Production Lareault, based on just over 450 acres at Lavaltrie, Que. — about 40 km northeast of Montreal, in the province’s Lanaudiere region — has been acquired by investors Antoine Casimir and Andrea Borodenko for an undisclosed sum.

The Lareault business produces multiple varieties of early-, mid- and late-season strawberry plants for commercial-scale, greenhouse and U-pick growers and garden centres as well as for backyard and balcony use.

The company also sells various varieties of raspberry, high- and lowbush blueberry, blackberry, cherry, haskap and other berry plants as well as asparagus and rhubarb, among others.

Owner/operators Luc and Lyne Lareault plan to retire from the business that’s been in family hands since 1953.

Casimir and Borodenko are the husband-and-wife operators of Greenlore, a Montreal venture capital and private equity firm with a focus on businesses in the agriculture, food and e-commerce sectors that are seeking partnerships for their growth or succession-planning phases.

Casimir was also previously a principal in Quebec private equity firm Novacap, with a focus on companies seeking either growth or exit strategies, while Borodenko previously worked for Montreal digital marketing firm Mediative.

The acquisition was backed with loans from Quebec pension fund Fonds de solidarite FTQ, financial co-operative Desjardins Group and Farm Credit Canada (FCC).

“The support of our financial partners was crucial to the deal’s success and to keeping the head office in Quebec,” Casimir and Borodenko said jointly in Thursday’s release.

“We are also delighted that all the employees will remain and that we can count on the support of Luc and Lyne Lareault to facilitate the transition,” they said. “Lareault is an excellent platform for our future projects, which will leverage the company’s enviable reputation for quality and innovation.”

Business transfers are a “major challenge” for small- to medium-sized enterprises (SMEs), Fonds de solidarite FTQ CEO Janie C. Beique said in the same release, adding that “solutions exist for entrepreneurs who want to ensure the future of the company they’ve built and for buyers who want to contribute to our local economy.”

Desjardins vice-president Jean-Yves Bourgeois, in the same release, described the deal as
“excellent news for the agri-food sector,” adding that “a good plan, developed well in advance, helps owners anticipate how they will transfer the business to the next generation. But beyond purely financial matters, buyers and sellers need to be guided on a human level during this critical period.”

Luc Lareault, who will remain with the company through the transition, described the new owners as “dynamic Quebecers who know the market very well” and have “several meaningful projects in mind for the future.”

— Glacier FarmMedia Network

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“The immigration of scientists, data engineers, and entrepreneurs has been recognized as critical to Canada’s growth. A similar approach needs to be adopted to attract farmers,” the authors wrote.

The report, released Sunday and titled Farmers Wanted: The labour renewal Canada needs to build the Next Green Revolution, is a collaboration of the Royal Bank of Canada (RBC), Boston Consulting Group and the Arrell Food Insitute at the University of Guelph.

It notes there’s a global crunch coming as many farmers near retirement age, and not enough is being done to fill that gap.

In Canada, 40 per cent of farmers are expected to retire by 2033, “placing agriculture on the cusp of one of the biggest labour and leadership transitions in the country’s history,” the report reads. That will come on top of an already-expected shortfall of 24,000 farm workers over the same time frame.

MORE READING: Does Canada have enough young farmers?

The report’s authors say the first short-term step in addressing this crisis should be to identify and recruit 30,000 permanent immigrants who want to establish their own farms and greenhouses, or take over existing ones.

Canada, they wrote, has had a long history as a destination for international farmers from the Netherlands, U.S., U.K., China and India — and there are new opportunities to “attract operators who have lost their farms because of regulatory policies in other nations.”

In the Netherlands, for example, 3,000 farmers with the largest emissions will be bought out in a 24.3 billion-euro (C$35.6 billion) program. The country will also have to reduce its livestock population to a third of its current size over eight years. In New Zealand, a 2019 law that requires producers to reduce emissions by 10 per cent in the next three years is already forcing farms to scale back. The EU has lost more than four million farms since 2005. It all adds up to a potential talent pool for the agriculture sector, the authors said.

