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Top 9 Year End Tax Planning Tips for Farmers


By this time most farmers will have their 2009 harvest in the bin. So, the next task is to consider looking at your accounting records to plan for the current year’s tax liability. The following is a list of items farmers should pay close attention to prior to December 31, 2009 (or whatever their farms year end is), assuming you pay your taxes on the cash method.

1. Make sure you have an accurate recording of all your cash revenues, expenses, and equipment purchases and sales.
2. Ensure last year’s deferred sales are included, and any deferred sales to the next year are not.
3. Ensure current year cash advances are not included, but repayments of last years advances with grain sales are.
4. Once an accurate record of your cash income is known, various steps can be taken to reduce tax burdens where needed.
5. To that effect, consider pre-buying next year’s fertilizer and/or chemicals. Make sure you actually purchase the items, as the CRA will not accept as a deduction a credit on the supplier’s account.
6. Pay any wages owing – this includes legitimate wages to children based on the hours they worked.
7. Pay for expenses such as repairs, land rent, equipment rent, and any others in December rather than January.
8. Consider using up your small business deduction (up to $500,000) if incorporated, and not simply bringing your taxable income down as low as possible.
9. Make sure you discuss with your advisor the impact any of your planning might have on your Agri-stablity margins.

To allow your professional advisor to provide you with the best advice possible, update your net worth statement at this time. This will help ensure the advice is timely and as tax effective as possible. It will also help him/her review your file to ensure you remain onside the family farm corporation/family farm partnership definitions, a crucial definition related to the gifting of your farm to the next generation and the use of your capital gains deduction.

It’s also the right time to meet with your professional advisor to plan any restructuring you may need to go through to avoid future tax issues and aid in the succession plan for your farm. If a partnership or corporation is advisable for 2010, this must be planned and various legal and other matters dealt with in advance of January 1 of the next year.

Looking more long term, consider a review of your personal wills to ensure they still reflect your wishes, and are as tax effective as possible. If you are approaching age 65, ask your advisor to plan the use of your capital gains deduction prior to reaching age 65, if possible, to avoid the clawback of your old age security. Ask your professional advisor if you qualify for any government funding for restructuring your business.

As soon as you have everything ready, contact your local MNP advisor to meet to review your file. Ensure this is well in advance of December 31 to allow for any advice given to be acted on prior to that date.