Get peace-of-mind with a successful agri-business transition

Article originally published by the Journal GTA: Gestion et technologies agricoles.

The prospect of handing over your farm business to the next generation can be daunting, but it is crucial to the future of your business. Fortunately, MNP’s tax experts are here to guide you every step of the way.

Marie Boulay, a tax advisor and Senior Tax Manager at MNP, is one such expert. What’s more, she is an agronomist by training and comes from a family of farmers. Marie was set to take over the family business until she discovered a love of tax law. Still, you can find her from time to time pitching in on her family farm.

When working with clients, Marie is reassuring from the get-go. “Business owners should enlist the support of a professional who can help them make sound decisions, save considerable amounts of money and avoid unnecessary headaches,” she says.

However, she stresses that this is not a process that can be thrown together on a whim. Owners will need to start planning the intergenerational transfer anywhere from several months to several years in advance.

“Careful planning is essential if you want to minimize tax consequences and smooth the transfer of power to those coming in.”

The challenges of transferring an agri-business

There are several challenges involved in transferring a farming operation. In general, these very valuable businesses have less liquidity and more assets, including land, farm equipment, buildings, etc. Something else to keep in mind: the current owners want to retire comfortably and ensure that their farm continues to survive and thrive.

“Continuity is a key component of the agricultural sector. Farmers want their businesses to live on. They look forward to the next generation carrying on their legacy,” Marie explains.

She keeps these specific concerns in mind when she meets with farmers looking to transfer their business.

“I take the time to really listen to them and get to know what they want and need. I find it essential to build trust between us. It’s also important to remember that each case is different, and that the same approach doesn’t work for everyone. That’s why I strive to provide tailor-made service.”

For example, the current owner may want to transfer their farm while gradually withdrawing their capital, which requires a custom plan.

“These frank conversations are the best way to establish a plan that respects the client’s wishes,” she says.

This critical step is key to come up with a client-tailored solution(s). Some cases require a multi-step strategy that takes years to achieve.

“It’s all about identifying the best path for fulfilling as many of the client’s goals as possible. We look at the tax laws and everything else that was submitted to us in order to carry out the transfer with as few tax consequences as possible. That said, tax experts aren’t miracle workers. Certain decisions will inevitably have an impact on future generations,” she hastens to add.

A holistic approach

After Marie familiarizes herself with the file, she then assesses the owner’s short, medium, and long-term financial needs. She also takes into account their other potential sources of retirement income, including personal investments, RRSPs, TFSAs, etc.

Marie and the current owner then consider the needs of the children who are not involved in the transfer.

“While these business owners are very concerned with making sure that their operation lives on, most also care about treating their children equally. Sound business transfer planning may include updating the will and the shareholders’ agreement,” she says.

Boulay relies on this holistic, 360° approach to understand the tax file inside and out until all the pieces fall into place.

The tax advisor must also review the business’s projects and determine the best sources of leverage for continued growth. The advisor will determine which investments are necessary to replace assets and maintain production levels. They will also look into the application criteria for subsidies for the next generation, like the various Federation subsidies or the Financière agricole du Québec’s grant program.

Seem complicated?

MNP’s mission is to make these tax concepts easy to understand.

“I want my clients to feel supported every step of the way and to be comfortable asking any and all questions. It’s completely normal to not understand something — tax law is very complex. I’m here to explain and clarify anything that seems confusing,” she says.

MNP’s tax advisors know how to devise the strategy best suited to your needs. They also keep up to date on the latest regulations, like Bill C-208, and will help you make decisions that save you money and hassle. At first glance, intergenerational transfers can seem complex. But remember that it’s the best way to make sure the future of your business isn’t jeopardized by estate disputes or post-mortem taxes.