farm corporations?

[caseman]

should have mentioned have a wife and 3 kids.

been prebuying inputs and deferring grain the last few years, has finally caught up to me. 2015 will be manageable tax wise, 2016 will be harsh if I file as an individual.

[Oliver88]

Very informative thread.

[Richard5]

Caseman, if you deferred to 2016, thats your income and cant go to the company,

If you were in a partnership then the deferred tickets are assets of the partnership and then would be taxed by the company

[LEP]

Richard5, you are viewing this from the point of view of someone with a sizeable operation that has significant assets looking toward incorporation.

When I incorporated 20 years ago my operation was a fraction of today, but I was looking at a big year on top of my off farm salary. Didn't make sense not to incorporate. I didn't have $100k of equipment and not much land.

But in caseman's situation I can see the benefit completely.

[farmaholic]

Our Corp is 14 years old in 2016. Can't image being shackled by high taxes and slower growth.

It may not have been done absolutely correctly but...but at the time, with the current circumstances.

[Richard5]

No LEP, it still would have been a benefit to you back then and is a benefit to any size of a farm

Most small farms today are going to have a million or more of value in grain and equipment so it is perfectly taylored for a small farm

If you incorporated 20 years ago you most likely have a pile of land in your corp and pay lots of dividend taxes. You will also have a lot of net worth in your company, thats good things.

If you want to quit and no one is taking over, how long will it take you close the company and what final tax will you pay?

If you have a son that wants to farm i would be creating a partnership with him and all rented land operations would go through it until you have the right value and the partnership qualifies

[caseman]

Richard5, only have 50k deferred to 2016. the canola I hauled some in dec. and hauling the rest of it in the next 2 weeks.. no cash tickets 4 the canola have been made yet. 1600 tonne of canola which iam using to pay last years inputs b4 late feb.

[LEP]

Rent most of my farm. Only two quarters of land in corp. I had 230 cows at the time. I had them out on shares. Then BSE hit and I quit buying replacements.

I only have 25 cows left now. Grain at that time was maybe 60k.

Main reason for incorporating was off farm employment. First dollar of taxable income on the farm was taxed at 40%.

Also I wasn't going to get heavy into deferring like some I have seen who defer entire years production.

[Richard5]

Well its your farm and your choice but i think you should be talking to someone else just to make sure you understand your options.

There's a calculation that you need to have in the right way in order to incorporate your farm regardless. If you have too much debt it will create a bunch of personal income in year one to pay it off

[caseman]

thanks for all advice so far

[AlbertaFarmer5]

Great thread.

I have been having this same discussion off and on with my accountant. And as I understand it, the only way incorporating would be a benefit to me, is if the corp owns some of the land. Then I can make principal payments with the lower tax rate. Any money I want to take out to live off of would taxed the same as it is now. Write off's wouldn't change. Is there another benefit that I am missing?

The other benefit I can see is not having to budget every purchase and sale around taxes. As is, I prepurchase nearly everything, buy cattle as required and carry inventory into the next year, or more to postpone the taxes. But like the OP, that is about to catchup to us in 2016. At the lower tax rate, it would be good to make business decisions based on their own merit, not just to avoid taxes.

[Richard5]

Well one thing you are missing is that if you incorporate a partnership you can take a lot of the cash out without costing you personal taxes to make those land payments

So you get the best of both worlds, keep land out of the company and pay the corporate tax rate and take the remainder out to use personally

[AlbertaFarmer5]

Thanks, Richard5, I will ask the accountant about that. If I can keep the land out, it would be preferable. Theory was to pile all of the debt onto about 2 quarters, and keep all the other land out of the corp. I try to own the majority of what I farm, but that requires a big after tax income to accomplish as is.

[Ache4Acres]

farmaholic...I think there are some ways to minimize the impact, one of the best is likely at the time of incorporation to sell the land into the corp at as high of rate as reasonably possible in order to max out your personal capital gains exemptions. That will trigger your Capital Gains Exemptions personally but then it establishes a high asset valuation inside the corp which hopefully when you sell will offset some of the land appreciation.

If you have a large remaining personal capital gains exemption and all of your farming assets are in the corp. You will come out on the losing side when you sell. At that point in time, your only winning option is try to sell the entire corp to someone as a "share" sale, (not sell land assets) but then they are sometimes unknowingly buying a tax problem for themselves down the road. Also most people end up with a bunch of equipment in their corp, other investments or even debt that makes selling the entire corp tricky.

The corp also provides some nice liability protection. So god forbid, your hired man falls into the combine, you at least are very unlikely to lose your home and personal assets.

One other small piece of knowledge, is that farm corps are not protected under sask bankruptcy law so that your home quarter should NOT go into the corp if possible. Then no matter what happens, your home quarter is always safe in a worst case scenario.

I had looked at this pretty hard during the past year, but I am no expert here and as always consult your own financial advisors. I have found that many accountants and lawyers tend to focus on the positives of incorporation because it is great "make work" project for them.

That all being said, dont get me wrong...cant imagine farming without a corp.

[sumdumguy]

You pay the low rate of tax in the corp, but when you take the cash out later in life, you are taxed again at the personal rate, so overall not as big advantage as the accountants let on. They then say you can take out wages as dividends but even they are grossed up and the tax rate is high. Depends how close you are to retirement. As for setting up a Corp, anybody can do it for next to nothing. Go into ISC in Regina. They are only too glad to help you do it yourself. I have set up a few at just the cost of the name search and registration. Then get any lower cost accounting firm to set up your books.