Examining the Farm Corporation Tax Changes Without the Vitriol


It is early September and the nights have turned rather cool.  It is a nice time of year because it gives us a needed breather after what usually is a very hot summer. However, this past summer wasn’t very hot in Ontario and much of the crop remains behind.  The last few days I took a trip to Tobermory Ontario.  Many of the soybeans were turning color all the way up, but of course some were not.  In my case, all my soybeans are still green.  I don’t know whether my combine will be rolling through before Thanksgiving weekend.

Of course Mother Nature is always a wildcard in the agricultural production process.  When you choose a career in agriculture that usually comes with it.  Uneven weather always tends to give you an uneven existence.  Finding your way ahead is usually a leap of faith and over a period of years many of us make a career out of it.  Our other partner here in Canada is often somebody we don’t talk about.  That is the Canadian Revenue Agency. (CRA)  For my American friends, that’s a Canadian equivalent of the Internal Revenue Service.

I often say the CRA is like oxygen.  Canadians often complain about taxes, in fact you might say it’s a national sport.  Farmers are the same way but it is a little bit more under the radar.  Needless to say, a large part of the farm management process in Canada is navigating through the tax regiment set by the CRA. Of course, that direction is set from the fiscal policy of the federal government.  That direction has been in the news lately as the finance minister, Bill Morneau announced possible changes to the tax treatment of corporations last month, which has been reverberating throughout Canadian farm country.

Simply put, the federal government wants to close what they called tax loopholes only available to people with private corporations. I’m going to leave it like that because tax policy and the tax code are extremely complicated.  Successive governments have made the corporate tax rate in Canada one of the lowest of the G7 countries.  I formed my own Corporation in 1991.  It is a corporation, which manages my farming business.  I have always felt that it is one of the most efficient business structures to manage a farm business.  Of course, having a corporation also includes tax planning, preserving capital and increasingly managing capital gains taxes.  It is simply a reality of managing a business within the environment which you are presented with.  Of course, that includes the tax environment administered by CRA.

Changes to this arrangement obviously send chills into the small business community across Canada as well as those who own corporations within Canadian agriculture.  The reason for this of course is because you built a business based on all the legalities, which are presented before you.  Of course, that means tax realities as well.  With that in mind, a myriad of corporations have been set up over the years to manage business.  Any farming business is no different.

Needless to say, it’s causing uproar in the farming community as well as across Canada.  If corporate tax policy is changed in a major way, it may negatively affect all kinds of farm businesses across the country.  It may also affect the farm transition and succession process in many farms across Canada.  Of course, this is happening while farmers are doing what they do which is farm.  These changes have the potential to change that radically.  Of course, many people interpret that a number of different ways.

I don’t know what the outcome will be.  Simply put, governments need money and they are voracious in their appetite to get it.  There are huge debates among economists on which taxes raise the most revenue.  In my opinion, value-added tax do that but is there a big appetite to raise the Canadian HST from what it is now?  I don’t think so.  However, changing corporate tax regulation might look like low-lying fruit to the finance department.  Of course, they have the numbers to prove it and they know exactly what’s happening with regard to the level of taxes paid.  They have the real numbers concerning tax fairness.  These types of judgments usually don’t come out of thin air.

This hasn’t prevented the political vitriol regarding these changes to the corporate tax code from being over the top.  Many blame the Liberal party or the Prime Minister himself for even suggesting these changes, even though at this point in time we really don’t know what they are.  I don’t like it either; my assumption has always been agriculture would be treated differently versus the tax villains the government is targeting.

The reality is taxes will remain just like oxygen.  Governments will come and go.  Tax policy will remain complicated.  Despite it all, we’ll have to find a way ahead.

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