In the medium term, Canada needs to do a better job of promoting “agricultural education across colleges and universities to attract new students,” and the report says the blueprint to expanding agriculture education is already in place.

Faced with falling student numbers in the 1990s, education institutions expanded their reach by revisiting their curriculum with an eye to drawing in students who weren’t from a farm background. They focused on topics outside of agricultural science, and included topics such as food security, sustainability and international development. Enrolment at ag schools bottomed out in 2003, and since then has grown by 40 per cent. Canada now has among the highest post-secondary agriculture enrolments in the developed world.

Despite this, the authors said there’s still room to further expand the scope of agricultural education in Canada.

“For instance, no full-time MBA program among Canada’s top 10 business schools currently offers elective courses in agribusiness,” they noted.

Longer-term, Canada should “accelerate the adoption of autonomous and mechanized solutions on farms.”

They write that “smart” agriculture technology and practices will promote higher levels of efficiency and productivity, reduce environmental impact and promote sustainability, as well as “reduce the need for low-skilled labour.”

The national shortfall, they said, is in the investments needed to develop the technology: “We should strive to be more ambitious with funding as every dollar invested in R+D generates $10 to $20 in GDP.”

Most of the money spent on this research comes from the public purse, to the tune of about $450 million in 2020. Private sector investment lags, at just $108 million the same year.

Capital investment in agriculture has risen faster than in other Canadian industries over the last 15 years, but has mainly been concentrated in the crops sector.

For farmers themselves, the report urges putting a priority on succession planning. It notes Canada’s farm acreage has declined from 167.01 million acres in the 2006 census, to 153.69 million in 2021.

“Without clear transition plans, valuable farmland may sit idle and unproductive,” the report said. “By contrast, clear and established plans make the process of transferring land, knowledge, labour and ownership easier for new generations taking over.”

Farm operators who want to sell their farmland should consider the sale to “eager new producers entering the industry, productive operators, or farmers new to Canada” to help ensure their land’s productivity does not slow.

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Elaine Froese, a farmer from southern Manitoba who has spent most of her career working as a farm family coach, has advice for the incoming generation. 

“I think founders are wanting their successors to prove themselves so I often ask young farmers what they are doing to prove their passion and commitment to keeping the farm viable and profitable going forward,” she says. 

Why it matters: Farm transition is a major challenge for some families. Equipping young farmers with useful tools can help the process be more successful.

Froese’s first recommendation is for young farmers to become self-aware by identifying their skill set and passion. Personal style assessment indicator tools can help. Knowing why they want to farm and being able to clearly explain why it’s important to them is key, says Froese.

[VIDEO] The dawn of a new generation: celebrating Canada’s farming future 

Identifying values is another crucial exercise for young farmers, including how they rank teamwork versus independence.

“Are they willing to work in tandem with the founder or do they want a sub-enterprise that they can call their own?” she asks, noting that some farmers start by running a custom operation under the umbrella of the larger business as a way to gain experience and prove their commitment.

It has become clear that the next generation of farmers values having a life outside of work. “They want to have time with their family and they want to stay married, so they will not work 100-hour weeks like they’ve watched their parents do,” says Froese.

As with many tough issues, this newer school of thinking requires effective communication about reasonable expectations. In other words, the younger generation needs to be able to explain why they value time away from work, even though there may be judgment about this from their family.

Froese urges young farmers to see a financial planner to discuss their personal wealth as soon as possible. By developing lifestyle and debt servicing plans and getting a will and life insurance in place at a young age, they will be more comfortable knowing what their business plan is going to cost when it is time to see an agricultural lender.

[RELATED] Why life insurance matters in succession

In a situation where the older generation is not open to discussing transition, Froese recommends young farmers try to find out if fear of conflict is one of the reasons.

“I’m just curious why it is so hard for you to come to a family meeting. Is it fear of conflict?” is a suggested way to ask.

If the answer is yes, it’s important to make transition conversations safe and respectful by hiring an objective, trained third-party facilitator. In a world of virtual events, there is no reason why a farm family can’t have an effective meeting with a facilitator in any location over Zoom, says Froese.

