Last update: 15 January 2025
Background
On January 6, 2025, Prime Minister Justin Trudeau announced he will be stepping down as prime minister once his party chooses a successor. Parliament is suspended until March 24 while his party goes through a leadership process, which has implications for proposed federal tax proposals.
In the past year, the federal government proposed several tax measures impacting the agricultural sector, including:
- increase to the capital gains inclusion rate
- increase to the Lifetime Capital Gains Exemption (LCGE)
- introduction of the Canadian Entrepreneurs’ Incentive
- reinstatement of the Accelerated investment incentive.
What this means for farmers
Now that parliament is prorogued, these proposals remain proposals and are not currently law. Despite this, the Canada Revenue Agency (CRA) continues to administer some of these measures based on the proposals—which is in line with their standing policy. If an election is triggered before any of these proposals become law, the proposals will go away completely, and they would need to be reintroduced by the next government.
Proposals being implemented or likely to be implemented by CRA for 2024 tax year:
- increase to the capital gains inclusion rate
- increase to the Lifetime Capital Gains Exemption (LCGE)
Proposals not being administered by CRA for 2024 tax year:
- introduction of the Canadian Entrepreneurs’ Incentive
- reinstatement of the Accelerated investment incentive.
Given CRA’s public announcement to enforce these proposals despite them not being law, OFA advises members to proceed cautiously with their 2024 tax returns and strongly encourage working with an accountant or tax advisor who specializes in farm taxes.
- Increase in capital gains inclusion rate
Federal proposal: Increase the capital gains inclusion rate from 50% to 66.67% for corporations and most trusts, and for individuals on capital gains exceeding $250,000 annually, effective June 25, 2024.
OFA’s position: OFA does not support this proposal because it imposes a substantial tax burden on farmers, particularly those planning intergenerational farm transfers. OFA had written to former Deputy Prime Minister and Minister of Finance Chrystia Freeland to emphasize the potential negative impact on farm succession planning and the need to treat farm businesses equitably whether they are incorporated or not.
Current status: Although the proposal has not been formally enacted due to parliament’s prorogation, it was tabled as a Notice of Ways and Means Motion in September. This means the CRA is currently administering the increased inclusion rate. If the legislation is not passed when parliament reconvenes, the CRA would presumably stop administering the increase.
- Increase in Lifetime Capital Gains Exemption (LCGE)
Federal proposal: Raise the LCGE from $1,016,836 to $1.25 million for dispositions on or after June 25, 2024.
OFA’s position: OFA fully supports increasing the LCGE to $1.25 million and strongly encouraged the government to continue indexing the LCGE to inflation.
Current status: The approval of this proposal is still pending. However, it was also part of the September Notice of Ways and Means Motion and had a 2024 implementation date, so it is assumed that CRA will be administering this for the 2024 taxation year.
- Canadian Entrepreneurs’ Incentive
Federal proposal: Introduce an incentive that lowers the inclusion rate on capital gains for eligible individuals to 33.33% on up to $2 million in life time capital gains. The lifetime limit is proposed as phase-in by increments of $200,000 per year, beginning on January 1, 2025.
OFA’s position: The OFA successfully advocated to have qualified farm properties be eligible for this incentive and ensure it is available to all farmers regardless of business structure. This adjustment is crucial for supporting farm succession planning and the continuity of family farms in Canada.
Current status: The approval of this proposal is still pending and because it had a 2025 implementation date, it will not be administered for 2024 tax returns. Unless the next government reintroduces this measure, it will likely never become law.
- Reinstatement of the accelerated investment incentive for capital cost allowance
Federal proposal: Reinstate the accelerated investment incentive measures for capital cost allowance to encourage business investment by allowing faster write-offs of capital assets.
OFA’s Position: These measures were initially introduced during the first Trump presidency in an effort to maintain the competitiveness of Canadian businesses and OFA supports making this permanent. They’re a critical part of helping farmers adopt new, efficient technologies to stay competitive – and OFA’s internal research shows they had an impact, contributing to an 8% annual increase in investments in farm machinery and equipment by farmers.
Current status: The approval of this proposal is still pending and because it had a 2025 implementation date, it will not be administered for 2024 tax returns. Unless the next government reintroduces this measure, it will likely never become law.
OFA will continue to monitor these developments and provide updates as they come available, as well as make sure farmer concerns are brought in front of decision-makers as needed.