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New Rules, New Tax Pitfalls on Selling Grain in the U.S.


This article is part one​ of a five part series that is running in the Western Producer in October 2015.​

The U.S. has become an attractive outlet for direct grain sales by many Canadian producers, especially those near the border, since the dissolution of the Canadian Wheat Board’s (CWB) ‘single desk’ trading monopoly.

As a result of the continuing evolution and maturation of grain marketing in Canada, a number of U.S.-based grain traders have been actively soliciting new business here. Some are also investing in infrastructure and offices, a trend expected to continue as Canadian producers seek wider markets and more attractive prices for their grain.

While opportunities have opened, there are also cautionary notes that need to be sounded in this new world of post-CWB trading to avoid the pitfalls of changing and complex regulations, as well as the potential of costly fines.

Grading Standards

Generally, grading standards in the United States are perceived as being less onerous than the standards in Canada. However, the penalties for not meeting them are usually much harsher.

Producers need to be as sure as possible of the grade of grain they have before exporting directly to the U.S. Caution should also be exercised if forward contracting ahead of harvest, when quality will still be an unknown factor.

And, as more trade happens directly between Canadian farmers and U.S. buyers, producers should keep in mind the potential challenge of dispute resolution across national boundaries.

U.S. Federal and State Taxes

Farmers selling into the U.S. run the risk of incurring liability for both federal and state taxes. However, the bigger concern by far is with federal taxation. The Internal Revenue Service (IRS) rules are more grey than black and white, therefore, the more you do to comply with requirements, the fewer chances of tripping into a tax hole.

The simplest way to safeguard yourself against harsh penalties is to fill out all forms, even the ones you’re not sure you need, accurately and on time. This is because recent changes in Canadian marketing practices have coincided with much more aggressive behavior by and on behalf of the IRS in pursuit of taxes and penalties for non-compliance against foreign nationals, which include Canadians.

For example, you can face penalties of US $10,000 as a company and US ​$1,000 as an individual for not filing the required paperwork on a timely basis, even where no tax is due.

And these penalties can continue to be imposed (and back dated) on an annual basis, until all filing requirements are met.

Also, treaty rights may be denied where filing isn’t completed on time, meaning tax can be levied on the gross value of any sale at up to 35 percent of the total (or 39.6 percent for sole proprietor), with no provision for allowing any offsetting expenses.

The key words above are “may” and “can.” The IRS might nab you, or it might not, but taking the time to complete all the appropriate forms and file them on time will provide both peace of mind and secure against needless financial penalties.

Click h​ere for the next part in the series ››