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37th PARLIAMENT, 1st SESSION

Standing Committee on Agriculture and Agri-Food

EVIDENCE

CONTENTS

Tuesday, April 23, 2002

0910

The Chair (Mr. Charles Hubbard (Miramichi, Lib.))

Mr. Len Farber (General Director, Legislation, Tax Policy Branch, Department of Finance)

0915

The Chair

Mr. Bill MacGregor (Agriculture Specialist, Industry Specialist Services, Compliance Programs Branch, Canada Customs and Revenue Agency)

The Chair

Mr. Howard Hilstrom (Selkirk--Interlake, Canadian Alliance)

Mr. Len Farber

0920

Mr. Marc Rhéaume (Tax Policy Officer, Sales Tax Division, Tax Policy Branch, Department of Finance)

Mr. Howard Hilstrom

Mr. Marc Rhéaume

Mr. Howard Hilstrom

Mr. Marc Rhéaume

Mr. Howard Hilstrom

Mr. Marc Rhéaume

Mr. Howard Hilstrom

Mr. Len Farber

Mr. Howard Hilstrom

0925

Mr. Len Farber

Mr. Howard Hilstrom

Mr. Len Farber

Mr. Howard Hilstrom

Mr. Len Farber

Mr. Howard Hilstrom

Mr. Randall Meades (Chief, Employment and Investment, Personal Income Tax Division, Tax Policy Branch, Department of Finance)

Mr. Howard Hilstrom

The Chair

Mr. Odina Desrochers (Lotbinière--L'Érable, BQ)

0930

Mr. Len Farber

Mr. Odina Desrochers

0935

Mr. Len Farber

The Chair

Mr. Odina Desrochers

The Chair

Mr. Len Farber

The Chair

0940

Mr. Len Farber

The Chair

Mr. Paul Steckle (Huron--Bruce, Lib.)

Mr. Len Farber

Mr. Paul Steckle

Mr. Len Farber

Mr. Paul Steckle

Mr. Len Farber

Mr. Paul Steckle

Mr. Phil Jolie (Coordinator, Manufacturing and Service Industries, Industry Specialist Services, Canada Customs and Revenue Agency)

0945

Mr. Paul Steckle

Mr. Randall Meades

Mr. Paul Steckle

Mr. Phil Jolie

Mr. Paul Steckle

Mr. Phil Jolie

Mr. Paul Steckle

Mr. Phil Jolie

Mr. Paul Steckle

The Chair

Mr. Dick Proctor (Palliser, NDP)

Mr. Randall Meades

Mr. Dick Proctor

Mr. Randall Meades

Mr. Dick Proctor

Mr. Bill MacGregor

Mr. Dick Proctor

0950

Mr. Len Farber

The Chair

Mr. Murray Calder (Dufferin--Peel--Wellington--Grey, Lib.)

Mr. Len Farber

Mr. Murray Calder

0955

Mr. Len Farber

The Chair

Mr. Rick Borotsik (Brandon--Souris, PC)

Mrs. Rose-Marie Ur (Lambton--Kent--Middlesex, Lib.)

Mr. Rick Borotsik

Mr. Len Farber

Mr. Rick Borotsik

Mr. Len Farber

Mr. Rick Borotsik

Mr. Len Farber

Mr. Rick Borotsik

Mr. Len Farber

Mr. Rick Borotsik

Mr. Kerry Harnish (Senior Tax Policy Officer, Business, Property and Personal Income, Tax Legislation Division, Department of Finance)

1000

Mr. Rick Borotsik

Mr. Kerry Harnish

Mr. Rick Borotsik

Mr. Kerry Harnish

Mr. Rick Borotsik

Mr. Len Farber

Mr. Rick Borotsik

Mr. Randall Meades

Mr. Rick Borotsik

Mr. Len Farber

The Chair

Mrs. Rose-Marie Ur

Mr. Len Farber

Mrs. Rose-Marie Ur

Mr. Len Farber

1005

Mrs. Rose-Marie Ur

Mr. Len Farber

Mrs. Rose-Marie Ur

Mr. Len Farber

Mrs. Rose-Marie Ur

Mr. Len Farber

Mrs. Rose-Marie Ur

The Chair

Mr. Len Farber

The Chair

Mr. Len Farber

The Chair

Mr. Len Farber

1010

The Chair

Mr. Len Farber

The Chair

Mr. Bill MacGregor

Mr. Phil Jolie

The Chair

Mr. Len Farber

1015

The Chair

Mr. Howard Hilstrom

Mr. Phil Jolie

Mr. Howard Hilstrom

Mr. Phil Jolie

Mr. Howard Hilstrom

Mr. Phil Jolie

Mr. Howard Hilstrom

Mr. Phil Jolie

Mr. Howard Hilstrom

Mr. Phil Jolie

Mr. Howard Hilstrom

Mr. Phil Jolie

Mr. Howard Hilstrom

Mr. Len Farber

Mr. Howard Hilstrom

Mr. Len Farber

Mr. Howard Hilstrom

The Chair

Mr. Larry McCormick (Hastings--Frontenac--Lennox and Addington, Lib.)

Mr. Paul Steckle

1020

Mr. Len Farber

Mr. Paul Steckle

Mr. Len Farber

1025

The Chair

Mr. Odina Desrochers

Mr. Randall Meades

Mr. Odina Desrochers

Mr. Randall Meades

The Chair

Mr. Claude Duplain (Portneuf, Lib.)

Mr. Len Farber

1030

Mr. Claude Duplain

The Chair

Mr. Phil Jolie

The Chair

Mr. Phil Jolie

The Chair

Mr. Phil Jolie

The Chair

Mr. Len Farber

The Chair

Mr. Len Farber

The Chair

Mr. Phil Jolie

The Chair

Mr. Phil Jolie

The Chair

Mr. Len Farber

The Chair

1035

Mr. Larry McCormick

Mr. Len Farber

Mr. Larry McCormick

The Chair

Mr. Howard Hilstrom

Mr. Len Farber

1040

Mr. Howard Hilstrom

Mr. Phil Jolie

Mr. Howard Hilstrom

Mr. Len Farber

1045

The Chair

Mr. Bill MacGregor

The Chair

Mr. Len Farber

The Chair

Mr. Len Farber

The Chair

Mr. Len Farber

The Chair

Mrs. Rose-Marie Ur

1050

Mr. Len Farber

Mrs. Rose-Marie Ur

Mr. Len Farber

Mrs. Rose-Marie Ur

Mr. Len Farber

Mrs. Rose-Marie Ur

The Chair

Mr. Howard Hilstrom

Mr. Len Farber

The Chair

CANADA

Standing Committee on Agriculture and Agri-Food

NUMBER 062

1st SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, April 23, 2002

[Recorded by Electronic Apparatus]

¿ (0910)

[English]

The Chair (Mr. Charles Hubbard (Miramichi, Lib.)): Good morning, everyone. The order of the day, pursuant to Standing Order 108(2), is a study on the future role of the government in agriculture. This morning we'd like to welcome as witnesses representatives from the Department of Finance and from the Canada Customs and Revenue Agency.

Just before we begin, I'd like to indicate to members that on Thursday we would like to have a briefer meeting than usual. The report on PMRA will be available later today in your offices, and I'd like you to look at that. On Thursday, as a committee, we will look to see how we'll handle that report.

Also on Thursday we'd like to spend a bit of time looking at our so-called future business. Would you mark that on your agenda? We would hope to finish up on our various goals and objectives before we recess for the summer. I'm hoping that with your consensus on the PMRA report we can finalize it as soon as possible and get that first one back to the House.

I apologize to our witnesses for having made that administrative announcement. We'd like to welcome, first of all, Mr. Farber. I believe you will be the main presenter from the Department of Finance. You have with you two associates. From the Canada Customs and Revenue Agency we welcome Mr. Jolie, and Mr. MacGregor is the lead there.

We will first hear from the Department of Finance because everything the other groups use starts in the finance department. So with that, Mr. Farber, if you would, please make your presentation.

Mr. Len Farber (General Director, Legislation, Tax Policy Branch, Department of Finance): Good morning, Mr. Chairman and members of the committee.

Let me begin by thanking you for inviting us as government officials to discuss tax issues related to the taxation of foreign businesses.

I understand the committee has held hearings in communities across Canada about the future role of government in agriculture, and the questions of a tax nature have been raised. In order to answer the committee's questions, we have officials here this morning, as you just indicated, from the Canada Customs and Revenue Agency as well as officials from the Department of Finance who have expertise in agricultural tax issues.

As the committee knows, the Department of Finance's responsibilities include Canadian tax policy matters, while the responsibilities of the Canada Customs and Revenue Agency include administering the tax laws. Very clearly, one cannot devise policy without a firm handle on the administration, and, likewise, one can't administer the law without a firm understanding of the policy.

So that's an indication, Mr. Chairman, of the very close working relationship that the CCRA and the Department of Finance have in the context of taxation policy.

Mr. Chairman, it may be helpful if I review some of the tax measures that currently benefit the agricultural community. In particular, some of the tax measures benefiting the farming sector include cash basis accounting, which includes the deductibility of all inventory costs, flexible inventory adjustments, which add to income the value of inventory, with that amount being deductible in the following year.

There are measures with regard to relief for drought, special tax deferrals for revenue from breeding animals in drought regions. These drought regions are prescribed on an annual basis upon the recommendation of the Minister of Agriculture.

