An Uncertain Tax Future

An Uncertain Tax Future 

Future tax policy will no doubt have a significant impact on farming and agriculture businesses. Between the financial impacts of COVID and fiscal budgets, government spending is at an all-time high. What the future tax policy looks like is uncertain but the likely scenario is tax rates for both business and individuals will increase. Below we briefly touch on some of the potential impacts to consider.

Solutions for Success

  • Family farm transition

    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. 

  • Business structure and future tax liability

     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. 

  • Holding company and farm business structure

    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. 

  • Conclusion

    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 your local agriculture business advisor. 

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    Contact Our Agriculture Team

    Ron Friesen, CPA, CA, is a Tax partner in MNP’s Saskatoon office. Ron specializes in providing tax and business advice to individuals, owner-managers and medium-sized businesses.

    With more than 21 years of industry experience, Ron’s focus is on the resolution of complex taxation issues for agriculture, general small business and estate planning clients. He advises on all aspects of Canadian taxation, including personal and corporate income tax compliance, incorporations, corporate restructuring, acquisitions and divestitures, appeals, negotiating with tax authorities as well as planning and executing tax savings techniques. By working one-on-one with his clients, Ron provides customized strategies and solutions to meet their business needs.

    Ron earned his Chartered Accountant designation in 1993 and his B.Admin. in 1990 from the University of Regina. He currently co-chairs the North Saskatoon Business Association – Tax Committee and serves as Treasurer of the Hague’s Mennonite Church and is a Tax advisor for the Canadian Federation of Agriculture.