She encourages the use of “I think”, “I need” and “I want” statements to express emotions. For young farmers trying to start the transition discussion, this could sound like: “I think it’s time we have a facilitated family meeting. I need to have certainty about my future. I want you, as my mom and dad, to be protected.”

Frustrated young farmers can also write a letter of intent to their parents to explain their thoughts and feelings and ask them to consider a facilitated family meeting, suggests Froese. “Being clear is kind,” she says. “You get the behaviour you accept.”

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Brandon-Souris MP Larry Maguire’s Bill C-208, which was introduced for first reading in February last year, passed third reading in the Commons on Wednesday.

C-208 proposes to amend the federal Income Tax Act to exclude sales of farms and other small businesses to adult children or grandchildren from current anti-avoidance rules.

The bill passed 199-128 on third reading, with opposition mostly from members of the Liberal caucus, Maguire said. The Senate next sits on May 25.

Today, Maguire said, “when a person sells their small business or farm to a family member, the difference between the sale price and the original purchase price is considered a dividend.”

But if the business instead goes to a non-family member, the sale is deemed a capital gain, which is taxed at a lower rate and allows sellers to use their lifetime capital gains exemption, he said.

“I think we can all agree that it is completely unfair for the tax rate to be significantly higher when the farmer sells his operation to his son rather than to a third party who, in many cases, is a complete stranger,” Maguire said at second reading in November last year.

The bill also picked up endorsement from Bloc Quebecois and NDP MPs. British Columbia MP Peter Julian spoke in favour of the bill in November, saying that to end “a very perverse aspect of our tax system and facilitating, in a sense, small businesses under $1 million to be passed from one generation to the next without penalties being incurred, makes a big difference for family-owned business.”

C-208 also picked up endorsements from the Keystone Agricultural Producers, Insurance Brokers Association of Canada, Canadian Federation of Agriculture, Grain Growers of Canada, Canadian Canola Growers Association and Canadian Federation of Independent Business, Maguire noted.

Agricultural Producers Association of Saskatchewan (APAS) on Thursday also hailed the bill’s passage in the Commons. APAS president Todd Lewis described it as “an opportunity to address this longstanding inequity that has negatively impacted the transition plans of family farms in Canada.”

‘Avoidance opportunities’

However, during debate on the bill in November, Ontario Liberal MP Tony Van Bynen cautioned that Maguire’s bill “seeks to amend two of the Income Tax Act’s most important and complex anti-avoidance rules.”

Those rules, he said, are meant to apply when an individual sells shares of a corporation to another corporation that is linked to an individual, such as a family member.

When shares of a Canadian corporation are sold to such a “linked” corporation, the rules deem that in certain circumstances, the seller has received a taxable dividend from the linked corporation, rather than a capital gain, Van Bynen said.

The rule, he said, is meant to ensure taxpayers “cannot use linked corporations to, in effect, remove earnings from their corporations, using a sale as a basis to do so.”

Quebec Conservative MP Richard Lehoux, in response, said Maguire’s bill “provides that the family member purchasing the business must keep their shares for at least five years to avoid the penalty.”

That requirement, he said, “will thwart attempts to exploit the system” for purposes of fraud or tax evasion.

Van Bynen said there’s already “nothing in the (Income Tax Act) stopping a parent from selling the shares of a family business directly to their child or grandchild on a tax-free basis using the lifetime capital gains exemption, which currently shelters up to $1 million in capital gains on qualified farm and fishing properties.”

The issues to be addressed by C-208, he said, arise only in “multi-tier corporate structures, where one corporation owns a second corporation” and the proposed changes to “could open the door to new tax-avoidance opportunities.”

C-208’s amendments, he said, would also affect section 55 of the act, which currently “generally applies to corporations that seek to inappropriately reduce capital gains by paying excessive tax-free dividends between corporations, which the act considers to be a capital gain.” — Glacier FarmMedia Network

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Not accounting for one’s fears, and failing to reconcile emotion with rational action, can make things even worse.

