The next 10 weeks are likely to see a flurry of activity at several accountancy firms as farmers adapt to changes to their accounting system. Capital gains inclusion rates and exemptions established in the latest federal budget It can impact their succession planning.
The government plans to increase the taxable portion of capital gains (the difference between the purchase price and the sale price of a property or investment) in a given year from one-half to two-thirds. For an individual, the higher tax rate only applies to his capital gains over $250,000, and his first $250,000 of gains are still subject to the old 1/2 tax rate. The higher two-thirds tax rate applies to all capital gains realized by companies and trusts.
At the same time, the lifetime capital gains exemption that currently allows Canadians to exempt more than $1 million in tax-free capital gains from the sale of small business stocks and agricultural and fishing assets during their lifetime will increase to $1.25. After that, it will continue to be linked to inflation.
Ryan Kehrig, national leader of agricultural taxes for MNP, says there are several angles to how these changes will shape financial decisions.
In many cases, this change will not affect a farm on an annual basis, but its impact will be felt if a farm sells or considers selling major assets, including farmland or allotments.
The government has listed June 25, 2024 as the date these changes will come into effect. This means those in the midst of farm succession need to be aware of how these changes may impact their numbers and whether they will accelerate the process of realizing benefits prior to farm succession. It means something. The June deadline makes sense.
On the other hand, expanding the capital gains exemption for individuals may provide some options for those selling land, for example.
But the bigger question is how this will affect the next generation’s ability to buy out their parents, as there could be even more capital gains tax to pay to the government. If older generations want to put aside a certain amount of money for retirement, that tax burden is likely to be shifted to younger generations. (Here are details of Ryan’s video on RealAg Radio’s Friday Issues panel):
The rule change, which also applies to capital gains within holding companies, is a concern for farmers who set up holding companies as part of a strategy to treat non-farm children fairly in succession planning, Kehrig said. To tell.
Capital gains, taxation, and asset transfers are complex topics, made even more complex by changes in tax law. Farmers who have questions about how these latest changes will affect them are encouraged to consult their accounting professional.
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