Federal budget features expanded capital gains tax, funding for biofuels, and another promise to look at farm equipment interoperability

The federal budget introduced by Finance Minister Chrystia Freeland on Tuesday featured changes to how capital gains are taxed, as well as federal funding to develop biofuel production and artificial intelligence, but did not mention many topics and programs farm groups were hoping to see addressed.

It also included many previously-announced measures, such as the increase to the interest-free portion of cash advances for farmers for 2024, a promise to hold consultations regarding interoperability between different brands of farm equipment, and funding for a national school food program.

Overall, the budget forecasts a $39.8 billion deficit for 2024-25, with increased taxes offsetting higher spending. Debt servicing will take up a larger piece of the pie, with debt payments expected to cross the $50 billion mark — making up around 10 per cent ($54 billion) of total government expenditures in ’24-25.

What’s in the budget for ag

Here’s a summary of what’s highlighted in the budget that’s potentially relevant for the agriculture community:

  • Expanded capital gains tax and higher lifetime capital gains exemption
    – The government plans to increase the inclusion rate — the taxable portion — of annual capital gains from one-half to two-thirds, effective June 25, 2024. For individuals, the higher rate would only apply to capital gains above $250 thousand, with the one-half rate for capital gains under $250 thousand. The higher two-thirds rate would be applied to all capital gains realized by corporations and trusts.
    – The government says the higher capital gains inclusion rate will only apply to 12 per cent of corporations and 0.13 per cent of personal income tax filers, but it’s expected to bring in around $20 billion in new tax revenue over the next four years.
    – The lifetime capital gains exemption, which currently allows Canadians to exempt up to $1,016,836 in capital gains tax-free on the sale of small business shares and farming and fishing property, will be increased to $1.25 million, effective June 25, 2024, and will continue to be indexed to inflation thereafter.
    – The Canadian Federation of Agriculture says it welcomes the increase to the lifetime capital gains exemption, but is concerned the higher inclusion rate will make intergenerational farm transfers more challenging.
  • Cash advance changes
    – $64 million in 2024-25 to support increasing the interest-free limit on Advance Payments Program loans from $100 thousand to $250 thousand (previously announced.)
  • Interoperability
    – The government plans to launch consultations in June on interoperability “so that farmers can use their equipment in the
    way that is best for their farm” by reducing technological barriers between different brands of equipment. Last year’s budget included a similar pledge.
    – Ottawa is also calling on provinces and territories to amend their contract laws to support interoperability, “while commending the progress of Quebec on their work to support consumer protection, including for farmers.”
    – The budget referred to interoperability as a measure to address rising food prices. According to page 141 of the budget, “When farmers have to purchase new, more expensive equipment to grow our food, it can drive up their costs, which get passed on at the checkout.”
  • Artificial intelligence
    – $200 million over five years, starting in 2024-25, to boost AI start-ups to bring new technologies to market, and accelerate AI adoption in critical sectors, such as agriculture, clean technology, health care, and manufacturing.
  • Clean fuels
    – The government plans to disburse up to $500 million per year from Clean Fuel Regulations compliance payment revenue to support biofuel production.
    – Ottawa also plans to retool the Clean Fuels Fund to deliver funding more quickly, and extend the fund for another four years, until 2029-30. A total of $776.3 million will be deployed over the next five years.
    – The Canada Infrastructure Bank will invest at least $500 million in biofuel production.
  • Farm Credit Canada’s mandate
    – The government says it’s giving new guidance to Farm Credit Canada, Export Development Canada, and other financial Crown corporations to mobilize more financing, and take on greater risk, in order to get more support to the Canadian businesses that need it. It specifically says FCC should “continue to pursue opportunities to support agri-food and agribusiness, including through venture capital investment, and further deployment of technologies to mitigate climate change.”
    – The government intends to amend the Farm Credit Canada Act to require regular legislative reviews that ensure FCC’s activities are aligned with the sector’s needs.
  • Carbon tax refund for small businesses
    – The government says it will return over $2.5 billion in carbon tax revenue collected over the past five years to an estimated 600 thousand businesses with fewer than 500 employees in provinces where the federal carbon tax applies. Canadian Controlled Private Corporations (CCPCs) that issue T4s in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador, which presumably includes incorporated farms, will receive this refundable tax credit, with the amount based on their number of employees in each tax year. Based on wording in budget documents, this would be separate from the existing fuel charge tax credit for farmers that is based on total eligible farm expenses (at a rate of $1.86 per $1000 in expenses in most cases for 2023-24).
  • Possible changes to livestock tax deferrals
    – The budget referred to the importance of livestock tax deferrals in helping farmers affected by natural disasters, and included a line that said the government “is committed to working with industry partners, such as the Canadian Cattle Association (CCA), to explore avenues to ensure farmers get support quicker and more efficiently in times of need.”
    – The CCA said it’s “cautiously optimistic” about the recognition of the livestock tax deferral in the budget, noting it has requested changes to the Income Tax Act to include all classes of cattle and allow producers to self-elect when they need to use the deferral. “Beef producers are encouraged to see the Livestock Tax Deferral in Budget 2024 and we are hopeful that meaningful change will come quickly as we head into another extremely dry season in Western Canada,” said CCA president Nathan Phinney, noting the reference was “an indication that the government will make a change and work with ranchers to find a solution that addresses extreme weather challenges for producers across the country.”

What’s not in the budget

The Accelerated Investment Incentive that allowed for quicker depreciation on capital purchases appears to not have been renewed.

The budget notably did not mention any plan for long-awaited updates to the Canada Grain Act, which disappointed farm groups, including the Grain Growers of Canada (GGC) and the Western Canadian Wheat Growers Association.

GGC also said it was disappointed the budget did not include an extension to the extended rail interswitching pilot that was announced last year, investments in trade-enabling infrastructure, and investments in grain-related research and development.

“Budget 2024 misses the mark in recognizing the importance of expanding food production in Canada and supporting the profitability of grain farmers,” said GGC executive director Kyle Larkin. “One of the best ways to support the sector is through plant breeding innovation — something the budget fails to address.”

The Canadian Federation of Agriculture applauded the re-commitment to launch of consultations on interoperability, follow-through on a previously-announced carbon rebates for small businesses, and  the funding for temporary improvements to the Advanced Payments Program, but was disappointed to see no mention of investments in environmental programming, chronic labour issues in food production, or improvements to transportation and trade infrastructure.

“If Canadian agriculture is to seize its full economic and climate potential, we cannot keep missing opportunities while our international competitors continue to invest in their agriculture industries,” noted CFA president Keith Currie.

The Wheat Growers also noted the absence of new funding for the Pest Management Regulatory Agency.

“Once again, the federal government has missed the opportunity to support agriculture and those that work in the industry,” said Wheat Growers chair and Saskatchewan farmer Daryl Fransoo. “The real issues impacting us are the cumulative effect of the carbon tax on everything that we do, the growing need to have coordinated grain research, increased funding for the PMRA, and industry efficiency through an improved Canada Grains Act.”

While the Trudeau government has historically announced new climate-related programs in the budget, there was no specific mention of new funding for initiatives such as the On-Farm Climate Action Fund (OFCAF), the Agricultural Clean Technology Fund, or the Sustainable Agriculture Strategy.

RealAgriculture will have more coverage and analysis of the budget in the coming days.

Editor’s note: This article has received multiple updates, with new info and quotes added.

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