Since their two children were born, Dave Bishop and his wife have long wondered whether either of their sons would ever want to one day take over their farm near Lethbridge, Alta, which now spans about 3,500 acres of barley and other crops.

"As you can tell, I've got a little bit of grey hair, so it's not too many years away," says Bishop, the 57-year-old who also serves as vice-chair of Alberta Barley.

With their sons now in their late 20s and one of them interested in taking the reins of the farm, the family wanted to sit down this fall to start ironing out a plan. Their intentions were suddenly torn up when the federal government announced sweeping changes to tax policy for businesses last July.

The family was shocked, as they could see the financial costs of passing on the farm under the new system would now be massive.

Fortunately they backed down on their changes. - Greg Porozni, Alberta Wheat Commission

"We weren't sure of the total impact, but it really looked like it was going to be pretty negative," said Bishop. "The more I thought about it, when they first announced that, the more I went, 'oh no, there are going to be a lot less family farms.' It looked like they were going to penalize you for handing down the farm to your son or daughter."

But facing backlash from a variety of business owners across the country, the federal government canceled some of its proposed changes, including the plan to tax farmers for passing on their assets to the next generation.

'It looked like they were going to penalize you for handing down the farm to your son or daughter,' says Dave Bishop about the first tax change announcement by the federal government. (Kyle Bakx/CBC)

"I've been encouraged by what they have been changing. They're actually maybe listening to the farmer," said Bishop.

Bishop isn't alone, as the revisions by Ottawa are alleviating the fears of many farmers.

"Fortunately they backed down on their changes," says Greg Porozni with the Alberta Wheat Commission. "We have a big sigh of relief."

The impending tax changes were the No. 1 concern for agricultural groups, but Poronzi says it is no longer a top priority since the federal government revised its plans.

"Farmers were concerned because of the fear of the unknown," says Poronzi. "We just knew there was going to be tax changes. A lot of farmers have a lot of assets. Not a lot of cash, but a lot of assets. So, we're very concerned when the government wants to start changing the capital gains exemption, tax deferrals, etc, etc."

John Guelly with Alberta Canola explains why farmers were so upset with the federal tax changes announced in July... and what's since changed. <a href="https://t.co/bWBens7LUZ">pic.twitter.com/bWBens7LUZ</a> —@KyleBakx

What's changing

The federal government will introduce a threshold for passive investment income of $50,000 a year, so small businesses can hold on to money for retirement and other purposes. Past that limit, businesses will now pay a higher tax rate.

There could also be restrictions on income sprinkling, which is used by farmers because they often compensate family members for work arrangements. Distributing money to family members who earn less allows the income to be taxed at a lower rate.

Finance Minister Bill Morneau plans to impose a "reasonableness" test so this does not punish legitimate family businesses.

Stlll, accountants like Dean Gallimore want to see draft legislation and have a firm definition for the "reasonableness" test.

"It gives more uncertainty to taxpayers about how they can expect their situation to be taxed. To me, as an accountant, I prefer more black and white, and this will definitely be more grey we have had to deal with in the past," said Gallimore.

Ag accountant Dean Gallimore explains 'income sprinkling' and farmer concerns with federal tax changes. <a href="https://t.co/4JeQrkZq0X">pic.twitter.com/4JeQrkZq0X</a> —@KyleBakx

Although the federal government has cancelled some of its proposed changes, the initial shock caused some farmers to make snap decisions.

"I've seen some clients that in spite of advice to wait and see what happens with these rules, have gone ahead and transferred land immediately to children. Not to say that is necessarily a bad thing, but I always worry about letting the tax tail wag the dog," said Gallimore. "There's a lot more to it than the tax planning when you transfer an asset to a child."

Agricultural groups are hosting events to educate farmers about the tax reform, since most of it was announced while they were spending long hours in the fall pulling crops off the fields.

"Timing was not great," said D'Arcy Hilgartner, who farms 8,000 acres near Camrose, Alta, and is chair of the Alberta Pulse Growers.

"Harvest, of course is a busy time of year. You don't have a lot of time to spend doing analysis of potential tax law."