Get the Most from Your Woodlot

June 08, 2021

Get the Most from Your Woodlot

Synopsis
6 Minute Read

If you own property with a significant woodlot, you could save on taxes through the Ontario Managed Forest Tax Incentive Program.

Rick Wismer
Rick Wismer, CPA, CA
Partner

The forest on your land benefits all Ontarians, providing wildlife habitat, carbon storage, and perhaps recreational and traditional land uses. You may not be planning to get rich off your woodlot, but you could make enough to make a difference in your retirement plans. There is no reason why you shouldn’t enjoy the financial benefits of ownership.

The Ontario Managed Forest Tax Incentive Program (MFTIP) recognizes the importance of your woodlot and values forestland according to its current use while working to increase landowner awareness about forest stewardship.

MFTIP should be the number one item on your priority list to consider in getting the most from your woodlot. This is true whether you are thinking of it as a business or simply as a recreational property.

Every landowner who applies and qualifies for the program will have the eligible portion of their property classified and assessed as managed forest and can pay municipal property taxes at 25 percent of the regular residential rate. For larger properties or properties with high assessed values, the savings could be considerable.

The second priority will be determining whether you have enough acreage and timber volume to consider qualifying as a business. Dick Lalande wrote a great article for The Woodlander a number of issues back outlining key issues related to operating your woodlot as a business and taking the matter one step further to see if your operation might qualify as a farming operation, which gives you the greatest income tax advantages.

Whether the woodlot is a simple business or meets the higher standard to be a farm operation, developing a business plan is the key to future success.

Remember that size matters — if you only have a couple of acres of trees, you’re going to have a harder time building a business case. If, however, you have 100 acres or more, it’s going to be much easier meeting the test of operating a business. When it comes to forestry management, time is on your side. Results do not have to be instant. Losses can be claimed in the short term if you expect that there will be profitability at some point.

How to Benefit

Treat your woodlot as a business. This means keeping good records, tracking receipts and possibly registering for the harmonized sales tax (HST). You’ll also have to be willing to learn about good forest management and how you can help your woodlot thrive and bring additional benefit associated with ownership. Becoming a member of the Ontario Woodlot Association (OWA) is a great way to stay abreast of activities and developments in the industry.

Establishing yourself as a regular business or as a farm operation may allow you to deduct your ongoing expenses against other sources of income that you may be reporting for personal income tax purposes. These losses would reduce your income taxes each year and offer a savings over many years.

Registering for HST and filing the necessary form would similarly allow you to recover 13% of your expenses, representing a further net savings annually.

Yet another potential benefit is the possible long-term tax savings around succession planning. Proper structuring of your business affairs may allow you to take advantage of the $1 million lifetime capital gains exemption on a future sale or do a tax-free transfer of eligible farm property to the next generation.

The When and What

  • Start today. There is an old Chinese proverb that asks the question, when is the best time to plant a tree? The correct response is 20 years ago. It is rarely too early to start.
  • Types of business activity that may qualify:
    • Planting trees
    • Sugar bush operation
    • Periodic harvest of standing timber
    • Tree farm (including Christmas trees)
    • Firewood sales
    • Ancillary to any compatible agricultural activity

The Process in Summary

  • Join OWA.
  • Employ a forestry professional to prepare a managed forest tax incentive plan (before June 30th of any given year).
  • Develop your business plan using MFTIP as a starting point.
  • Register for HST (if cost and potential recovery warrant).
    • Note: if buying a property, investigate this before buying the property to recover HST on the purchase price of land or equipment.
  • Set up your books and retain all receipts.
  • Talk to your accountant.
  • Work your plan and enjoy your woodlot.

Contact

For more information, contact Rick Wismer, CPA, CA, CAFA, PAg, LPA, Regional Agricultural, Food and Beverage Leader for MNP, at [email protected] or
905-225-1302.

About Rick Wismer

Rick is a member of the Niagara Chapter of OWA. In addition to his professional career, he is a vineyard and tender fruit farm owner. He also owns and actively manages and logs several Carolinian woodlots and woodlands in northern Ontario. On many a sunny day, Rick can be found on a sawmill cutting lumber for any one of many building projects.

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