There's deferral of income on forced destruction of livestock; there's full deductibility of land clearing and tile drainage costs. There are also administrative positions dealing with replanting of orchards and vineyards. There are deferred cash tickets for grain sales, which has been a long-standing measure in the Income Tax Act. There are also a series of higher capital and cost allowance or depreciation rights applicable to certain farm assets.

There are other measures, Mr. Chairman, relating to tax instalment rules that are special for the farming sector. There are special tax-deferred intergenerational rollover rules for farm property to a child or grandchild. In addition, there are special reserve measures dealing with the disposition of capital property where there are deferred mortgage take-back types of proceeds, and that deferral extends over a 10-year basis to the extent that there are outstanding amounts due. There are also special provisions with regard to cooperatives as well as special net income stabilization account measures, which had been introduced by the government in order to help stabilize farmers' income over the years.

As you are also aware, Mr. Chairman, the lifetime capital gains exemption at $500,000 per individual is also available for farmers, and in particular it has special meaning with regard to the sale of land, buildings, and quota.

In addition to that, for those who are part-time farmers, there are special rules dealing with the deductibility of farm losses for farming.

The farming sector, in addition to that, Mr. Chairman, also benefits from extended loss carry-back, carry-forward measures. Business, in general, has lost carry-back, carry-forward measures of three years and seven years, whereas the farming community gets an additional three years on a carry-forward basis up to ten years.

On top of that, Mr. Chairman, the myriad of tax measures available for small business also extends to the farming sector to the extent that they meet those general rules for small business.

So, in the aggregate, the taxation system that is applicable to the farming sector is a very generous system in the context of how it applies to income and to intergenerational transfers of farms in order to ensure the continuity of farming in the economy. It ensures that, on a cash basis, farmers recover their costs of operation, other than capital costs, on an annual basis, before any tax is actually exigible.

¿ (0915)

That, Mr. Chairman, is just a brief overview of some of the major measures affecting the farming community.

I have with me my colleagues from the Department of Finance: Mr. Randall Meades, who's on the personal income tax side and does a lot of the economic analysis applicable to the agricultural sector; Mr. Kerry Harnish, who's a senior tax policy officer with the finance department in the tax legislation group; Mr. Bill MacGregor, who's a farm expert on the Canada Customs and Revenue Agency; as well as Mr. Phil Jolie, who is the coordinator of a number of different sections, including the agriculture sector. To the extent that this very stellar group of experts is not capable of addressing any issues this committee is interested in, we have other people behind us who I'm sure will be able to aid with any particular issues that come up.

With that, Mr. Chairman, I turn it back to you. We're prepared to take any questions you may have for us.

The Chair: Thank you, Mr. Farber.

It's my understanding, Mr. MacGregor, that you are not going to present.

Mr. Bill MacGregor (Agriculture Specialist, Industry Specialist Services, Compliance Programs Branch, Canada Customs and Revenue Agency): No, I'm not going to present.

The Chair: But you're here for questions.

I have two members who have indicated they'd like to ask questions. Normally we go to Howard first. Howard, do you want to wait until later?

Mr. Howard Hilstrom (Selkirk--Interlake, Canadian Alliance): I don't think so.

The Chair: Okay. I saw you reading there, and I thought you were....

Mr. Howard Hilstrom: We stand on protocol at the House of Commons, and I'd like to exercise my rights and privileges as a member of Parliament to talk to these gentlemen.

Gentlemen, the situation on the farm is in fact that farmers pay a lot of taxes. Len--do you mind if I use your first name? Len, we're paying full provincial sales taxes. We pay the GST.

On the GST, why can't farmers and fishermen just pay GST at the point of sale when they're buying something? For those who file on a yearly basis, they're out that GST for a year. Even those who file on a quarterly basis are out that GST money for a quarter. Why couldn't that be done, just don't pay the GST in the first place?

Mr. Len Farber: Mr. Chairman, I have Mr. Marc Rhéaume here with us. He is on the GST side and has expertise in that area. With your permission, I'll have him answer that question.

¿ (0920)

Mr. Marc Rhéaume (Tax Policy Officer, Sales Tax Division, Tax Policy Branch, Department of Finance): The way it works on the GST side is that there are a number of provisions that allow the farmers not to pay GST at the outset on the products that are listed in the act. Those products that are listed are of a high value, and they're products that are also only for use on the agricultural side. It's to protect the tax base. There's a whole list of products that farmers don't have to pay GST on.

Mr. Howard Hilstrom: Like what?

Mr. Marc Rhéaume: Tractors, seeds, fertilizers, pesticides, implements.

Mr. Howard Hilstrom: Yes, but there's a whole range of things the average farmer, a lot of average farms.... We're talking commercial farms here. Every three months they get back say $1,000 or $1,200, maybe even more. How come they have to pay that in the first place? Why couldn't there be a system where they don't pay GST? They're going to get it all back under legitimate farm expenses. Why do they have to pay that in the first place? Couldn't there just be a set-up that you don't pay it in the first place? I know there are things you don't pay it on, but for all the things you do pay it on, why can't that be done?

Mr. Marc Rhéaume: The reason the list isn't comprehensive on everything they purchase is that a lot of things they do purchase can be used outside of the agricultural side. In order to maintain the tax base, we have to avoid a situation where anyone would be able to purchase the same products without paying any tax.

Mr. Howard Hilstrom: That's one of the things a lot of small farmers and fishermen have asked me very specifically. They said it would sure help if they didn't have to pay the GST up front when they're going to just turn around and get it back right away.

The other thing is, have there been recommendations going forward to the government? The government always wants to put a direct cheque out to farmers to offset the financial problems on the farm. Has there been any serious consideration given to eliminating every tax farmers pay? How about fuel tax? Has anybody ever said we should get rid of that 4¢ tax on diesel fuel farmers pay? Has that suggestion ever gone forward to the government or been discussed?

Mr. Marc Rhéaume: I'd say it probably has been looked at. I know taxes on fuel have been looked at from various sides. It keeps cropping up, but I'm afraid I don't know the answer to that one.

Mr. Howard Hilstrom: Well, it's here again. The big grain farmers or any grain farmer uses an awful lot of fuel.

What about cost recovery? Now, those are taxes. I'm talking about cost recovery for government-imposed regulations that demand a cost recovery from farmers. Are there any suggestions you have on that, or have you done anything in regard to cost-recovery fees? There's a moratorium on increases right now, but those are government-legislated things farmers have to do. The government says, we want you to do it, we're going to make you do it, and we're going to have you pay for carrying out our regulations. Now, it's for the benefit of agriculture. Does cost recovery come under your discussions at all?

Mr. Len Farber: Do you have some specific examples for that? That would be something Agriculture Canada would be more involved in. We're more involved in the taxation side of issues.

Mr. Howard Hilstrom: Yes. There are various food safety issues, the Canadian Grain Commission, and different things. Anyway, you're not really into that.

Capital gains has been one issue that's come up. I note from your brief here that the majority of farmers wouldn't have that. We're probably talking about virtually every supply-managed commodity being in this capital gains problem. Is that the case? Is that where the big problem is, that the cost of quota has gone up so high that this is where there are a lot of the capital gains? What about this capital gains issue?

¿ (0925)

Mr. Len Farber: Mr. Chairman, I apologize if I left any impression that the farming community doesn't access the lifetime capital gains exemption. Quite the contrary. I think they access it absolutely, and they have an ability not just to access it for the farmer himself, but because of intergenerational rollover measures they are certainly able to access it for his family as well. I believe they access it absolutely and not just for the quota, which has, as you've indicated, gone up quite dramatically over the years in terms of value, but also for land and buildings as well. That half-million-dollar lifetime capital gains exemption can be multiplied within the family.

Mr. Howard Hilstrom: How long have we had the $500,000 capital gains exemption?

Mr. Len Farber: The lifetime capital gains exemption came in during the 1985-86 tax reform.

Mr. Howard Hilstrom: So it is something we should maybe be recommending the department look at.

Mr. Len Farber: Well, we've always looked at it. It's an issue we monitor fairly closely. It's a provision that is quite generous in its application, and even more so in the farming context because there is an intergenerational rollover that is not available to other businesses. It's not just available to the proprietor type of farmer; it's certainly available to the family farm corporation as well with regard to the shares. It's a fairly broad-based kind of measure, one that is easily accessible, and my understanding is that it is fairly well utilized.

Mr. Howard Hilstrom: Do you have any statistics that you could supply the committee on how many farms are actually incorporated as opposed to unincorporated nowadays?

Mr. Randall Meades (Chief, Employment and Investment, Personal Income Tax Division, Tax Policy Branch, Department of Finance): No, not in particular. We don't have an exact breakdown between--

Mr. Howard Hilstrom: The reason I ask is--and this is a rhetorical question--because governments are forever devising these programs, but they don't seem to have enough factual information. We can't even define a farm, let alone find out which ones are incorporated and which ones aren't, and that sort of thing.

The Chair: Monsieur Desrochers.

[Translation]

Mr. Odina Desrochers (Lotbinière--L'Érable, BQ) Thank you very much, Mr. Chair. I would like to thank our witnesses for coming here this morning to tell us about what the Canadian government, departments and agencies are doing.

Rather than looking at what is being done currently, I would like to look instead at what could be done in the future.

I listened respectfully to the officials from the Department of Finance and the CCRA telling us what they are doing. Much has already been done and continues to be done, but we still have a long way to go. Indeed, this is what I would like to discuss with you since the consultations that we have been conducting over the past few months are looking at the future role of government. We have discussed at great length the future of government.

