Agricultural Tax Planning
Farming is one of Canada’s most important industries, and the family farm is its backbone. Proper tax compliance and planning can help with your cash flow “yield” and mitigate the risk of unpleasant surprises along the way.
Three crucial points not to overlook when running a farming business:
1. Tax Compliance
Canada Revenue Agency provides information on types of farming income, tax credits and reporting methods. Applicable tax measures deal with drought, excessive rain, depreciation of equipment, transfers of land, and capital gains and losses.
If you think there may have been an error in previous tax reporting, it is possible to make a submission through the Voluntary Disclosures Program to avoid penalties.
A Chartered Professional Accountant can provide a thorough examination of your farming business and prepare your annual tax return to maximize tax efficiency and ensure compliance.
2. Farm Succession Planning
There are various alternatives available when transferring farm property to the next generation. Options include naming beneficiaries through a Will, setting up a Family Trust, and transferring farmland to a corporation.
Factors to consider are:
Do you wish to remain in control of the farming activities?
How can estate tax liability be minimized?
What is the next generation's plan for the farm property?
An in-depth analysis should be completed to determine which succession plan benefits your family and farm best. Your accountant and legal advisor can provide an analysis of the tax and legal implications of each option prior to implementation.
3. Risk Management Programs (AgriStability and AgriInvest)
These programs are provided by the federal and provincial governments and are available for farmers to help mitigate risk and financial loss caused by changes in market, increased expenses or trade disruptions. Application must be made prior to the yearly deadline in order to maximize benefits.
AgriStability supports farmers that experience a large income loss and provides payments when the current program year margin is lower than 70% of the reference margin. The program margin is based on income minus expenses and information provided on the harmonized form. The reference margin is the average program margin for the last 5 years.
AgriInvest offers farmers a savings account where qualifying deposits are matched by a government contribution of 1%. The intention is for the invested funds to provide stability during small income declines and to improve market income through investment. When funds are withdrawn, government contributions and any interest earned is considered taxable income.
The above is not all-inclusive and there could be other points to consider based on your personal situation. We are happy to discuss your circumstance and come up with a strategy that works best for you.
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The information in this publication is current as of July 6, 2020.
This publication has been carefully prepared; however, it was written in general terms and should not be seen as legal or tax advice. This publication should not take the place of professional advice specific to your own family circumstance. GGT Chartered Professional Accountants, its partners and employees do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken based on a decision made in relation to the concepts discussed in this publication.