Taxes taxes

[Hopperbin]

Did anyone know that if your farm is incorporated and you wanted to retire, with the idea of keeping the land in the corporation and let the corp cash rent it out. Can anyone guess what the tax rate is for the corp for income from cash rent? No one is going to believe this.

[Hopperbin]

OK its only been a minute but seems like an eternity. I'll give the answer, hold onto something. All income from cash rent is taxed at 45 percent to a corporation. It is called passive income and is included with other investment incomes such as eligible dividends. Dividends from an ethanol plant for instance. Any other investment that is considered passive. So best not to have passive investments in a corporation if my accountant knows what he is talking about.
On the rent side one can get around the high tax rate by crop sharing.

[Hopperbin]

Think I would need a second opinion on this one. Because this would mean that if a corp. cash rented out a chunk of land for 100,000 dollars minus the 45000 of corp. tax. Minus the municipal taxes of 13,000 minus the reg. tax rate of 14.5 percent of a 36,000 div. paid to owner of 5,220. In other words all that is left is 36,000 tax free money to the owner.

[cottonpicken]

Then you spend that money and are taxed again.You
save the money and are taxed through inflation.You
put that money back to work and are taxed again.You
then die and guess what?A school board gets its
wings.

And people have the nerve to think we are capitalists.

[mbratrud]

You are taxed but there is a way to get that money back talk to an accountant. Think it has something to do with paying dividends. it will take a year but you can recover a big part of it I am almost 100% sure.

[lesm]

All investment income is taxed at the high rate, but you can reduce this to about 30% if you pay out an approximately the same amount in dividends. A reminder that all you arm's length shareholders of your companies can receive a $500 gift from your company which is fully deductible for your company and non taxable in your hands. Cash or gift certificates are not allowed.

[shafe]

If you rent the farm out, you also lose the farming corp. status. This gives grief if you plan to give some or all of your assets to the next generation. Was involved in renting a farming corp. and was a pita, but we called it custom farming with her actually paying part of the inputs. It turned into an estate, and I believe the transfer was pretty easy. That is why lots of advisers say to keep the land out of the company. The gov't is patient and will let you save tax now, but in the end usually gets close to half.

[Hopperbin]

Mbratrud the dividends you can pay yourself or shareholders are called non eligible dividends. They are tax free payments to the person receiving them. The corp will pay 14.5 percent corporate tax on them and they are classes as corporate income. If your corp farm made a profit of 375 thousand and paid 60 in dividends that would put the corp. income to 435 thousand. That 35 thousand of income that is over the 400 thousand gets taxed at 45 percent.
Now I don't know what one has to do to be classes as eligible dividends or what the tax implications are on that, didn't ask. This tax shit is way too complicated, makes one wonder how these big farming corporations are going to make it. The tax is going to bring them down.

[Hopperbin]

So this is how it works, a farmer with an incorporated farm worth 2 million, has a take home pay of 35000. Something don't seem right. And if anyone can give me an accountant that can figure better than FBC bring it on.

[frustrated1]

Don't know all the ins and out of taxes. But I do know that ANY accountant can figure better than FBC. Not only did they completly screw up my CAIS but also 3 years of taxes. Continually. To the point that about the time we got it close to straight we lost the farm family options monies. Three letters from revenue Canada every month for about five months. I was to the point I wished I was audited just to get it right. Run like the wind from these people. I'm convinced they simply throw numbers at a page to see what sticks.

[wd9]

Rich people pay accountants poor people pay taxes. Find a better tax planner and accountant. Tax lawyers charge 600 to 800 an hour for a reason... They are worth it.

[wd9]

Hopper bin, the first thing I think you may be understanding is dividends are just distributions of cash from a company (after tax profits). I think your statement explaining the profit of $375 and pay dividends of $60 takes your corp income to 435 is incorrect.

Firstly the corp small business limit is now $500,000, up $100,000 from 2008.

Secondly the paying of dividends does not change your business income for that year. If you made $375, that's what your company will be taxed on.

Non eligible and eligible dividends is new in 2008. In a nutshell, prior to 2008 many companies over the small business limit would payout large bonuses or mgt fees to get the business limit to the the $400,000 threshold (now $500,000). Now, you can choose to leave the income in the corporation, pay the higher rate of tax on the income over $500,000 and take it out later as an "eligible dividend". The only difference between a non eligible and an eligible dividend is the tax credit you receive when the individual(s) report that dividend on their tax return.

Third, your tax rates are not really correct. Income over $500,000 in a corporation is taxed at 31%, as long as its active business income. It was higher in 2007 and 2008 but continues to decrease.

You do have some big tax issues and decisions to be made. I think you need serious help, preferrably a firm that is a CA and works with Agriculture clients. Unfortunately, FBC will not have the exprience in this area and you may end up in a larger mess than you think you might be in already.

[wd9]

Now to clarify the 31% tax rate, it is the amount you pay at that time. Later on, down the road, when you distribute the cash to the shareholders through dividends you will pay the balance of the tax which will in total will bring the tax to 45% (assuming current tax rates)

You don't have to deal with the excess tax now.

As far as "inactive" income such as rent, you are correct in the high rate. Your option then is to pay out the inactive part to yourself each year. Essentially the tax is the same but now the cash is in your hands.

You will want to be carefull about keeping your farm "pure" which allows a long list of rollover provisions in the event of your untimely passing. If you have more than 10% inactive assets you may fall into this situation.

Again, you need to talk to someone who knows that they are doing. Without knowing your situation, future goals, retirement/succession strategy or intentions, a hold co may be an option where you pull out non farming assets

Going through this same process a while ago i learned a lot from the process, the tax act and options available. I had a great guy helping me, if you post your address, I could forward the details to him and see if he would be interested in helping you.

[fedupcwb]

hopper fbc i used for 3yrs then was audited , they were so far out to lunch the auditer could not believe it. I know they say they are the best because thats all they do but all they are the best at is saying they are the best. I guess i should of realized this when someone i knew got a job there doing what my socalled accountant was doing with no expiereance! stick with a real accountant,these guys suck, sorry but it is true

[gustgd]

Hopper
I was doing a little checking in the farm management section of Agri-ville

https://www.agriville.com/cgi-bin/forums/viewThread.cgi?1198819797

It was back in Dec of 07 almost to the day, that you started the thread. All those people said what they said.
It looks like the service was not what you thought it would be.
Why did you stay?