Annual accounting fees for corporation

[fjlip]

In my opinion there is nothing wrong with incorporating, just understand and make sure you are taking the right steps along the way. Below are my 3 key notes that were driven into my head from the meetings I had over the years with my accountant.

First, make sure you do the partnership and never let someone tell you to incorporate directly and if they are talk to another accounting firm that knows something about Ag taxes. If you have already incorporated, do you have a son that is starting to farm? Form a partnership with him so at least someone is taking advantage of this. The goal with the partnership is to use your capital gains exemption on everything else but your land. I cannot stress this enough!

Second, once you incorporate the partnership, you will create shareholder loan. Use this shareholder loan properly and one way is to make principle payments on personally held land. If you do this right you can keep a lot of land outside the company. Land outside the company can be gifted to next generation plus its another source of income from the company with no CPP contributions.

Third, make sure you take enough wages/rent or even dividends to cover your cost of living and then some. I would suggest always using the 2nd tax bracket (90,000 in sask). If you don't your shareholder loan will be gone fast and if you are taking out $100,000 you will need to be taxed on a $100,000 or keep selling land to the company. Not sure about most of you on this post, but I cannot live on $100,000 per year and don't want to either. As mentioned, a company is a deferral scheme (or at least what is over an above the value of the partnership) and doing a little bit every year with ease the pain for someone down the road.

I pay approx. $4500 a year and feel its is very fair. I know and understand what I am getting and what is involved. I think that is the biggest problem with those questioning cost. I am sure there are all kinds of stories of those advised incorrectly or by poor work done...or not done

Agree with you, the Capital Gains exemption on all but land to create the shareholder loan which pays out TAX FREE, especially beneficial if exiting farming. Plus will the CG exemption remain? The tax saved usually covers most of incorporating costs. Firstly you MUST be a partnership to get 2 million CG exemption. The land can be personally rented as long as you wish and passed on tax free to next gen who will use THEIR CG exemptions upon sale. 2 million does not exempt a large farm from CG tax. If you are receiving OAS, must pre-pay tax NOT to get clawed back.

Merle Good had a FCC sponsored succession planning seminar in Humboldt a couple years ago, he stated that new land should be purchased within corp, had a detailed description/reasons I can't tell you now.

[Bowerpower]

Agree with you, the Capital Gains exemption on all but land to create the shareholder loan which pays out TAX FREE, especially beneficial if exiting farming. Plus will the CG exemption remain? The tax saved usually covers most of incorporating costs. Firstly you MUST be a partnership to get 2 million CG exemption. The land can be personally rented as long as you wish and passed on tax free to next gen who will use THEIR CG exemptions upon sale. 2 million does not exempt a large farm from CG tax. If you are receiving OAS, must pre-pay tax NOT to get clawed back.

Merle Good had a FCC sponsored succession planning seminar in Humboldt a couple years ago, he stated that new land should be purchased within corp, had a detailed description/reasons I can't tell you now.

Agree with rich and fj completely. Corp didn’t pay enough wages first few years and shareholders loab was being used much faster than anticipated.
New land is being bought by Corp. I believe it is nearly impossible to make payments privately at these prices 3500/4000 per acre. But maybe I’m missing an opportunity to get more land held privately without paying huge personal taxes. Any thoughts on that Richard. You obviously have accounting/tax background.

[GDR]

In my opinion there is nothing wrong with incorporating, just understand and make sure you are taking the right steps along the way. Below are my 3 key notes that were driven into my head from the meetings I had over the years with my accountant.

First, make sure you do the partnership and never let someone tell you to incorporate directly and if they are talk to another accounting firm that knows something about Ag taxes. If you have already incorporated, do you have a son that is starting to farm? Form a partnership with him so at least someone is taking advantage of this. The goal with the partnership is to use your capital gains exemption on everything else but your land. I cannot stress this enough!

Second, once you incorporate the partnership, you will create shareholder loan. Use this shareholder loan properly and one way is to make principle payments on personally held land. If you do this right you can keep a lot of land outside the company. Land outside the company can be gifted to next generation plus its another source of income from the company with no CPP contributions.