No matter where we were in the country, be it in the west, in the east, in Quebec or in Ontario, in all these areas, there is a serious problem of bringing new blood into the industry. People have told us, time and time again, that they can't pass on their small holding from one generation to another. You have told us that you have made progress, that you have made adjustments, in particular in exemption levels, etc., but over the past two years, especially in Quebec, with the new mega-hog operations that we now have there, we have seen incredible land speculation. Throughout the country, we have the impression that it is increasingly the case that those people who wish to continue farming or who wish to buy land, are facing a certain amount of difficulty. For instance, when a father sells his farm to his son, the Department of Revenue, be it at a provincial level or at the federal level, gets him. In light of the major changes and the fact that this phenomenon has increased two, three and even fourfold, do you have any idea of the exemption that your department or the CCRA could provide to farmers as a way of dealing with the new agricultural reality in both Quebec and in Canada as a whole?

¿ (0930)

[English]

Mr. Len Farber: Mr. Chairman, while I don't have any projections on that issue, what I will say, as I said in my opening comments, is the measures that are applicable, particularly for intergenerational rollovers of farms, are extremely generous. The farming community is the only community where, in the example the member gave where a father wants to transfer a farm to a child or to more than one child, he has a choice of picking any amount from the cost base of the farm right up to the fair market value in terms of the transfer, if he wants to, and that includes accessing the lifetime capital gains exemption.

For example, if a farm had a fair market value of a million dollars and had a cost base of a dollar, just to take an absurd example, a farmer could transfer that farm for half a million dollars, not pay any tax at all, and then the child would take over that farm at a cost base of half a million dollars. Therefore at any point in the future, if that child were to roll the farm to a child of his, he would start with a cost base of half a million dollars and be able to access the lifetime capital gains exemption as well on that rollover.

Alternatively, that farmer could actually dispose of the farm for the full market value of a million dollars, claim a half-million-dollar exemption, and take a mortgage back for the balance payable over ten years and only pay tax on the gain. And that capital gain, Mr. Chairman, in the last budget was reduced down to 50%, so our capital gains taxation rates are the lowest they have been in some time. That farmer could defer recognition of the tax on that pro rata over a ten-year basis as that mortgage is drawn down.

So I think in that context, the measures that are applicable with regard to maintaining the family farm, to ensuring that farms can be maintained and kept within the family, are quite generous. Taxation is almost a secondary element of it now.

[Translation]

Mr. Odina Desrochers: Mr. Chair, I really appreciate Mr. Farber's answer, but I would just like to point out that he has not answered my question. You talked about the past, and the present, but you have said nothing about what you could do for the future. I said that land prices have become very expensive. Over the past two years the situation has changed.

This new situation led the Department of Finance to amend exemption levels. When were these original exemption levels set? Judging on the testimony that I heard throughout Canada, not only in Quebec, the policies of your department and the CCRA do not help farmers, Mr. Farber. These policies are not in keeping with the current reality.

Firstly, I would like to know the basis for your recommendations to the Department of Finance. I would also like to know if there is any room for adjustment. In five years' time, there will be no small farms left in Canada. It's not rocket science. People are no longer in a position to pass on their farms to the next generation. It's quite clear.

¿ (0935)

[English]

Mr. Len Farber: Well, Mr. Chairman, I understand the member's point. To the extent that there is particular evidence with regard to that, we'd certainly be happy to look at that and see about the adequacy of the measure.

There's no question in my mind that when the half-million-dollar capital gains exemption was introduced--and again we're going back to the mid-1980s--it was against a background of looking at a measure not just for the farming community, but applicable to the small business community as well. But this was a measure that was thought to be very generous at that point in time, and certainly one that enables farmers, at the end of their career, to take a lot of the capital out on a tax-free basis.

Farmers had historically indicated that they were not in the same position to save for retirement. Most of their retirement assets were tied up in their land and buildings and quota, and at some point in time, at the end of their career or when they wanted to transfer to their children, they'd be in a position to withdraw their retirement funds and be able to live in their retirement. So that half-million-dollar capital gains exemption, which, as I indicated earlier, is not just a single exemption on a per family basis but is tied to an individual, can be multiplied through the family and does give fairly generous benefits.

From my personal perspective, I have really not heard a lot of complaints about the adequacy of that measure. That, in combination with a number of the other measures that I had indicated earlier, whereby, on an operating basis, farmers do not pay any tax until there's full cost recovery of all their inputs in carrying on their business, is something that is not available across the broad cross-section of businesses and has been a measure that has been very helpful on a cash basis in sustaining the family farm and ensuring that there were always adequate funds available to carry on the farming business from year to year.

The Chair: Thank you, Mr. Farber.

[Translation]

Mr. Odina Desrochers: I have just one brief comment, Mr. Farber. If you have indeed never heard any complaints, then, I would encourage you to travel with us and you will be sure to hear some.

Thank you very much.

[English]

The Chair: Before I go to Mr. Steckle, who is next, you were answering a question about a farm worth $1.5 million or $2 million. Maybe just to clarify in our thinking here before we move on, if it has a worth of $2 million at the time of transfer, you're saying the first $500,000 can be withdrawn to bring the value down to $1.5 million? The first $500,000 is not taxable in terms of the father turning the farm over to his son, and then he can put it on the table at a value of $1.5 million. Is that correct?

Mr. Len Farber: Mr. Chairman, there are many ways a farmer can transfer his assets intergenerationally. As I indicated, he can pick any value between zero and fair market value. He can transfer the farm at his cost. If, for example, he had two or three children, he can transfer the farm to his children on a full tax-free basis and not pay any tax at all.

What most farmers are likely to do is access those amounts whereby the farmer can get the lifetime capital gains exemption, because that amount comes to him tax free. Then the balance over that would be transferred to give the child or children a cost base in order to operate and still not have to worry about any capital gains tax.

The Chair: But, Mr. Farber, just to clarify again their thinking, when you say transfer to a child or to children, you're really just passing on the value. Most farmers who want to retire can't afford, simply, a here it is kind of thing. If it's worth $2 million, and if the children are going to pay that $2 million, it's my understanding that there's $1.5 million that would be taxed. Is that correct?

¿ (0940)

Mr. Len Farber: Again, it depends on the ownership structure. In a lot of farming structures, the husband and wife share equally. They can each access the half million dollars, and then they would only have to worry about, in your example, the additional million. That million dollars could be on a mortgage-back kind of basis whereby the proceeds are paid over a ten-year basis, and a reserve can be taken.

There are a number of different circumstances. One can't give one answer that would meet every set of circumstances. To a large degree, what you are postulating is the way it would work on an individual basis. The first half million dollars of gains is eligible for the lifetime capital gains exemption, and then one has to deal with the other gain, which is taxable but can, depending on the circumstances, be mitigated as well.

The Chair: Paul.

Mr. Paul Steckle (Huron--Bruce, Lib.): Let's just pursue that.

We've now established that this operation is worth $2 million. The farmer has sold it to his son for $2 million. Both he and his wife can claim $500,000, as you have just said. There is still $1 million on which capital gains has to be paid, which is $500,000. Assume that he takes a mortgage but he never asks his son to pay down that mortgage. That man who sold the original and got originally $1 million has to find half a million dollars over the next ten years with which to do that.

You don't just pass on to your son or a family member a farm valued at whatever you think it's worth. It's valued based on quota values. If it gets into higher numbers, if you get into $4 million, all of a sudden numbers start to really exaggerate the problem.

I think it's perhaps time that we look at increasing the value of the capital gains, because 1985 values in today's values are relatively distant, in terms of where they were then and where they are now.

Do you have a comment on that? I think we need to be looking at that, because this did come to the table as we travelled across this country.

Mr. Len Farber: Let me just make one comment, and I'll pass it on to my colleague.

For the record, so that we are clear, in your example you have a million-dollar gain, of which half a million, because of the half inclusion rate, is taxable. That's only the taxable amount. Against that amount you have to apply the tax rate.

Mr. Paul Steckle: At 50%.

Mr. Len Farber: At approximately that. So we're not talking about a tax bill of half a million dollars; we're talking about a taxable amount. And again, that taxable amount, depending on how it's structured on the sale, can be paid over a ten-year period, depending on what type of mortgage is put on it and how the payments are made. So there are factors that come into account, depending on the structure of that transaction, that would mitigate the tax impact on an annual basis.

Mr. Paul Steckle: First of all, why would the tax only apply on the half? You already have taken your $500,000 exemption. Why would you have another exemption? Because it's only at 50%?

Mr. Len Farber: No. That's the taxable amount. If you have a million-dollar gain, then half of that is taxable. So you have $500,000 of that million-dollar gain that has to be taken into taxable income. Then, depending on what your marginal rate is in a particular year, that's the amount of tax you pay. If that all comes into income in one year, it will be at the top rate. So with federal-provincial, you're looking at 29% federal, and depending on the province, you can add between 10% and 15%. For Ontario, you would be, what, another 14%. So you would be 44% of that amount. So you're looking at a tax of about $260,000 on that million-dollar gain.

Mr. Paul Steckle: Mr. Jolie, do you have something to say on that?

Mr. Len Farber: The numbers get exponentially much greater as the values go up.

Mr. Phil Jolie (Coordinator, Manufacturing and Service Industries, Industry Specialist Services, Canada Customs and Revenue Agency): Projections are difficult to do. We did look at some numbers for 1999, and from roughly about 300,000 farms in Canada, about 4,000 farmers in that year had capital gains of more than $100,000, which is probably dispositions of farms. Of that, fewer than 100 were more than $500,000. For the vast majority of farmers who do dispose of property, the $500,000 in 1999 sheltered them completely. I can't say what it is going to be in the future, but that $500,000 seems to be enough to cover the full gain of almost all farm dispositions.