Why it matters: There are a large number of farms that which will change hands in the next 20 years and farm succession discussions are critical to that transition.

In his experience working with farm families, Delaney says fear that farm continuity will be lost, as well as many other emotional factors, are nearly always central drivers in estate planning.

While such motivation can be helpful, it also tends to reinforce avoidance behaviours — not approaching and addressing the best way to handle potentially negative circumstances, not keeping a will up-to-date, and so on.

“I think (farm families) fear approaching this because there are so many moving parts that they don’t understand and they feel are combustible… These problems just get exponentially worse from generation to generation,” says Delaney.

“As we procrastinate, as we flee and run away from those kinds of difficult decisions, we lose. Planning opportunities fall off the table.”

As described in a virtual presentation with Farm Credit Canada, those developing estate plans need to be introspective. That is, taking time to consider the key assumptions underpinning what they hope to accomplish and whether the steps being taken are supportive of goals.

Conducting a “pre-mortem,” says Delaney, can reveal the potential weaknesses in an estate plan, such as assuming all children involved will remain married, or that each is equally adept at running a business. Knowledge of such weaknesses, while potentially unpleasant to consider, support the planning process.

No one is immune to serious business disruptions

As far as weaknesses go, he says a common estate planning mistake is a failure to consider catastrophic occurrences.

Referred to as black swan events, Delaney says these include circumstances with severity above and beyond things like premature death, illness, and others that are reasonably expected to happen, and that estate planning is already trying to protect against.

“A diagnosis of cancer in itself is not a black swan event,” he says. “But what if we add to that, and therefore multiply, before insurance is placed? Would that cause you a severe consequence? What if a child died, after the wealth had been transferred to them, during your lifetime?”

What is considered catastrophic differs between families and circumstances and planning for every conceivable possibility is not practical.

The important thing to consider, according to Delaney, is whether you leave yourself open to additional crises unnecessarily. Not having a will, as is the case with half of Canada’s adult population, is one such example.

Opinions of beneficiaries matter

Estate planning as a subject makes people think about legal issues, finances, conflict possibilities, and their associated solutions. But what the beneficiaries think also matters.

“We are trained from the day we begin acquiring assets to think of the tax implications and to think of them as what we need to plan for,” Delaney says. “What we should be planning for is the beneficiaries instead. We should be inviting their input on a lot of this.”

On the ground, this means bringing them into the conversation.

Making estate planning a process by first establishing a dialogue through regular meetings is a good starting place.

Such meetings provide opportunity for participants to share their values, which can in turn be used to develop a mission statement. Once accomplished, individual goals can be identified, and broken down into objectives. Strategies to achieve those objectives, and what will be done to execute those strategies, can then be developed.

“We often jump right to the tactic before we have considered any of the preceding steps,” Delaney says, reiterating inaccuracies in earlier steps make estate plans less reflective of what people want, and the challenges faced.

Assuming wishes will be understood is also fatal, he added.

A will is constructed around an individual’s personal perspective. But after death, the individual can’t elucidate the details. Beneficiaries are thus left to interpret what they can. The burden of explanation can also shift to them, which can cause conflict.

For this reason, it’s necessary to avoid what Delaney calls “red flag” phrases such as “for reasons my children already understand,” and “because the individual has been so instrumental in the business.”

The perpetual struggle between what’s fair and what’s equal is another factor that needs to be defined ahead of time.

Central to everything is a willingness to engage others in the process, says Delaney, while attempting to account for differences in how people interact.

“Understanding people’s communication style is absolutely critical to getting over that ‘I assume you know what I meant when I was talking.’”

The post Introspective estate planning for your farm appeared first on Farmtario.

The agreement – permanent and legally binding – is between the farm owner and the trust. It is registered on the title of the land, which means it runs with the land and applies to all future owners of the property.

Why it matters: Preserving farmland is a challenge, especially when development money is involved.

“It can never be undone,” Ontario Farmland Trust executive director Kathryn Enders said in a recent interview. “It’s on title permanently for the next owner, and it restricts what they are and are not allowed to do.”

