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Every year, tax laws and interpretations change and become more complex – making it difficult for agriculture businesses to not only comply but maximize the returns to their farm business. That’s why it is important to work with a team of tax advisors who have the history, expertise and industry insight to help you stay competitive and profitable.
We tailor our business and personal taxation services to meet the unique needs of our agriculture clients. We understand that your business plan is an evolutionary process that must be adapted as family dynamics change and the farm business matures. We also know what it takes to ensure you pay the least amount of tax possible and get the most from your operation.
To learn more about MNP’s Agriculture Tax Services, please
download our fact sheet
Taxpayers in Canada are entering a new and uncertain era of taxation policy. The financial impact of COVID-19, combined with the fiscal budgets over the past few years has resulted in historic levels of government spending. At the time of this article, Canada’s current year deficit will exceed $343 billion and the national debt is approaching one trillion dollars. While economists and government experts debate the economic impact of this debt repayment; we are left to wonder what the tax rates of the future will be? The likely answer: tax rates for both businesses and individuals aren’t likely to decrease anytime soon.
Future tax policy will have a significant impact on farming and agriculture businesses in Canada. There are several potential impacts to consider and this article will briefly touch on a few important topics to Canadian farmers.
Your family farm transition or succession plan will likely rely on your farming assets being qualified farm property or the use of your lifetime capital gains exemption; which provides tax savings up to $270,000 per person on transitions depending on province of residency. The legislation in this area is complex and the government previously proposed changes to it in the 2017 suggested federal budget amendments (although they were ultimately never implemented).
There are also significant tax deferral opportunities to consider meeting your overall succession objectives. You and your advisor need to be aware of the current strategies in place and how potential changes could impact the future transition of your farm to the next generation or to a third party.
Uncertainty of future tax policy directly impacts your farm transition planning today.
If tax rates were to increase, how would this impact your farming business operation and structure? There are multiple considerations to a business structure for your farm (including transition), but current operations should not be ignored. Do you know what the current and future tax liability of your farming entity is today?
Understanding your farms current and future tax liability could impact the decisions you make today regarding taxation, including triggering some of that liability today if tax rates should increase. This is a crucial conversation to have with your advisor to ensure your future tax liability is being managed in an effective way.
Your farming business structure may include the use of a holding or investment corporation. There are multiple benefits to this structure, with one of the more common items being the ability to transfer excess cash and other non-business assets from the operating business to the holding/investment corporation. This helps to ensure that your operating farm entity remains eligible for beneficial tax items such as the capital gains exemption and tax deferred intergenerational transfers.
Estate tax and other current tax considerations are important when a holding company is within your business structure. There are different tax considerations for farming and non-farming entities to consider in your overall tax planning. Life insurance can be an effective tool to manage your tax liability and the farm transition, and should be considered on a case by case basis. Ultimately, you want to ensure that your business structure is meeting all the current and long-term goals of your farm.
Although tax is only one consideration in your farming operation, future increase in tax rates or changes to tax legislation can have a significant impact to your business and succession plans. Now is a good time to be having these discussions with your advisor to understand the landscape and plan accordingly.
To learn more on how we can help with your tax planning and business needs, contact Scott Assman at [email protected] or Rick Wismer at [email protected] or visit MNP.ca to find an agriculture business advisor near you.
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