¿ (0945)

Mr. Paul Steckle: So basically we're looking at numbers now. We're looking at the government giving up about $220 million a year for the year 2001, $225 million in 2002. So possibly those numbers are exaggerated. Do you have any idea how those numbers would increase as we would give an exemption to a higher degree than what it is now?

Mr. Randall Meades: Perhaps I may add to Phil's point. Our data suggest that the average net worth of a farm--and this would be consistent with what CCRA has said--is about $358,000 for small farms, which means that the current LCGE exemption is most likely adequate to address all their concerns. So I don't really think the transfer is tax-impeded. Perhaps there's another cost that--

Mr. Paul Steckle: Let's move to another issue, because I have limited time here. I don't think we are quite getting to where I want to go, but let's leave it for now.

Why are animals on feed not exempt the same as breeding stock is? I think there's a gross error there. The people find themselves in a situation where drought has overtaken their area and they end up with 500 cattle on feed and all of a sudden they have to get rid of them.

Why are we not given the tax break the same as we would on breeding stock? That man is disposing of a huge capital value in one given year. He can't replace it that year, because there's no crop to feed those cattle.

I think that's one of the huge errors we need to correct. It's been bothering us for some time, because there isn't a part of the country that doesn't, from time to time, go through this kind of thing.

Mr. Phil Jolie: Mr. Chairman, that question has been brought up before to us, at least on one occasion.

I guess the reason why the breeding stock exemption exists, and it's a tax policy issue, is because breeding stock is in the nature of a capital asset. You're producing more stock with the breeding stock, whereas for a backgrounder, a person who raises feed-lot cattle, that cattle is in the nature of inventory. He's not using apparently more cattle.

Mr. Paul Steckle: He is increasing livestock. That cattle goes in at 600 pounds; it goes out at 1,200 pounds. He's doubled his livestock.

Mr. Phil Jolie: The way the Income Tax Act works is the breeding cattle gets income treatment, even though breeding cattle is in the nature of a capital asset, so there was a reason to give it a special break. That logic doesn't apply to backgrounders.

It's a tax policy question that's fair to ask.

Mr. Paul Steckle: Can we change it?

Mr. Phil Jolie: There I defer to my colleagues.

Mr. Paul Steckle: Tax policies are set by people. People can change policies. Let's change that policy. It's very important. The people are paying huge tax dollars and then they have no money to buy back that inventory down the road.

The Chair: Thanks, Paul.

Mr. Paul Steckle: I'd like an answer on that.

The Chair: I know, but I have to go to Dick. It's not my or your call; it's Dick's time. So perhaps we can get back to that.

Mr. Dick Proctor (Palliser, NDP): I want to go off in a slightly different direction.

We have heard on a cross-country tour a number of farmers who say, “We'd like to pay some income tax; we simply don't earn enough money”. Whether you believe that or not, that's what they tell us, that they'd like to pay income tax. I believe that many of them are not in a position to be paying income tax. What I'd like to know this morning is whether you folks here have any aggregate numbers that indicate that the number of farmers who pay income tax has gone up or down over the last five to ten years.

Mr. Randall Meades: I don't have the data here. We can supply that data. What I can add immediately is that the average income tax rate for farm income is about 10%, which is significantly below other types of income.

Mr. Dick Proctor: What is the rate for other types of incomes?

Mr. Randall Meades: If memory serves, it's 16%, 18%.

Mr. Dick Proctor: So it's significantly lower.

Yes, I wouldn't mind having that information to find out what has transpired in the recent past.

On the matter of drought relief, what are you finding is the take-up rate there for farmers over the last year, where we've had significant drought in several parts of Canada?

Mr. Bill MacGregor: Again, I can get that data for you, but I don't have it on me right now.

Mr. Dick Proctor: Okay.

There is the argument that co-ops need access to capital, that private companies can issue shares, that co-ops don't have that ability. Is there any resonance from you folks to that argument, and if so, what can be done on that front?

¿ (0950)

Mr. Len Farber: Mr. Chairman, I'm given to understand that a committee at the Department of Agriculture and Agri-food is presently looking into that and analysing the most recent initiative by the Province of Quebec in terms of co-ops, where the patrons' dividends are re-invested within certain limitations of the capital structure of the co-ops.

I am given to understand that this analysis and study is going on with some results forecast to be released some time before the House recesses for the summer. So we look forward to seeing the results of that study so we can get a better indication of what needs there are and how that would work.

The Chair: Murray.

Mr. Murray Calder (Dufferin--Peel--Wellington--Grey, Lib.): Thanks very much, Mr. Chair.

I'll go back to the intergenerational transfer and capital gains. You've said that the capital gains provision has been in place now for approximately 16 years. Now, when you're talking about a farm with capital assets of $300,000, you're talking about a hobby farm, which quite frankly is not really part of the game. What we've seen is that the average producing farm right now probably has capital assets of $1 million and heading up. They have probably incorporated themselves, and they have probably done an election on the $500,000 to bring themselves up to fair market value.

I'm wondering, given the average age of 58 of a farmer right now, the capital gains...if nothing is done to it, it will have been in place for 23 to 26 years by the time we see that generational cohort retire and the new one come on.

My first question would be, right off the bat, do you not think we should come back and revisit the $500,000 capital gains to see whether or not there should be something done to improve it, given the fact you're going to have this cohort within agriculture that's going to be moving on and a new generation coming in?

Mr. Len Farber: Mr. Chairman, there's no policy or provision with the Income Tax Act that's not reviewed on an ongoing basis. To the extent that governments decide at any point in time to increase or expand, that's certainly within their prerogative. With regard to this particular measure, as I've indicated, it's a generous measure, one that's available not just to the individual but that can be used for estate planning purposes in a way that is very beneficial intergenerationally.

As to incorporation, while I hear the scenario you've given, I don't necessarily understand why one would have to access the lifetime capital gains exemption on incorporation. I'm not sure where that benefit necessarily is, because you can roll your assets at your cost into the corporation and have the growth within the corporation, depending on how you've structured that roll-in. An individual hasn't necessarily accessed his lifetime capital gains exemption at that point in time.

Usually incorporation is something that occurs in a more well-informed context. There are rationales--estate planning reasons and financing reasons--and so there are a number of different issues one takes into consideration when one incorporates. All these matters would have a very important impact on what that particular individual's plans might be.

The lifetime capital gains exemption as well as the intergenerational rollover measures would be very high on the list of issues that are being considered in terms of that rollover.

Mr. Murray Calder: I would go back to the point that it has been 16 years since this was brought in, and if it's revisited on a yearly basis, as you have said.... Quite frankly, I take a look at the farming operations of today and see that their capital costs have skyrocketed. The net income for them has basically remained the same. We've had to get very innovative on the farms to stay on the farms.

I would ask the question, if we're revisiting this every year on the capital gains and we know full well that at the average age of 58 these farmers are going to start leaving the farm, when do you foresee we should make some changes to the capital gains amount?

¿ (0955)

Mr. Len Farber: Mr. Chairman, I'll also remind you and the members of this committee that the tax system hasn't been static in that period of time against the background of lifetime capital gains exemption. At that point in time, capital gains, the inclusion rate, was at 75%. The inclusion rate today is at 50%. That's a very dramatic decrease in the taxability of capital gains.

On marginal rates of taxation, we went from a system back in the mid-eighties where we had ten different rates at the margin. We're now down...last year's budget introduced a fourth rate of the very highest income level incomes, taxable income in excess of $100,000. By and large, we're looking at lowest rates starting at 16% and the highest rates for income over $100,000 being 29%. Twenty-six percent is the level below that.

So I think over the last number of years since the lifetime capital gains exemption has been introduced, the impact of taxation on that taxable gain has dramatically decreased. So, as I say, in budget planning, where I'm looking at the tax system on an ongoing basis, those are certainly issues that have to be taken into the equation to assess what that impact is. I submit to you that the measures I have just described have had a very dramatic impact on taxation of gains.

The Chair: Thank you, Murray.

Rick.

Mr. Rick Borotsik (Brandon--Souris, PC): Thank you, Mr. Chairman.

I perhaps won't share the comments of my colleague from the Bloc in welcoming you. It's very close to the April 30 tax deadline, and I know you're nice people. I know you are, but certainly you do carry a stigma with respect to that.

Mrs. Rose-Marie Ur (Lambton--Kent--Middlesex, Lib.): It's a mark of style.

Mr. Rick Borotsik: I know. It's true.

We've talked about capital gains, and, Mr. Farber, I know you're the policy side and I know you're the collection side, so I'm going to deal with policy and two other issues.

Number one, right now in the farm economy, or the farm business, we have cash basis accounting. You've alluded to that. The opposite to that is accrual accounting. Is there any thought process with respect to going to an accrual accounting process with farming, with agriculture, as opposed to cash?

Mr. Len Farber: In policy terms--

Mr. Rick Borotsik: What I'm referring to is policy terms. I know the collectors would like to have another answer to that, but policy. Have you ever looked at going to an accrual system?

Mr. Len Farber: We have certainly looked at it. We particularly looked at it in the context of part-time farmers, for example. Part-time farmers have historically made the submission that they want to be treated like all other business people. But no other business person, other than in the agricultural sector, uses the cash basis of accounting.

In terms of a change, that was looked at back in the early eighties leading up to the tax reform at that point in time. One was looking at different methodologies of trying to deal with what is a farming business, because definitionally that is not an easy thing to look at.

Mr. Rick Borotsik: I'm going to cut you off because I have two other questions for you.

