Are tax breaks for hobby farmers driving up the price of agricultural land?

Provincial government hasn't raised farm status threshold for two decades, despite 2009 recommendation to do so.

Are tax breaks for hobby farmers driving up the price of agricultural land?

This is the second part of an ongoing series of stories looking at challenges confronting theAgricultural Land Reserve, a keystone of B.C. life for more than 40 years. Watch for the next piece in an upcoming issue of The News. The first part can be read here.

The air is clean, the land bright and verdant, the noise of the city miles off, but there’s another reason living in the country is appealing to many city-slickers.

The extra elbow room in the Fraser Valley may not come cheap, but provincial tax rules mean buyers of million-dollar rural properties face dramatically lower tax bills than owners of similarly priced properties in town.

The result, a Trinity Western University professor says, is that an incentive intended to help working farmers has also encouraged property seekers to buy up farmland, thereby driving up agricultural land prices.

The threshold to qualify for farm status and lower taxes hasn’t changed in two decades, much less kept pace with inflation. Still, in 2009, the provincial government turned down a recommendation to tweak their policies, in part, a spokesperson said, to help “small farm development.”

The News collected info on the highest-priced farm sales in Abbotsford in 2015. The 38 properties ranged from a six-bedroom Bradner estate that sold for $2.95 million to more modest properties selling for $650,000-$750,000. The average sale price of those 38 properies was $1.2 million, with the average property tax paid $3,551. By comparison, the owners of an Eagle Mountain home valued around $1.1 million last year paid nearly $9,000 in property taxes.

The low tax bills are the result of a provincial law that ensures that property used for agricultural purposes is assessed below market value, if the property owner qualifies for farm status. In addition to actively farmed properties, land used for irrigation, access to farm outbuildings, and sometimes even cases vacant land “associated with a farm” can receive farm classification and be assessed at a fraction of their true worth. The same goes for land occupied by a farmer’s or retired farmer’s home, although the houses themselves are classified as residential properties and taxed as such.

Still, the discounted land assessments mean farm properties sometimes sell for 10 times their assessed value, according to an analysis by The News.

The aim of the provincial rules is to provide some relief for farmers against sudden increases in land values. But the bar for farm status is relatively low: the owners of farms between 0.8 and four hectares need to record just $2,500 in agricultural revenue in a single year. That means many non-professional farmers can sell just a couple cows or horses each year and slash their tax bill by thousands of dollars.

Tracy Stobbe, a TWU economics professor who wrote a dissertation in 2008 and a follow-up paper in 2009 on the consequences of the farm tax breaks, says the rules encourage low-production use of farmland, rather than professional agriculture operations, on small parcels.

In her 2009 study (read it here), which used data from Vancouver Island, Stobbe wrote that “hobby farms benefit from B.C.’s favourable property tax treatment of agricultural land, which sets a low threshold for obtaining tax benefits.”

She said her data show that, as a group, non-professional farmers deliberately seek out properties for which it is easiest to qualify for the tax breaks.

“Hobby farmers actively seek farm class status to reduce their property tax burden, even though they may view their property primarily as a residence,” she wrote.

The policy increases demand for such small parcels, thus driving up land prices for professional farmers as well, Stobbe noted. She saidthat hobby farming may simply be an avenue to convert protected ALR land into residences.

Stobbe wrote that if the active farming of agricultural land “is to be protected in the long run” policies need to be changed. On the other hand, Stobbe told The News that even if they don’t produce large amounts of food, hobby farms do have a positive community contribution because they preserve open space, views and wildlife habitat.

She suggested there is also an issue of fairness.

“From a public policy perspective, it’s a concern because that’s taxes that aren’t going to the government from usually very wealthy people who have these hobby farms.”

The issue has already become a hot topic in Metro Vancouver, where only half of ALR land is used for farming. The situation there led the regional district to commission a report that suggested the $2,500 limit be increased to $3,700. A recommendation on how to proceed is set to come before Metro’s board this fall, according to a spokesperson.

Closer to home, Abbotsford is undertaking an intensive survey of its agricultural lands. Depending on what is found, the city could make its own suggestions to the provincial government, according to city manager George Murray.

Despite inflation, the income threshold for farm status has not changed for more than two decades.

In an interview with The News earlier this year, Agriculture Minister Norm Letnick said farm tax decisions were under the jurisdiction of the Ministry of Finance.

In 2009, a review panel recommended increasing the threshold to $3,500, but “government decided not to increase the threshold, in part to support further small farm development in the province,” according to a Ministry of Finance spokesperson.

The province said it is not currently reviewing the income thresholds, and any future changes would come from the recommendation of the Ministry of Agriculture.

Stobbe, meanwhile, says she has never heard any feedback, questions or comments about her articles from policymakers.

“Even though I try to publish in policy-oriented journals, I suspect folks in government don’t read journals at all.”

with files from Kelvin Gawley

 

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