Third, make sure you take enough wages/rent or even dividends to cover your cost of living and then some. I would suggest always using the 2nd tax bracket (90,000 in sask). If you don't your shareholder loan will be gone fast and if you are taking out $100,000 you will need to be taxed on a $100,000 or keep selling land to the company. Not sure about most of you on this post, but I cannot live on $100,000 per year and don't want to either. As mentioned, a company is a deferral scheme (or at least what is over an above the value of the partnership) and doing a little bit every year with ease the pain for someone down the road.

I pay approx. $4500 a year and feel its is very fair. I know and understand what I am getting and what is involved. I think that is the biggest problem with those questioning cost. I am sure there are all kinds of stories of those advised incorrectly or by poor work done...or not done

Thanks for the advice. The partnership thing makes sense and that was the initial recommendation before they had closer look at my books, now they think maybe direct change might be better cause of the tax rate and the 2 yr lag time. I'm gonna get another opinion also. Fee wise $5500 to change to partnership and then $12000 to go to Corp. Or $5000 straight to Corp.

I'm a bit scared of the additional paperwork and forms and costs but seems to be the way to go.

[Richard5]

Agree with rich and fj completely. Corp didn’t pay enough wages first few years and shareholders loab was being used much faster than anticipated.
New land is being bought by Corp. I believe it is nearly impossible to make payments privately at these prices 3500/4000 per acre. But maybe I’m missing an opportunity to get more land held privately without paying huge personal taxes. Any thoughts on that Richard. You obviously have accounting/tax background.

Not really, I think I have a good business mind and note taker Bower but need to understand before I do something. Maybe that's why my fee seems more than one other that posted. I spend quite a bit of time in my accountants office if needed. Because I am in the process of doing the second partnership with my son I have learned lots since being introduced to this partnership process back in 2001, (Yes 16 years ago)

My thoughts would be if you are borrowing for the land regardless it may work to keep outside. The second would be your feeling on if the land is at a high or if it will be personal sentiment (right beside your yard). If its way out there (not close to home) any may be sold (if no son to take over, etc) then it may be fine in the corp. A conversation with my lawyer outlined a number of problems they have with their clients "you cannot will what you don't own". Once the land is in, its owned by the shares.

The growth of your farm over an above the value you put in over your partnership is like an RRSP. Manage it wisely and the end will work out or be prepared for a hit

[Richard5]

Thanks for the advice. The partnership thing makes sense and that was the initial recommendation before they had closer look at my books, now they think maybe direct change might be better cause of the tax rate and the 2 yr lag time. I'm gonna get another opinion also. Fee wise $5500 to change to partnership and then $12000 to go to Corp. Or $5000 straight to Corp.

I'm a bit scared of the additional paperwork and forms and costs but seems to be the way to go.

Something that was described to me that may be an option for you is creating a partnership between you and assuming your spouse with a corp. If I remember exactly I think some grain is directly transferred to the company to give you some tax pain relief right away. I hope I have it right but a friend of mine did something like this. He seemed very happy with how it turned out

[Gofer]

Keep paid for and Family (inherited) land out and buy new land in the Company.
In 1992 we were advised to put it all in by estate planning seminars and an overly highly paid lawyer.
Now son is in a divorce situation and fighting to keep "Family" land out of the valuation.
Very costly mistake, compared to if we had kept the land in our name and passed it on by will one of these days.

[farmaholic]

Keep paid for and Family (inherited) land out and buy new land in the Company.
In 1992 we were advised to put it all in by estate planning seminars and an overly highly paid lawyer.
Now son is in a divorce situation and fighting to keep "Family" land out of the valuation.
Very costly mistake, compared to if we had kept the land in our name and passed it on by will one of these days.

Depending on the circumstances, there is a whole new topic in this post. A very convoluted topic....under no circumstances should the "letter of the law" be applied to every situation, as every situation is at the very least somewhat different to vastly different from each other.

End tangent....