First of all, as I understand your answer, it's going to remain as cash basis accounting.

Mr. Len Farber: I don't think anybody has any intention of changing that in a short time.

Mr. Rick Borotsik: Some agricultural producers would agree with you; others would not. It depends on who you're talking to.

However, let's go back into--

Mr. Len Farber: I don't think it's high on our list.

Mr. Rick Borotsik: No, that's fair ball.

Deferral cash tickets for grain sales--that's been in place forever, and it's a very good accounting practice that grain farmers use. There's a lot of livestock producers out there who don't have the same opportunity to defer that income for livestock cash sales prior to the tax year.

I've heard your explanation of inventories versus capital, but I should tell you I have a lot of livestock people very incensed with that when they look at the grain side and see that they have an advantage there for deferrals, but they don't have the deferral. If they have to sell their cattle in November and December because that's when they're ready--not because they want to but they have to--then they have to take all that income into that tax year. They would love to be able to defer some.

Have you looked, policy-wise, to changing that to incorporate it into the cattle side?

Mr. Kerry Harnish (Senior Tax Policy Officer, Business, Property and Personal Income, Tax Legislation Division, Department of Finance): The historic policy rationale for the deferred grain tickets is based upon commitments by the Canadian government to deliver the grains offshore. Because of that, historically, before the grain ticket mechanism was put in place, farmers were withholding deliveries of the grain to the recipient bins for distribution offshore.

À (1000)

Mr. Rick Borotsik: I understand the rationale. I'm asking a question. Have you looked at the possibility? I know the rationale doesn't follow for cattle, but there are a lot of people who have to take a lot of income prior to tax year-end where they would like to defer some of that. Have you looked at the livestock side?

Mr. Kerry Harnish: What we looked at is the policy rationale for it, and it just doesn't extend to private market sales.

Mr. Rick Borotsik: So your answer is that there's no anticipation of a change for the livestock.

Mr. Kerry Harnish: That's the answer, yes.

Mr. Rick Borotsik: That's the answer. Okay. All I asked for was the answer.

Let's go back to capital. We've been throughout the country and we've heard constantly that this intergenerational transfer is most difficult. I've heard--correct me if I'm wrong--that it's not necessarily from the tax side of it. It's more from the access to capital and it's more from the cost of that particular product, the cost of land or the cost of the operation itself.

You've explained to me, Mr. Farber, that in your estimation, right now the policy is in place to take into consideration the tax side of it. I know this is a very unfair question to you, but from a policy side, do you agree that the access to capital and perhaps the cost of the asset itself is more of an intergenerational problem than the Income Tax Act?

Mr. Len Farber: Well, that is a difficult question to answer. I think they go hand in hand. The tax issue would not be an issue if--

Mr. Rick Borotsik: If it wasn't for the high capital.

Mr. Len Farber: Yes, if the capital weren't as high as it is. When we look at statistics, they show that for the average farm, the capitalization is in the $300,000 to $400,000 range.

Mr. Rick Borotsik: Okay. I'd just like you to touch on that too. Mr. Calder obviously was saying that's not true. That is true, and I'd like to confirm that. In most cases, you're saying the net worth of the farm--not the asset value but the net worth--is around $380,000, and this is across the board. This isn't supply management; this isn't the chicken farmers who have $8 million tied up into capital. This is the normal agricultural producer out there, a grain farmer, who has maybe 2,000 or 3,000 acres of land. His net worth is somewhere around that $380,000.

Mr. Randall Meades: That is probably more representative of what your underlying tax liability would be than just your assets in general.

Mr. Rick Borotsik: Exactly.

Do you want to comment on that, Mr. Farber? As I said, we have some confusion here with respect to the net worth capital asset, if you will, as opposed to what's the reality.

Mr. Len Farber: Well, I'm not sure what other comment I'd make, but that is the reality. They both work together and we're looking at net worths in the order of $380,000 to $400,000, which is certainly a range for which the policy, impacting from a taxation perspective at the present time, seems to be more than adequate.

Mr. Rick Borotsik: Okay. Thank you.

The Chair: Thanks, Rick.

Rose-Marie.

Mrs. Rose-Marie Ur: Thank you, Mr. Chair...[Editor's Note: Technical difficulty]

You've understood the first part of my questioning, so I'll continue.

With that statement being made, how many individuals in the two departments have a rural- or agricultural-based knowledge so that these policy decisions that are coming forth can be made with a balance of knowledge of numbers as well as what happens in the rural landscape? It's easy to play with figures, but if you don't know the background of where these policy decisions are coming from, from the farming aspect or the rural aspect.... You have to have both to come to a realistic evaluation as to the best approach to taxation within our rural or agricultural sector.

Mr. Len Farber: Mr. Chairman, first I'd like to say that policy decisions don't come from the department. The department may make policy recommendations, but governments make decisions.

Mrs. Rose-Marie Ur: I'd like to hope so.

Mr. Len Farber: Well, I just want to make that clear. We make policy recommendations.

In that context, we don't work in isolation. We hold extensive consultations with the agricultural associations, we work very closely with our colleagues at the CCRA who have return data as to what's going on, and we work very closely with our colleagues at Agriculture Canada.

We don't pretend to have expertise in the agricultural sector. To the extent that policies are being reviewed, being changed, being recommended for any kind of alteration, it's done in the context of consultation, both within and outside government, before anything would move forward at the recommendation level. Even then, I would think ministers would be consulting with each other with regard to what the government policy would ultimately be.

À (1005)

Mrs. Rose-Marie Ur: That being said, what position would you be consulting with in Agriculture Canada to get that accurate information? Would it be a deputy minister or assistant deputy minister? Who would you be discussing these concerns with?

Mr. Len Farber: That's clearly a very broad, general question.

Mrs. Rose-Marie Ur: It is.

Mr. Len Farber: Agriculture Canada is a very large department, with expertise in various areas of agriculture. Clearly, if one were dealing with the drought regions, for example, there are people with expertise as to what is going on in the country and making recommendations as to which areas ought to be prescribed. We do not know what those areas are; they are upon the recommendation of the Minister of Agriculture Canada and then prescribed by regulation through the Minister of Finance. So it's whoever has the expertise.

Mrs. Rose-Marie Ur: So it's imperative that those individuals in Ag Canada put forth a strong fight on behalf of the regions or provinces that are experiencing the various difficulties, so that you are informed as to which way to go on various programs such as market revenue in Ontario.

Mr. Len Farber: Again, I don't know the regions, but I don't know how strong a fight it has to be. That's where the expertise lies. We don't pretend to have expertise in that area.

Mrs. Rose-Marie Ur: Do you have any data as to the costing--“costing” may be the wrong word, but taxes, rural versus urban, whether there is any information collected? We have this configuration out there that one is better than the other. To me, we work together, jointly, to make a better Canada.

Is there anything in your departments that indicate where there is a tax break--and maybe that's the wrong phrase to use too--in the rural sector versus the urban sector? Sometimes when we have our meetings in our ridings, it's implied that this indeed exists, and I wonder if you could....

Mr. Len Farber: If the question relates to overall statistics with regard to, say, net income of farms versus net income of other sectors, those statistics are available. If it relates to taxes paid by a particular sector--say, the agriculture sector--versus other sectors in the economy, those statistics are also available. We don't have them here with us today, but those statistics are certainly available and they're public. They're published statistics.

Mrs. Rose-Marie Ur: Right, and could you provide that to the committee when you have time?

Mr. Len Farber: Yes, we will.

Mrs. Rose-Marie Ur: Thank you.

The Chair: Thanks, Rose-Marie.

CCRA is getting off very easily today, Mr. MacGregor.

Going back, Mr. Farber, to what we've heard here--and I guess Mr. Calder alluded to this--about a third of the so-called farmers in Canada are people who are falling under the so-called hobby or restricted farm business. The $2,500 figure was put in during the 1950s. It hasn't been upgraded for about 50 years.

Are there any thoughts of upgrading that amount in regard to a base from which they can work in terms of their so-called restricted farm losses?

Mr. Len Farber: Mr. Chairman, that's not quite accurate.

The Chair: Not quite. Almost?

Mr. Len Farber: No, let's leave it at “not quite”.

You're right that the restricted farm loss provisions were introduced...even prior to the 1950s, I believe. But that seems--

The Chair: But I understand that the amount was set in the 1950s.

Mr. Len Farber: Yes, but if my memory serves me correctly, that amount was about $1,500 plus half the next $5,000. Given the tax reform in the mid-1980s, that was altered--it was increased--to $2,500 plus half the next $12,500, for a total deductible or a total restricted farm loss of $8,750. That was set about 1985-86. So that's what I mean by “not quite accurate”, because we did change it back in the mid-1980s.

À (1010)

The Chair: I would hope you'd check those figures, because it's certainly not what I've been led to believe. But--

Mr. Len Farber: Well, I can assure you that's accurate.

The Chair: I have a letter from your department that I think talks about the 1950s.

But moving on to the CCRA in this, you have interpretations of that, and it's becoming worrisome to a lot of people who are finding the necessity of obtaining off-farm income. The way the legislation is written and the way you interpret it I believe has quite a bit of significance to a lot of people who go out and have to rely upon off-farm jobs. I think the way the legislation reads is something to the effect that if your major source of income is off the farm, you fall under the restricted farm loss part.

Mr. MacGregor, how is your department looking at this? I don't think there's a black and white on it, and there are concerns by more than 100,000 people among the 300,000 that we find involved in agriculture.