Along with the farm-income challenges and farmers’ lack of access to resources they need, the rising cost of farmland has been identified by the trust as a key factor in the farm succession crisis.

By locking in the agricultural designation, the Farmland Easement Agreement aims to keep farmland affordable for the next generation for a very simple reason: a developer would not be inclined to get into a bidding war over land that must remain agricultural. With no bidding war, a young farmer stands more of a chance.

“We have a template we use with the standard clauses – like no severances, no subdivisions, no new roads,” Enders said.

And they also work with farmers (and their lawyers) to tailor each agreement to the wishes of the land owner, evaluating anything they wish to restrict and determining if such a restriction would actually work.

A farmer can’t insist that the homestead must never be torn down, Enders gave as an example, but he might stipulate that any replacement building be constructed on that footprint.

“Sometimes they will say no new buildings, sometimes they will allow them if they’re agricultural,” she added.

Trust representatives actually oversee these agreements, showing up annually to make sure all provisions are adhered to – “no buildings, no severances, no Wal-Mart, no aggregates.”

In enforcing the agreements, they work closely with the current land owner whenever they feel there is a disparity between what’s provided for in the agreement and what is being carried out on the land. The provisions can be enforced legally, Enders said, but they prefer working with the current owner to resolve the situation.

For example, “If they’ve cut trees they are not supposed to, we will work with them to replace the trees and make the habitat what it used to be.”

The concept stems from the province’s Conservation Lands Act of 1990, which allowed land trusts and conservation authorities to prepare easements to protect land in this way, but did not allow for protections to agricultural land. Subsequent legislation in 2004 did provide for such protections.

“That is why we have been around since 2005,” Enders said.

This kind of agreement has been done in Canada since 1990, and has been offered much longer in the US.

In Ontario, they got to work with lawyers to create what they believe to be the best possible template, and have just registered their 16th Land Easement Agreement. “That is the way we protect more land,” she said.

“We are doing this for the community, and it’s really community-driven.”

The Ontario Farmland Trust, the organization behind it all, is a not-for-profit whose mission is to protect and preserve Ontario farmlands in order to ensure a safe and sustainable food supply for future generations.

“We are a charity,” said Enders.

“We raise funds for everything we do, and we do encourage people – if they believe in what we do and support our mission – to become a member and support us.”

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Farm financial and legal experts gathered in London, Ont. recently for the Canadian Association of Farm Advisors’ Farm Transition Update.

“I believe the business needs to be prepared for transition before ownership,” says Brent VanParys, a Woodstock-based business transition services partner with BDO Canada.

Why it matters: Uncertainty and potential conflict can’t be addressed if no one talks about it, particularly during transition planning.

In VanParys’ experience, farm families might get along and work well together, but how people see the business — its strengths, weaknesses, what people are happy or unhappy with — can be very different. A patriarch, for example, may think the level of financial compensation being given to another stakeholder is more than adequate for the time committed, but the other stakeholder may disagree. If they never directly discuss the issue, the discrepancy persists.

Such issues, VanParys says, must be addressed before effective business planning can occur. If not, they become major barriers later in the transition process.

To this end, he says BDO offers what it calls a “Discovery Questionnaire” service designed to highlight weaknesses and strengths as perceived by each farm stakeholder. With this knowledge, the adviser and farm members can begin discussing each area individually. Once addressed, business-specific transition details may be broached with greater confidence.

“Communication is fundamental. We need good communication in the planning process,” says VanParys.

Margret Hudson, chief executive officer of Burnbrae Farms, says “healthy family, healthy business” is a mantra that is often repeated between her family members. For their large and diverse family egg business, formal business meetings are critical.

Overall, she says they separate governance into three related but separate parts — business, ownership, and family strategy. Elements of each are discussed separately and with regularity, and they bring in advisers early to incorporate impartial, third-party input.

“The more people, the more complicated ownership is,” says Hudson.

Meetings aside, they also try to make expectations clear to all family members. For young family not yet involved in the business, this means being upfront about the requirements of later joining the company — a post-secondary degree, for example. For those who are working in the business, clarity can come from “robust” policies, shareholder agreements, and other formalized agreements.

