Whether selling milk, eggs or other produce, farmers working in
supply management use a quota system to take their product to
market. Dairy farmers, for instance buy a quota, which then makes
them eligible to produce a specified amount of milk.
For a farmer who operates as a sole proprietor or in a
partnership and holds the quota individually or in partnership with
someone, a new challenge will be introduced on January 1, 2017. At
the moment, if you sell your quota the gain portion will be taxed
as business income, not as a capital gain. Even though it's
taxed as business income, it's offset by the lifetime capital
gains exemption that everybody has – for farmers, it's a
million dollars – so you get an offsetting deduction without
issue. Starting January 1, however, this same income will be
treated as a capital gain. As a result, alternative minimum tax
(AMT) could kick in.