Mr. Bill MacGregor: The way we look at it is, if the farm were basically in a loss position this year but if it could be projected that the farm could provide the person with the lifestyle he's living at this particular time, then the losses wouldn't be restricted.

Mr. Phil Jolie: Maybe I could explain that a bit. There was a case in 2000 in the Tax Court of Canada concerning Brian Roy Finch out of Saskatchewan. There the courts gave us some guidance as to how to interpret section 31, the restricted loss provision, when someone who has been a full-time farmer goes off-farm to support the farm. We've taken that guidance into account. We produced a brochure that went out last spring--I believe all the members of Parliament got a copy of it--and it explains the clarification.

If someone has been supporting himself on the farm and goes off-farm to support the farm, that person can continue to deduct full losses. That's our interpretation of the guidance the courts have given us on section 31. I believe it is a clarification that's useful to farmers in the situation described.

The Chair: Looking at policy, Mr. Farber, we have all kinds of umbrellas, and we have all kinds of other things that catch farmers who are experiencing difficulties.

With respect to income averaging, has the department looked at this in terms of a method of dealing with the cyclical problems certain sectors of agriculture have so they could move income back and forth over a five- or seven-year period in order to balance out the terrible years grain farmers have had, for example, in the last two or three years? Have you studied that? Is there any hope that this could happen?

With restricted losses there is this period of so many years forward and so many years back. Three and ten, is it? Have we looked at it, though, in terms of the farmers who are major players in the agricultural field, who experience these great difficulties and who can't move their income around?

Mr. Len Farber: Mr. Chairman, the loss carry-back and carry-forward measures are not just available for restricted losses. They are available generally. To that extent, averaging is an inherent part of the system. Three years back, ten years forward. Normally, other businesses are only able to carry forward seven years. That's a very major averaging kind of mechanism to hit the cyclical kinds of ups and downs that occur.

What you alluded to earlier, Mr. Chairman, the NISA accounts, the net income stabilization accounts, is a program that has been in place now for the last ten years or so and that was developed with Agriculture Canada. It is a mechanism that is there to stabilize income, where contributions are made during good years and where during those cyclical downturns withdrawals can come out of the NISA account. Those accounts have interest contributions by governments in order to increase those amounts.

I understand it's a program that continues to be under review by the Department of Agriculture of Canada, but it is certainly another mechanism that is there to stabilize income over time.

À (1015)

The Chair: Thank you.

Howard, back to you.

Mr. Howard Hilstrom: You're right, Mr. Chairman. The Canada Customs and Revenue Agency has been getting off too lightly here.

We have a big problem in this country. We have it in the designated region for the Canadian Wheat Board. Are you familiar with the Canadian Wheat Board?

Mr. Phil Jolie: Yes.

Mr. Howard Hilstrom: You are? Okay. You should be.

How many cases are still outstanding from farmers who didn't obtain an export permit and took grain across the U.S. border? Are there any cases still outstanding there?

Mr. Phil Jolie: We'll have to get back to you on that.

Mr. Howard Hilstrom: Why does a farmer in Manitoba, Saskatchewan, or Alberta have to get an export permit and pay for it when farmers in other parts of the country don't have to? Can you tell me that?

Mr. Phil Jolie: That is Department of Agriculture legislation, so we defer the question to them.

Mr. Howard Hilstrom: Well, I'm a farmer. Next week maybe what I'll do is...I'm going to load up a truckload of wheat and I'm going to take it across the border. I'm not even going to take it across the U.S. border. I'm going to take it across the border into Ontario and sell it. What are you going to do to me as a farmer in western Canada if I do that?

Mr. Murray Calder: We'll visit you.

Mr. Howard Hilstrom: This is a serious question. What are you going to do, or do you have to refer this question to somebody else also?

Mr. Phil Jolie: There are enforcement provisions run by the Canadian Wheat Board, which, again, is the Department of Agriculture. Whether we'd be involved going to Ontario, I'm not sure. Certainly across the border--

Mr. Howard Hilstrom: Does anybody in the department ever talk about the fact that farmers are treated differently across this country in regard to marketing wheat and barley?

Mr. Phil Jolie: They're treated differently in a number of ways across the country, yes. The Wheat Board is a creation of the Department of Agriculture, and, as you know--

Mr. Howard Hilstrom: The Wheat Board doesn't have anything to do with the Department of Agriculture.

Mr. Phil Jolie: The Minister of Agriculture is responsible.

Mr. Howard Hilstrom: Under the current government situation, Hon. Minister Goodale is the minister. The Minister of Agriculture should have the Wheat Board under him, but he doesn't.

Mr. Len Farber: If I may, Mr. Chairman, it is a very important question.

Mr. Howard Hilstrom: It is an important question.

Mr. Len Farber: I don't think anybody would deny that.

Unfortunately, we try to pretend to know something about income tax, both on the policy side as well as on the administration side. Any issues beyond that would just be speculation on our part. While we would like to engage in some debate on it, we don't really have the expertise in that area. I want to say that at the outset, because I think in order to deal with issues like this in a way that would be helpful to the committee, we would be best getting expertise in those areas in order to answer those questions.

Mr. Howard Hilstrom: I'd leave it there, Mr. Chairman, and maybe they, from Canada Customs and Revenue, could get back to the committee and give us a written letter explaining why the farmers in western Canada have to get these export permits and do the buy-back and all these provisions. I know it's in the Wheat Board Act, but how come there's this unfairness between farmers outside of the designated region and those farmers inside the designated region? It's a major income issue with a lot of farmers. You guys are collecting fewer taxes because these farmers aren't making as much money as they could from their wheat and barley sales. There should be some incentive for you to go at this.

Anyway, thank you, Mr. Chairman.

The Chair: Thank you.

Larry, you're giving your time back to Paul, are you?

Mr. Larry McCormick (Hastings--Frontenac--Lennox and Addington, Lib.): Yes, Mr. Chair, thank you.

Mr. Paul Steckle: That's very kind of you, my parliamentary secretary.

I'd like to have a response from you on that issue of feeder cattle not being exempt, in terms of the carry-over, as is breeding stock. Whether you call it capital stock--

Mr. Len Farber: Inventory.

Mr. Paul Steckle: Whatever you might want to call it--inventory; I don't care what you call it--in both cases it implies quite an imposition on a farmer who has to sell that livestock because there isn't the feed there to take care of it. It takes feed to feed breeding stock. And I realize breeding stock is something for which, when genetics enters into it, it takes time to do. So there's a different composition there. I understand that. But in terms of the tax, it doesn't really change anything. I think we need to consider that. I'm wondering if you are prepared to look at this and give consideration to allowing a carry-forward of the cash returns on livestock that are sold if they happen to be feeder stock?

À (1020)

Mr. Len Farber: Mr. Chairman, we'd certainly have to consult with our colleagues at Agriculture Canada about whether or not the same circumstances that force the disposition of the breeding stock, that give rise to that deferral, are equally applicable to the sale of ordinary inventory. If that is the case, then one would have to develop particular criteria.

The deferral for the breeding stock is not just an absolute deferral. It's within certain limits, depending on the degree to which the breeding herd has been disposed of. Certainly, if the same circumstances arise with regard to inventory, it wouldn't be a quantum leap that one would consider that. We certainly have no knowledge that the same situation does exist, but we're certainly prepared to talk to our colleagues at Agriculture Canada.

Mr. Paul Steckle: But I think it really does, Mr. Farber. The same situation has caused the riddance of the livestock, because in fact there isn't the feed there to feed them. The same extenuating circumstances are there in both cases, so I think the argument can be made. It would be more difficult to buy back that breeding stock down the road. That would be different. But buying back the livestock in either case and the reason for getting rid of it in the first place are similar, and I would challenge you to try to find a resolution to that. That's going to be haunting us for a long time. This is not the end of it. We haven't seen the end of it, and it will come back again and again. So please, let's look at that one.

The other issue I have is cash versus accrual. In 1998, when we looked at cash versus accrual in terms of how we applied the first aid program, there was certainly greater benefit in going with the accrual method, yet we as a government couldn't decide whether we should be basing the program on accrual or cash. Can we find a consistent way of dealing with this issue?

My feeling is that it should be an accrual program. Not all farmers have their taxes based on an accrual system, but basically it could be done for the purposes of programs that we might include in the future. Hopefully we don't have to use these programs in the future, but it's quite obvious that we likely will have to.

So can we look at having one system? We couldn't even get a definitive response from government in terms of which one should be applied.

Mr. Len Farber: As I understand it, Agriculture Canada has certain programs wherein access to them is based only on an accrual method of accounting; therefore they may change the figures in order to see what the accrued profits are, in order to access these particular programs.

Under the income tax system, I believe the cash basis of accounting is an elective provision. You're not obligated to go cash basis. You can elect to go accrual, but you can't go back and forth. Once you're in one mechanism, you're in it for all time.

But certainly for many farmers the cash basis of accounting, which is a methodology that conforms very closely with their ability to replenish feed and seed, inventory, is very important to them, whereas with accrual, very clearly, on an annual basis, whether or not you have the cash in your pocket, you have to account for it, and you can't deduct certain expenses.

For example, feed or seed that you acquired towards the end of the year when you had cash, which is available for the next crop year, is not deductible under an accrual method.

Over a two-year basis or so, it all comes out in the wash. It kind of averages out and doesn't make any difference. But again, for tax purposes, it's an elective kind of provision, so I'm not sure what more one can do from the taxation side. But certainly I'm aware that Agriculture Canada does deal with certain programs on an accrual method, because in some respects, that gives you a better measurement of the real income on an annual basis.

À (1025)

The Chair: Thank you, Paul.

