Proposed Tax Changes Have Advanced Financial Planners Hard at Work

pexels-photo-541525.jpegBoth Don & Erik have just returned from the annual Institute of Advanced Financial Planning conference. It was a gathering of the leading Financial Planners in Canada, where ideas were exchanged and specialized speakers gave presentations around a common case study from their legal, accounting, estate, and family mediation perspectives. We were glad to attend and take part in conversing and brain storming with Canada’s most elite financial planning professionals.

The hallways and meeting tables at the conference were filled with the buzz of a recent white paper submitted by the federal government around proposed changes to the taxation of small business corporations. These changes are of concern to the agricultural industry, as only about 25% of Canadian commercial farmers are incorporated.

An unintended consequence of the proposed tax changes will be the elimination of the ability to utilize capital gains tax credits in the transfer of the family farm to the next generation. Many family farms have had an increase of value in their land holdings in recent years, by hundreds of thousands if not millions. The restriction in the use of capital gains tax credits on passing assets to succeeding generations could have serious income tax costs for the retiring parents. However, capital gain tax credits could still be available on the sale of the family farm to a third party.

Would it be good public policy to have the succeeding generation assume the farm with an additional $500,000++ tax liability, while the sale to a neighbouring farmer on an equivalent transaction will still qualify for the first $1-2 million of capital gain tax free? This is out of our area of expertise, but from our point of view this could send the wrong political message. We would like to hear your opinions.

Since possible ramifications are huge, the business, agricultural, professional communities and our various associations have lobbied hard throughout the consultation period which ended Oct 2nd. Bill Morneau, the Canadian Finance minister, has recently suggested that the government may take another look these proposed changes. We hope they do. The Forbes Wealth team is closely monitoring the situation. Please call us if you have any questions about your current succession plan structure.

For more info on the Institute of Advanced Financial Planners: https://www.iafp.ca/

Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy.

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