George Klosler, senior distribution director for Farm Credit Canada in southwestern Ontario, says uncertainty regarding farm transition and the future of farm businesses is frequently identified by farmers and their families as a major source of personal and business anxiety. A general lack of formal transition planning is also common.

Combined, Klosler says this indicates a need for greater help with communication.

“There’s lots of awareness, some training, but relatively little action. Farmers are asking for more succession help,” he says, adding much of the need relates specifically to getting the conversation started.

In response, FCC has expanded its Transition Specialist program from a pilot project in Western Canada to Ontario. This program, says Klosler, involves a designated transition specialist, often accompanying a FCC relationship manager, meeting with the farmer or farm family to determine who to talk to and where to first spend their money, and what questions to ask. It also helps align family members in terms of their individual goals.

This service is free and is designed to help spur families to begin their own transition process, not to develop concrete transition plans.

“I’m told what people need sometimes is a coach… we’ll point them in the right direction and keep them on the action plan,” he says. “We deal with the farms that want to carry on because that’s where the risk is. We have the resources and the capacity to do something for our industry.”

The post The importance of meetings appeared first on Farmtario.

Few family operations survive unexpected changes to the business, such as changes due to a death, sudden illness, family or legal disputes, divorce, financial stress or loss of a key employee.

Why it matters: Many families realize the importance of having a farm contingency plan for when something unexpected happens, but few actually create it.

“I like to refer to these unexpected changes as a ‘shark attack,’” says Ron Hanson, professor emeritus with the University of Nebraska-Lincoln at the Annual Beef Industry Convention, Jan. 10 in London.

Hanson says these issues are often never discussed and usually avoided.

“Families make the unrealistic assumption that we can always find a way to work through this when, and if, something ever happens.”

When developing a plan for the business, Hanson suggests four questions to be included in the checklist:

• Are all farm businesses and financial documents current and complete?
• Are these documents accessible to other family members?
• Are necessary power of attorney documents in order if the parents are unable to manage the farm business and/or no longer able to take care of themselves?
• Has the farm’s contingency plan been communicated with everyone in the family?

Many families will find the contingency planning process to be time consuming and emotionally draining process. Unfortunately, there are no short-cuts or easy answers to these questions.

“The solution, as well as the secret for success, is to start your planning process now.”

Through Hanson’s experience of counselling farm families along with professional travels speaking to farm groups, he believes there are five questions that need to be addressed during the farm succession planning.

• Is there someone the farm owners really want to someday own the farm? Is there someone who will never own the farm?

• Are the parents willing to treat all of their adult children fairly and equitably in their estate?

• When will this transfer of the farm ownership and sharing of management actually happen?

• What is sweat equity worth when determining a fair selling price for a family farm to settle a farm estate? What is a fair selling price when a farm must be sold in the family, if the adult children must buy out their sibling(s) or buy out the parents so mom and dad can have an income stream?

• Are family members able to work together and agree upon a succession plan for the future of their farm? If family members fail to reach an agreement with each other, nothing will ever happen.

“The key to finding answers to these questions is whether a family has a vision for the future of their farm and a commitment to continue their family farming legacy for future generations.”

Adopt a vision

The parents are the starting point of this process – their farm, their estate, and their family.

It’s important they begin by discussing their own expectations with each other.

Parents must identify a vision for the future of their operation, and their legacy. Then, they must share this vision with their children, especially the ones who have returned back to the farm.

Hanson says too often family succession fails because parents cannot agree.

“Worse yet, parents have the attitude that after we die, the children can figure things out themselves.”

These approaches often end with the farm being sold off.

Drafting ideas into a plan

This step requires the entire family to meet and begin discussing ideas and concerns.

This is an opportunity for parents to explain their vision.

Hanson says the objective of this step is to get something in writing.

“With nothing in writing, how can a succession plan ever be accomplished? Verbal plans usually never materialize.”

Organizing planning resources

This is the most important step in farm ownership succession planning, says Hanson.

