My perspective - Where credit is due?
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- Published on Friday, February 21, 2020
By Kate Jackman-Atkinson
Neepawa Banner & Press
The value of farmland in Manitoba has been rising and it’s creating a challenge when it comes to succession within the industry. While rising prices are great news for those looking to sell, they’re not so good for those getting into the industry and looking to expand their farms through land purchases or rental.
Each year, Farm Credit Canada (FCC) releases a report on the value of farmland across Canada. In the 2018 report, the lending agency reported that compared to 2017, the value of farmland rose by 3.7 per cent. A modest increase, but it came on the heels of 10 years worth of increases, ranging from 4.4 per cent in 2010, to 25.6 per cent in both 2012 and 2013.
When it comes to agriculture, there’s another factor at play— demographics. According to the 2016 Census of Agriculture, the average Canadian farmer is 55.0 years of age. This is up one year from 2011 and while the share of younger farmers is growing, those over 55 are still the fastest growing age group. Ensuring that there’s a pathway for younger producers to expand their businesses so that they can stay in the industry is vital, especially if all these retiring farmers want someone to be around to buy their farms.
When it comes to accessing additional land, young farmers are competing against those with much deeper pockets. This is the way economics work, but sometimes, it doesn’t give the desired result, especially when looking at how to transition all this land.
At their annual meeting earlier this month, Keystone Agricultural Producers (KAP) passed one resolution aimed at addressing this issue. The resolution recommended that KAP work with the young farmers policy committee, the Canadian Federation of Agriculture and the Department of Finance Canada to develop a program that would allow a landowner to be eligible for a full tax rebate on land rental income earned from renting land and/or selling land to a young farmer.
In some American states, similar programs are already in place. In Wisconsin, there is an exclusion on capital gain tax when farm assets are sold to a relative. In neighbouring Iowa, there are tax credits for leasing land to a beginning farmer, as well as those for hiring a beginning farmer to complete custom work. In Minnesota, new tax credits became available in 2018. The Minnesota Beginning Farmer Tax Credit provides income tax credits for the sale and rental of land, as well as the transfer of share agreements. At the end of last year, Kentucky announced a new program in which eligible farmers selling their farms could receive a tax credit on income from the sale of qualifying assets. In most cases, “young farmers” are defined as those who have owned farmland for less than 10 years and will provide day-to-day labour on the farm.
While some are worried a tax credit will drive up prices, in most situations, young farmers are competing against buyers who wouldn’t be eligible for the tax credit. Canada has good lending programs aimed at young farmers, but when it comes to purchasing land, they usually don’t have the equity that allows them to pay top dollar. Over the next decade, a large quantity of land will be coming up for sale or rent, as today’s ageing farmers turn to their assets to fund their retirements. Some consideration needs to be given to how this land will transfer, who will buy it and at what price. By making some kind of incentive available, it can allow vendors to help a new farmers, while pocketing the same amount of after tax money.