Monsieur Desrochers.

[Translation]

Mr. Odina Desrochers: Mr. Farber, I have just a few more questions for you. Some of my colleagues have told me that you told them that you based your exemption limit on 1999. I shall not comment on that, but I would however like to ask you the following question.

Are you looking at what is taking place south of the border? People often refer to the American model. Much reference has been made to the Farm Bill that the Americans are putting in place in an attempt to re-establish the balance between large and small farms. Do American farmers enjoy the same advantages that you claim Canadian farmers do? Do you think that the private sector, in many cases, can replace the tax relief that Department of Finance programs provide with regard to farm transfers?

[English]

Mr. Randall Meades: I can respond in terms of unaccounted capital. I know the tax rates in general in Canada on capital gains are typically below those in the U.S. Getting back to the $500,000 LCGE, there is no direct comparable in the U.S. So I think in general we stack up quite well against the United States.

[Translation]

Mr. Odina Desrochers: As you are undoubtedly aware, Mr. Meades, we are increasingly moving towards an open market with the Americans. The Canadian government should take steps to ensure that our agricultural system here remains viable. I understand entirely what you mean when you say that the Americans now have a major advantage over us. However, you will undoubtedly also know that the Americans have become experts in using the private sector and other procedures to attempt to demonstrate that they are indeed complying with WTO rules. That is as may be, but what does the future hold for us? Could any of you answer that question?

[English]

Mr. Randall Meades: I could respond just on the tax side. As we indicated before, we will be providing statistics on taxes paid by the agricultural sector.

As Mr. Farber indicated, there are a number of tax provisions, and in general agriculture is low-taxed. So other than the program side, which is not really income-tax-related, again, we fare reasonably well relative to the U.S. If it's administrative or if it's program spending or something, that's another issue. Finance is sort of out of our purview.

[Translation]

The Chair: Thank you, Odina. Anymore questions?

Claude, you have the floor.

Mr. Claude Duplain (Portneuf, Lib.): Mr. Farber, I just wanted you to elaborate on one particular point. Earlier on, when we were discussing tax measures claimed by cooperatives when they file their taxes, you stated that one particular department was looking at that issue. You also said that it wasn't your department, but rather the Department of Agriculture, didn't you?

[English]

Mr. Len Farber: Mr. Chairman, further to the announcement by the Province of Quebec on measures supporting the development and capitalization of Quebec cooperatives, the federal Ministry of Agriculture is looking into that measure and other aspects of capitalization for cooperatives in a special task group that's looking at it with the view of coming forward with some results before the end of June. So it's the Department of Agriculture that's looking into that.

À (1030)

[Translation]

Mr. Claude Duplain: Thank you.

[English]

The Chair: Thank you.

I know others have questions. I'd like to follow through, just before I go to Larry here, on this business about the ownership of farms and the succession.

If a farm is valued at $2 million and is being transferred to a son, first of all, the owner or the father can say $500,000 is tax free, under the capital gains provision. That leaves $1.5 million. Now, with that $1.5 million, there are two ways that could be looked at. One is that it's simply a gift to a son, where apparently it's not regarded as a capital gain. Is that correct? Is that right, Mr. Jolie?

Mr. Phil Jolie: Yes. If the--

The Chair: And it's not taxable. That $1.5 million is not taxable.

Mr. Phil Jolie: If the father can elect proceeds of say $500,000--

The Chair: Yes.

Mr. Phil Jolie: --then there would be no gain.

The Chair: And the $1.5 million can go on to the son and he picks it up at that base for his future capital gain, whatever it might be. Is that correct? That's the way I understand it.

Mr. Len Farber: He'll pick up the $500,000 in that example, as Mr. Jolie just said, if he wants to basically give the balance without gifting it.

The Chair: Yes.

Mr. Len Farber: So he would pick an amount. He's entitled to pick any amount from zero up to fair market value. He would pick $500,000. That would be tax free. And then the son would step into his shoes and he'd have a cost base of $500,000. And then at some point in the future he can access another $500,000, depending on how he would deal with it.

The Chair: I'm trying to figure out where the $1.5 million goes. That's where I'm not clear. I thought the $1.5 million could be transferred to the son without being regarded as a capital gain. That's part of his farming operation. If the son were to sell it, then he would have to dispose of the $1.5 million in terms of his income. Is that not correct, Mr. Jolie?

Mr. Phil Jolie: No. If the father elects at $500,000, the son picks up the farm at a cost base of $500,000. That's his cost base for tax purposes. In terms of value he picks up the whole farm.

If the son were to sell the farm the next day, say at arm's length, at a fair market value of $2 million, he would have a cost base of $500,000, he would have his own capital gains deduction of $500,000 he could use, he would have a net capital gain of $1 million, a taxable capital gain of $500,000, and tax of roughly $250,000 to pay.

The Chair: The other option to the father would be to simply sell it to the son. He'd go to Farm Credit, borrow the $2 million, and pass the $2 million to the father. Now, with that method of doing it, the father of course could take the $500,000 tax free, but there's another $1.5 million that's still on the table. Now, he could put that into a reserve over a 10-year period and pay tax on $150,000 a year for each of the next 10 years. Is that correct?

Mr. Phil Jolie: Only if he did not get paid for 10 years. If he gets all the money up front, he has to pay the tax up front. If the son pays the father over 10 years, the father can defer the taxable capital gain.

The Chair: Can it be handled by a third party in terms of the reserve provision, Mr. Farber?

Mr. Len Farber: No, it can't because the father will be realizing all the cash on the transaction. The way most intergenerational transfers occur, because the retiring farmer needs an income in retirement, he finances the acquisition in the example you just gave. That $1.5 million will be paid out by way of a mortgage back or whatever over a 10-year period, and he will only pay tax on that portion of the payments that come in on an annual basis. But if they used a third party, the farmer would be realizing all his cash, and therefore it would be a full taxable transaction.

The Chair: I'm glad you brought that point out because that means that the father who has retired is carrying a tremendous risk for the period of the mortgage. With the condition of many farms in Canada today, is it fair to a 60-year-old father to have to take that hit over a 10-year period? He hopes his son will be successful at farming, but if the son goes bankrupt, the farmer loses most of that $1.5 million.

I think that is something that has to be considered in terms of succession. It's a big gamble for the father to lay his earnings for a lifetime on the table, hoping that agriculture is going to be successful in his area for the next 10-year period.

I think Larry was next.

À (1035)

Mr. Larry McCormick: Thank you, Mr. Chair, and thanks, gentlemen, for being here. I have been listening.

Regarding the capital gains tax exemption and the idea of the succession, why there have been so many questions and there will be many more--and much of it has to start from our side of the table regarding tax policy--is because we certainly need a policy badly to encourage some new entrants into farming. Today we all appreciate the fact--I hope we appreciate it, and I'm sure we do in this room--that we have the best and safest food in the world at one of the lowest costs. But that may not always be so if we don't encourage our farms.

Our family farms...we talked about the money there and the actual worth of the farms. It's kind of hard to have statistics that are completely up-to-date. Family farms are not necessarily small farms today. There are many major operations across the country. It's something we're going to have to work on a lot and from this side of the table.

You mentioned the tax breaks for the cooperatives and what they're after in Quebec. I'm just wondering if you could tell us the difference on that issue, say between Quebec and Ontario or other provinces, please.

Mr. Len Farber: At the federal level there are no differences. What Quebec announced recently was a measure that would allow, within defined limits, those distributions, or patronage dividends, that are paid out to the unit holders to be able to be reinvested as capital into the cooperative. Again, within certain limits, those dividends are deductible to the co-op in terms of calculating its income and they're includable to the recipient in calculating the recipient's income. That is universal across the country.

What is being studied is the impact of the measure that Quebec has introduced, the viability or necessity of like measures that might be useful for the cooperative movement right across the country. But again, as I indicated, that's something that Agriculture Canada is looking at with a view to coming up with some results, some analysis, before the end of June.

Mr. Larry McCormick: Thank you.

I'm glad you just clarified that it's the same for people across the country.

The Chair: Mr. Hilstrom.

Mr. Howard Hilstrom: Is there any hope for farmers that somehow the Income Tax Act is going to be simplified? There's absolutely nobody who can fill out their own income tax form if you have a farming business. If they do, it's somebody who has professional training.

Is anybody looking at simplifying the Income Tax Act at all as it pertains to farmers? You've heard the questions around here; obviously, none of us could ever fill out an income form on a farm. Is there any effort being made to simplify the tax system as it pertains to farms?

Mr. Len Farber: There are two aspects to that, Mr. Chairman. Number one, in terms of legislation, I think it's fair to say that we don't go out of our way to complicate the legislation. We live in a very complicated world. Business transactions are very complicated. The Income Tax Act is an act of general application and has to deal with a myriad of different circumstances and therefore is a fairly complex piece of legislation that is designed to accommodate just about every conceivable situation for tax purposes.

But for people on a daily basis or on an annual basis, the most important aspect to them is actually filling out the form. I think my colleagues at the agency can certainly talk better to this point than I can, but there have been major efforts over the last number of years to simplify the forms. For those people who don't need the T-1 general, which is the full form with all the schedules and everything, over the course of years, with experience, they have devised special forms. Senior citizens get different kinds of forms, where Revenue, or the agency, actually just looks for basic information and they do all the calculations themselves.

I think there have been some fairly major efforts over the years to address the filing concern, the compliance concern, of individuals, so they can more easily fill out their returns.

