Farm Succession Need, Opportunities & Challenges

National Farmers’ Union November 2017 Convention

Diana Gibson, Canadians for Tax Fairness,

Principal, PolicyLink Research Canada

Why talk succession? • Unlike other occupations - farming remains a largely inherited occupation. • The transfer of business control and ownership to the next generation is a

critical point for a farm. Concerns: • Aging population (2016 Census data) • Increasing concentration of farms • Lack of succession planning

Smaller and family operated farms matter

Smaller Farms Matter • More environmentally friendly, better at preserving biodiversity. • Better for animal welfare. • Better at helping to limit depopulation in rural regions. • Better at preserving cultural traditions, non-material heritage and local and regional handicrafts and manufactures. • Tend to be more diverse, and flexible and adapt more easily to market crises, making them important for resilience. • More likely to be involved in direct sales, promoting sales of healthier, locally-produced food with a lower transport footprint

European Parliament resolution of February 2014

Multipliers on size and ownership • Ownership matters – Local or not • Size matters • Farmers markets

What we mean by succession • Not just a transfer of the farm- a transfer of transfer of knowledge, labour,

skills, management, control and ownership of the farm business. • No one size fits all model. • Models need to look different from what we have seen in the past.

Goals: • Personal – retirement security for farmers, successful continuation of the

farm. • Social – maintain the current level of diversity in farm types

Challenges

• Tighter margins mean larger farms are needed for the same income while

net incomes have been declining. • Property values are high - INCENTIVES TO SELL AND BARRIER TO ENTRY

High values and good market conditions have incented some farmers to sell. Canada lost more than 29,000 farmers 35 to 54 btwn 2011 and 2016, nearly 23 per cent across the country.

Values of farmland is high relative to farm income, making transfers more complicated.

• Debt levels have been increasing (↑ nearly 40 per cent per acre on average between 2011 and 2016)

• Lack of successor: Smaller families

• Technological change

• Fairness

Opportunities • UPTICK In young farmers – Interest

by young people in food sovereignty and organic farming.

• Creative training institutes (NIFTI, Collaborative Regional Alliance for Farmer Training in south western Ontario, a network of small-scale organic farms that offer internships.

• Climate change and green jobs. • Technology – matchmaking services

for connecting young farmers with farmers looking to transition.

Taxes can affect farm succession E.g. 2017 corporate income tax loophole closure proposal

• Argument that it would have been bad for farm succession • Amendment to help with succession

Other tax system changes can be made to help with succession. It’s complicated...

The tax system Many types, e.g.:

• Corporate income tax • Personal income tax • Sales tax • Excise tax (item-specific sales tax) • Property tax

Related - other government revenues (not taxes), e.g. • User fees • Royalties • etc

Example: property tax - problems Assessed value x tax rate = property tax • Assessed value - problem: land speculation near cities raises value,

boosting taxes and making farming more expensive and less viable • Tax rate - problem: general tax rates can be high enough to make

farming expensive and less viable

Example: property tax policy options: • Reduction on assessed values for farms (scaled reduction from

market value) • Tax rates can be varied by class of property. Reduced rate for farm

class (i.e. Ontario 25% of residential rate) • Policy allowing flexibility of timing of property tax payments.

Some of the above exist in some jurisdictions already. Get them adopted more widely.

Example: income tax • Larger tax deductions or credits for land trust donations • Lower income tax rate for lower brackets of farm income • Extending capital gains exemptions to support non-family farm

successions that are family to family.

• Increase the capital gains exemption to a level that works for

today’s farmers and supports farm transitions but includes

controls to prevent farmland investment companies and foreign

buyers from land speculation and flipping.

• Higher tax rates for top brackets - corporate and personal

Examples - sales & excise taxes • Exemptions / credits for farm equipment, inputs • Fuel tax and/or carbon tax

• reduces long-distance transportation of farm products (thus making local farming more competitive)

• Border tax adjustments to catch imports from places without carbon tax, and to make our exports more competitive

• Exemptions / lower rates for farm fuels • Rebates for lower income and middle income, including farmers

(e.g. BC, Alberta)

• Exemptions / credits for farmers markets and other local farm-to-table distribution

Non tax instruments • Community-owned land trusts and land banks

• Community-based financing options (that retain interest-payment

dollars within local communities).

• Government agencies that support seller-finance options.

• An income-assurance plan for beginning farmers to assist them in

becoming established and support their long-term success.

• A retirement savings program or pension plan specifically designed for

farmers that would reduce their need to rely on selling land to fund

their retirement.

Tax changes - developing a program • Research

• current tax policies, at all levels of government • Best tax practices in Canada and elsewhere • Tax policy asks

• Alliances - e.g. C4TF, social justice / faith groups, anti-poverty groups

• Organizing and engagement, public communications, government relations

Policy •Community-owned land trusts and land banks •Community-based financing options (that retain interest-payment dollars within local communities).

•Government agencies that support seller-finance options. •An income-assurance plan for beginning farmers to assist them in becoming established and support their long-term success.

•A retirement savings program or pension plan specifically designed for farmers that would reduce their need to rely on selling land to fund their retirement.

Workshop Power mapping for policy change • Group exercise • write names of

orgs and indivs on stickies, and locate them on the grid

Conclusions • Farm succession trends are troubling

• Pressure on lower income farmers • Difficult to pass farms along to family, or to others who will farm

• Doesn’t have to be this way • Can change tax and other policies to make it easier to farm, boost

value of operating farms and support transitions

• Doing so requires strategy and work