the “critical support in funding start-up costs, making farm expansions, and simply maintaining the viability of many of Canada’s family farms.”

This reinterpretation, the CFA said, “may prevent these farmers from being able to claim more than $17,500 in losses, and may pose a challenge to entering or staying in the industry.”

Temporary Foreign Workers (TFWs)

Flaherty on Thursday also telegraphed plans to reform Canada’s Temporary Foreign Worker (TFW) program, in a way “to ensure that Canadians are given the first chance at available jobs.”

Details on those reforms will be released “in the coming months,” but the government said it will “work with employers to ensure that temporary foreign workers are relied upon only when Canadians genuinely cannot fill those jobs” — and will “increase the recruitment efforts that employers must make to hire Canadians” before they can apply for TFWs.

The government said it will also move to help employers who “legitimately rely” on TFWs to “find ways to ensure that they have a plan to transition to a Canadian workforce over time.”

The government said it will also call for new user fees on employers applying for TFWs through the labour market opinion process, “so that these costs are no longer absorbed by taxpayers.”

Among other sectors covered, the government’s current TFW program includes an agriculture-specific stream as well as the Seasonal Agricultural Worker Program (SAWP).

General Preferential Tariff (GPT)

Flaherty’s budget also proposes to tighten up Canada’s General Preferential Tariff (GPT), which was set up in 1974 with the goal of helping developing countries increase their export earnings.

Legislated in Canada’s Customs Tariff on a 10-year cycle, the latest version of the GPT offers duty-free or preferential tariff rates on most products from 175 designated beneficiary countries, and is set to expire on June 30 next year.

Flaherty on Thursday proposed that, effective Jan. 1, 2015, 72 “higher-income and trade-competitive” countries will “graduate” from the GPT regime. The most significant graduates on that list are to include Brazil, China and South Korea.

The GPT would then be renewed for another 10-year cycle, but Flaherty proposed that beneficiary countries will be reviewed bi-annually on their eligibility.

Among other items of interest to farmers, Thursday’s budget will expand eligibility for an accelerated capital cost allowance for clean energy generation equipment, to include “all types of cleaning and upgrading equipment that can be used to transform biogas, landfill gas or digester gas into biomethane.”

The budget also ends a preferential excise duty rate that now applies to “manufactured” tobacco — such as chewing tobacco and the fine-cut tobacco used in roll-your-own cigarettes.

That move, effective after Thursday, will boost the rate of excise duty on manufactured tobacco from $2.8925 to $5.3125 per 50 grams (or fraction thereof) — and is expected to boost federal tax revenues by about $75 million in 2013-14 and $65 million in 2014-15.

Related stories:
GF2’s new AgriMarketing program taking applications, Jan. 31, 2013
Ritz previews three new ‘Agri-‘ programs, Dec. 7, 2012
Impacts from AgriStability reform may be major, Sept. 28, 2012
Ag groups wary of GF2’s risk management funding cuts, Sept. 14, 2012

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