The family needs to put together a management succession team to guide them through the process. This includes an accountant, farm loan officer, estate planning or wealth management specialist and an attorney.

Clarifying assumptions

The adult farming children are to visit with the non-farming children to learn and understand their feelings.

Existing jealousies, as well as resentments, need to be resolved and reasonable solutions need to be met.

Take control and set guidelines

This is a critical strategy for the planning process to be successful.

Hanson suggests breaking down the overall planning process into identifiable stages and set deadlines to accomplish each specific purpose.

“This is exactly why many planning goals by farm families never become a reality. They never had a deadline or priority to get their plans accomplished.”

Planning shouldn’t start during a farm crisis. This usually results in the farm being divided or sold due to family’s failure to have implemented a contingency plan.

“The strategy for success is to start communicating as a family and to adopt a step by step transition planning process now.”

To find out more information, visit Hanson’s website at passingonthefarm.com.

The post Planning for “What if” appeared first on Farmtario.

None have them have quite put things like Tom Deans, the keynote speaker on Day 1 of the Southwest Ag Conference (SWAC).

Deans is not from agriculture, but he comes from a family of entrepreneurs. Generations of his family have created and sold businesses, only to have the next generation start something completely new with help from the proceeds of the previous generation’s fortunes — and their own hard work and ingenuity.

Sometimes it makes sense to move out of one family history and into something completely new — or something not quite, but slightly new.

His family’s succession discussions all involved asking the younger generation if they were willing to risk their own capital to buy the family business. They had to have skin in the game. And if they weren’t willing to go that far, then it likely made little sense to pass along the business.

His own story is a good example. He started buying shares of his family plastics business in Orangeville while he was working in banking. Then his father put him on the board of directors. Then, after years of working elsewhere, he started working in the business. But, after concentrating suppliers, an expensive dispute with a neighbour and an industrial accident he said “no” when his father asked if he wanted to buy controlling interest in the business. He feared his father’s reaction, but his parent high-fived him and told him it was the right decision.

Within six months some serious market changes made the plastics business much tougher and the decision proved an excellent one.

There are several lessons in Deans’ story for farmers. There can be a presumption of inheritance by the younger generation, or an assumption by the older generation that their children will continue with the family business. Neither should be assumed. There needs to be an open family conversation about finances and plans. That’s not new in what other farm succession speakers say,but the difference highlighted by Deans is that the younger generation’s willingness to invest is a critical component of the discussion. They have to risk some of their capital to make it happen. That direction assumes that the younger generation has access to capital. The main point here is that they don’t have to have access to all the capital to buy the farm operation, but they have to have been out, off the farm, and ambitious or entrepreneurial enough to have earned enough cash that they can put some of it into the farm. It’s about having a willing buyer and a willing seller.

The other potentially uncomfortable part of Deans’ message is his focus on succession of family wealth, not the family business. Many farm families are tied to the operation they have now, and the multigenerational home farm. No one wants to farm? He’s says cash it in and help the entrepreneurs of the next generation achieve their dreams.

That logic can also apply to farming, but with a looser definition applied to farm succession.

I have seen this happen. A dairy farmer’s children want to farm poultry, so the dairy farm is sold and poultry farms are bought. Maybe an original farm is sold and the family moves into agriculture service or retail.

My biggest takeaway from Deans’ talk was the suggestion that succession is a broader conversation than the farm. A close second was his emphasis, like most other farm succession speakers, on starting the conversation. You never know what can happen until you start talking.

He talked about the family owners of a large company in Toronto. He had a call from the owner who invited him to meet. Deans, who isn’t a consultant, but a speaker and writer, was intrigued enough to visit them. An older gentleman came into the board room. At 70, he was the successor. His father was in his 90s. By the end of the discussion they realized that the successor was a willing buyer, on his father’s terms (such as being able to keep his office), and the father, at those terms, was a willing seller.

They just hadn’t been able to start the conversation. With billions in assets on farms to be transferred over the next couple of decades, those are conversations with great value.