À (1040)

Mr. Howard Hilstrom: How come for a farmer who has a restricted farm loss--he probably has a job off the farm, or whatever, so he's operating on a restricted farm loss. What the department does is they let that man or woman go on for three or four years and then all of a sudden they do an audit and say, “You're not a farmer”. You guys know there's a big problem in this area, because many people have had to fight like heck to try to justify that they are in fact a farmer. But you let them go on for three years and then you go back on them.

If people file and it's identified on the form that this is a restricted farm loss, why couldn't you review that assessment the year it's put in so that if the person is not really, in your opinion, a qualified farmer, then they wouldn't get into having to pay back these massive amounts of taxes? This stems from a lack of a definition of what is a farmer. Is there any chance you could do that, review it immediately?

Mr. Phil Jolie: We think it's very important to be current in our audits, and we do audit the most recent returns available. One difficulty when someone starts up any kind of a business operation, including a farm, is it takes time to see if there's an expectation of profit. One considers that there's a start-up period allowed in new businesses and you have to wait for things to shake out before you can actually make a determination.

It takes a couple of years for it to get on our radar that somebody's started a business and has consistent losses, and we do try to get in as soon as we can with those things. Normally, if we do come in, in a situation like that, we don't go right back to the beginning; we'll normally just assess the current year and maybe one prior. We don't go back to the beginning if it's five years ago and say we're taking out five years of your losses; we just do a couple of years currently.

Mr. Howard Hilstrom: I know it's not five years. These are exact examples. I'm talking about people I know who are in this situation, and it happens every year that they get reviewed. They usually go back three years and say, okay, from those three years we are reassessing you and denying you all your farm losses.

This has a major impact. People go on good faith that they are in fact farming or producing a farm commodity, and then they're told they're not a farmer. That needs to be addressed somehow.

I don't know, Mr. Chair, if we'll be able to make any recommendations in our report on this or not, but it's a major problem.

That's all, I guess. It's rhetorical again, perhaps.

Mr. Len Farber: Mr. Chair, perhaps I could comment on that.

Number one, as you're probably aware, there are about 22 million tax returns that are filed annually and have to be assessed. So trying to deal with one segment in a very early timeframe is practically impossible.

Number two, with regard to those individuals whom you are referring to, they wouldn't have all their losses denied. If they're deemed to be a restricted farmer, then within the confines of section 31, “restricted farm loss”, they'd have a certain amount of their losses denied, but not all.

As Mr. Jolie said earlier, there have been some fairly significant movements over the last little while in terms of being more accommodating to those farmers who, for various financial reasons, including bank requirements to have other sources of income to fund debt...that off-farm jobs don't, in and by themselves, necessarily deny you access to farm losses. So to a certain extent we've made some fairly significant inroads into some of those problems you're alluding to.

À (1045)

The Chair: Mr. Farber, before I go to Rose-Marie, I'd like to ask a couple of questions.

With the five pillars that the Department of Agriculture and Agri-food is now touring the country with, two of them are research and development and the environment.

With research, first of all, do you see enough evidence that farmers are spending money on research back at the farm level? There is a section in the Income Tax Act where they can use that research investment as part of their report.

Secondly, Mr. Farber, many farmers believe they're going to be hit big time with what the environmental standards are going to be. And of course they say in terms of infrastructure, it's the federal people a third, the municipal people a third, and the provincial people a third. Under the environmental demands that might be placed upon agricultural sectors, as a policy analyst, are you prepared to offer a better incentive under the Income Tax Act for farmers who might need to meet very costly environmental needs as put forward by our two levels of government?

So perhaps, first of all, on research, Mr. MacGregor, when you look at all those 22 million forms and the 300,000 agricultural ones, is the farm community really involved very much with research back at the farm level?

Mr. Bill MacGregor: I hate to give you the standard answer again, but I can try to find those numbers for you.

On the SRED tax credits that you talk of, there has recently been a press release on an administrative policy for farm associations that do research for the farmers to access those actual credits for the check-off fees that go to research. This is just something new.

The Chair: Mr. Farber, then, with the environment, you have 5% write-offs, 10% write-offs, and so forth. Is there anything in the works to take a look at what this Whitehorse agreement, and all those agreements and so forth, may place upon the agricultural community?

Mr. Len Farber: Well, Mr. Chairman, there's nothing that I personally am familiar with at the present time, but I am sure the Department of Agriculture and Agri-food is very much steeped in those kinds of issues. As they develop their different approaches to how this should be handled, I have no doubt they will be in contact with us with a view to asking what mechanisms can best serve to help alleviate some of those environmental issues.

The Chair: I can't help saying that I am disappointed they haven't already come to you. Are you saying they haven't yet come with any suggestions?

Mr. Len Farber: No, I'm not saying that, Mr. Chairman. There are a host of different mechanisms that could help deal with issues like that. The Income Tax Act is merely one instrument. There are direct expenditure measures that can achieve the same kind of result. It's a question of, what is the best mechanism to do this? We deal with the Income Tax Act.

The Chair: But you're saying before this committee that as far as you're concerned as a major policy analyst, Agriculture Canada has not, as of this day, come to you to look at a problem that is going to reoccur for a lot of farmers. Is that what you're...? Now, I know you're being a bit elusive there, but no one likes to--

Mr. Len Farber: I'm not trying to be, Mr. Chair. I'm only trying to indicate that from my own personal perspective, I have not been involved. That is not to say that people within the department have not been engaged in these kinds of issues. The environment is one of the major issues that is facing this government. Climate change is a very important aspect of that. Discussions are going on at all levels with regard to that. I personally have not been, but I am sure the discussions are ongoing.

The Chair: But you are the general director of legislation, and I would think it would come to your desk if it were somewhere in the department.

Thank you.

Rose-Marie.

Mrs. Rose-Marie Ur: Thank you, Mr. Chair.

I think it's imperative that we get an answer to that question, whether from you, Mr. Farber, or from one of your colleagues. It is imperative that someone inform this committee as to whether someone has come to the finance department from the agriculture department regarding the said question from our chairman and spoken regarding these matters re the environment, etc. I would hope we can get information on that because I think it's certainly past due.

My question is to Mr. Farber as well, a point of clarification on your statement as to the selling of a farm. You said the farmer could sell it to his son or daughter for zero to fair market price. I understood that you had to have fair market value. You couldn't sell your farm to your child for $1 per se.

À (1050)

Mr. Len Farber: No, Mr. Chairman, that's not right. Under the Income Tax Act, the farmer has a choice of putting any value between zero and fair market value in terms of a transfer. He can choose the amount. It's an elective amount, and it's entirely up to him as to what he chooses.

Mrs. Rose-Marie Ur: But who will pay the taxes, then?

Mr. Len Farber: That's an entirely different question. We were talking earlier about a certain example the chairman posed concerning a million and a half dollars and a half-million-dollar gain. One has to also take into account that there is a cost one can recover tax free as well. The combination of the cost base of the farm plus the half-million dollar capital gain is the amount the farmer can actually withdraw on a tax-free basis. For any other amount, to the extent he gets proceeds for it he will have to pay tax on it if he wants to gift it or to transfer it intergenerationally; he has that choice. Somebody has to pay the tax or forego it until that point in time when proceeds are actually received.

Mrs. Rose-Marie Ur: Zero to fair market value: has that always been there?

Mr. Len Farber: That's been there since at least the intergenerational rollover rules were implemented. That is the mechanism whereby you can facilitate a transfer at no tax cost.

Mrs. Rose-Marie Ur: Thank you.

The Chair: Thank you.

Howard.

Mr. Howard Hilstrom: We're dealing with this issue where farms all of a sudden have a big spike in income because of whatever reason. Years ago we used to have something like a five-year averaging. You could work with your income over five years. What's your reason this couldn't be brought back? Is there a good taxation reason it couldn't be brought back if we were to recommend that to the government? I understand that the optional mandatory inventory adjustments and all this kind of stuff are in there now, but that wouldn't solve the farmer's spikes in income as well as a five-year average would, would it? Is that too technical?

Mr. Len Farber: The direct answer to your question is there's never any reason anything can't be brought back. That's a choice of government. Whether or not there's a necessity for it to be brought back is an open question. As you've just indicated, with the cash basis, the flexible inventory, the flattening of the rates...the averaging provisions were removed from the act at the same time the ten-rate structure that's been part of the Income Tax Act since at least 1972 was moved down to a three-rate structure. It was flattened down very dramatically, so there was a view that it was not necessary at that point in time because you had a three-rate structure. That, in combination with the various averaging provisions and the extended loss carry-back and loss carry-forward provisions, does give a smoothing of income over time.

The Chair: Thank you.

We'd like to really thank you for coming. We've learned quite a bit this morning. I suppose we have a lot more to learn. But when we go across the country, we hear a lot of statements being made, and it certainly is good for us, in our own minds, to have a lot of them clarified.

We would like very much to thank Mr. Farber, Mr. MacGregor, and your staff for the expertise that you gave us this morning. I'm sure all members now have some names of people. We may have to write you to get some further clarification on points that were made.

We do hope that as a committee we are looking at the future role of government in agriculture. Certainly, taxation is one of the major concerns many farmers have.

With that, you've made the case this morning that our taxation system is fair, and that the $500,000 exemption in terms of the agricultural community is certainly not enjoyed by everybody in society, and I think most farmers are appreciative of that. But the problem we encounter is that the net value of farms is going up all the time, including quota and buildings and machinery. Sometimes people argue the case that there should be something built in there for inflation or for other reasons.

On behalf of the committee, thank you very much for coming. We enjoyed our meeting this morning. With that we will conclude our session.

The committee is adjourned.