Why this 5th-generation Nova Scotia farmer is 'furious' with Bill Morneau
Larry Lutz says under the plan, it would be better to sell his farm than pass it on to his children
Larry Lutz's family settled in the community of Rockland, south of Berwick, in the 1850s with two hectares of orchard, a few beef cows and a 20-hectare parcel of land that's been farmed by his family ever since.
The operation has grown to include a sprawling 45 hectares of orchard and 160 hectares of woodland overlooking Nova Scotia's Annapolis Valley.
Lutz, a fifth generation farmer, has always planned to pass the farm down to his children. But he says the federal government's proposed tax changes, if they go ahead, will cost him dearly.
"It's going to be far cheaper for me to sell the farm to somebody else than it is going to be for me to pass it on to the next generation," he says.
Lutz, 55, is planning to give his children the farm and have them pay him a set amount for the rest of his life. Currently, the money received by a parent in such a situation is treated as a capital gain and taxed at 27 per cent.
But under the changes being proposed by federal Finance Minister Bill Morneau, those payments would be considered dividends because Lutz would no longer be actively involved in the farm. It means he would be taxed at 47 per cent.
The government says it is not going after farmers and is committed to maintaining the tax exemption on intergenerational transfers, allowing a farmer to pass on the farm to family members without incurring tax penalties as long as the new owner does not sell it.
That's helpful in the case of a straight transfer of the operation, but not if the parent intends to draw a retirement fund from the farm, as is often the case.
The government also says it plans to maintain the capital gain exemption, allowing farmers to receive tax free up to $1 million of their profit from the sale of a farm.
"Our government wants to see farm families succeed and we're looking at how to fix unfair tax advantages, while recognizing the hard work of family farmers," said Scott Brison, Liberal MP for Kings-Hants and president of the federal Treasury Board.
Lutz was among 150 people, mostly small business owners, who attended a meeting organized by the Annapolis Valley Chamber of Commerce in Coldbrook last week.
Ryan Power, a tax partner in Grant Thornton's Kentville office whose clientele consists largely of farmers, attended to help people understand the impact of the proposed changes.
He said the government may not be intending to go after farmers but that will be the result.
"The net, as it's currently cast, is very, very wide and the impacts of the proposed changes, quite frankly, can't be overstated," Power said. "They're very, very concerning."
The 2016 Census of Agriculture shows the average age of farm operators in Canada is 55.
The government's consultation process on the proposed changes ends Monday.
We're working towards a fair tax system for the middle class. Today, I'm in Halifax listening to <a href="https://twitter.com/hashtag/smallbiz?src=hash&ref_src=twsrc%5Etfw">#smallbiz</a> to make sure we get this right. <a href="https://t.co/xQwQPcrpCA">pic.twitter.com/xQwQPcrpCA</a>—@Bill_Morneau
"Whatever happens, I'll make sure that the kids end up with [the farm], but I want you to understand that I am extremely furious with it," Lutz said. "This province is based on small business, agriculture and small business, and this is going to be detrimental to both of us."
Lutz's son-in-law, Cassian Ferlatte, currently works for him on the farm full time.
"I just think it's making it more difficult than it really should be on people that grow food and contribute positively to the economy and the community," he said.