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But farm finance experts say even relatively small farms can lose access to small business tax rates through several means.

Why it matters: Under current rules, even small farms can lose access to small business tax rate in some circumstances.

As described in Ontario’s Ministry of Finance resources, corporations carrying on business through a permanent establishment are subject to both federal and Ontario corporate income taxes.

The general corporate income tax rate for all taxable income allocated to Ontario is 11.5 per cent. This amount varies between provinces, and is added to a 15 per cent federal tax.

The default corporate income tax rate in Ontario currently stands at 26.5 per cent.

As in other provinces, though, overall combined tax rates are reduced, in varying degrees, by “small business deductions” for the first $500,000 of active business income.

As described by Shawn Deyell, a Guelph-based chartered professional accountant with RLB, active business income generally refers to revenue less expenses, and whatever tax write-offs are available. The lowest rate in Ontario currently stands at 12.5 per cent (nine per cent federal, plus 3.5 per cent provincial).

“Simply put, $500,000 is the maximum amount where you have access to the lower rate,” says Deyell. “The (federal) small business rate has been in play since 1982.”

Once taxable farm earnings reach $10 million, access to the deductions keeping the corporate tax rate down start to diminish. At $15 million of taxable capital, or more, a business is no longer eligible for the 12.5 per cent rate. Now, the full 26 per cent applies.

Passive income problems

If half a million seems like a lot, that’s because it is. Deyell says his experience indicates most farms in Ontario generally do not reach post-$500,000 tax rates.

The problem instead lies with “passive income” and how it affects the limit at which higher corporate tax rates apply.

Passive income can include revenue from land rented to a third party. If a person or farm couple has investment income of more than $50,000, for example, the small business tax limit is reduced to $150,000. After that, the full corporate tax rate applies.

“Those amounts can add up pretty quickly and can impact the business itself and its access to lower rates,” Deyell says.

However, these tax rules come from the federal level, and each province must choose whether to implement the full tax rate.

Deyell says many provinces have done so, but Ontario has not. Instead, Ontario farmers surpassing the passive income threshold are only subject to a business tax rate of 18.5 per cent.

“If you’re at 12.5 and get ground down, its 18.5,” says Deyell. “Whereas if Ontario adopted the same rules, the 26.5 per cent rate would apply.”

Issues for larger, multi-faceted farms

Even without passive income, the full corporate tax rate can be a major problem for large farms and those with many people, or many families, all contributing to the same company.

Matt Bolley and Ryan Kehrig, tax experts with MNP in Brandon and Saskatoon respectively, say current tax rates and deduction stipulations are becoming more of an issue for the large farms of Western Canada. This is due to a number of overarching factors:

1. The average size of farms.
2. Significant increases in land values, as well as equipment and building costs.
3. Higher productivity from better technology, farming practices, and other factors.
4. Higher per-bushel values.

All of the above, they say, results in much larger balance sheet figures. This pushes many businesses, even relatively small farms, past the $10 million small business tax rate limit, even for relatively smaller farmers.

Acquisition more taxing then inheritance

Bolley says the cost of acquiring assets like land biases the current rules against newer or growing farmers. This is because total liabilities and equities must be considered in tax calculations.

Compare a farmer taking over his or her parents’ farming company with all historical figures on the balance sheet, with one starting from scratch. In the first instance, a quarter of farmland might be recorded at its historic cost of $100,000, even though the land is worth $700,000. The second farmer has to use $700,000 in his calculation.

“It’s the same farm, but the calculations used for the legislation place the second farmer at a huge disadvantage to the first,” says Kehrig. “It could be argued that the second farmer needs the small business limit more than the first, as this farm likely has much larger third-party debt that needs to be repaid, whereas the first farmer simply needs to pay out his parents over the years.”

“The second farmer would have to pay his debt after having paid (the highest tax rate) on his income, but the first pays the (lowest) rate only.”

To level the playing field, both Bolley and Kehrig believe correcting current discrepancies with a one-time upward adjustment of the small business tax threshold might be required. Annual inflation adjustments could then be implemented to account for future change.

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