Bankruptcies of the 80s

[Richard5]

the other if that makes sense. Current owned and financed land will still be held personal, any future purchases likely to be in the corporation. If you have to draw large amounts out to pay personal land payments you are worse off being incorporated.

I would echo the comments about not buying cattle. You will end up with less $ when they are sold off so you would be better off paying the tax.

Nobody has mentioned donating the money but on a personal basis you actually get a much higher tax rate deduction with donations. Its not much different that buying 100k of cows, getting back 80 k the next spring.

The only other comment is regarding the land. If you have high principle payments personally before incorporating its not the incorporation's fault. Hopefully whomever is doing your incorporation will be able to calculate (and defend the calculation) a large shareholder loan. If only in a partnership 2 years, your partner would most likely have not created much partnership value unless you both rolled in equal shares of farm assets at the start. From what my accountant told CRA is having a lot of fun with accounting firms that are doing this wrong.

Basically what I am saying is that if the farm is all dad's and rolled into a partnership, mom only earns her share of the increase in valve while the partnership is in place. Calling it 50/50 at the end of 2 years would be the biggest breach of income splitting.

Yes I am very versed in this area. I asked a lot of questions as I wanted to understand it. Went through it twice, once with my spouse and a few years ago setting up my son.

All I can say is it shouldn't be rushed, your exit should be explained and the focus should not always be tax. Another huge advantage is if your accountant actually comes from farm or is actually involved with one. The interview question could simply be "what is the optimum seeding rate and survival rate in canola". If they have no idea, walk out the door

[LEP]

I have a Corp and I’m still deferring

Set a corporation up in your wife’s name and double the small business limit. Deferring is bad business.

But like Richard5 says go partnership first and roll into the corporation.

[flea beetle]

Before taking on my parents side of the farm, debt was very manageable. Most debts before buying out parents including purchased land are to be finished in 2025.

I have now added 3 quarters of land from my parents and their equipment this last year. So taking money personally to pay these payments while incorporated would be tax suicide i believe.

Would updating equipment, but leasing it and buying it out at the end instead of buying it outright in the beginning help? I am not talking about going on a spending spree, but naturally replacing equipment as it wears out.

One question I have always had about incorporation is:
Do you not pay the corporate tax while in operation, and then pay personal tax on everything again if there is nobody to take it over? So 17% corporate tax rate, and then 35% when closing it down? Versus just paying the 35% if keeping it personal the whole time?

[Richard5]

[QUOTE=LEP;472177]Set a corporation up in your wife’s name and double the small business limit. Deferring is bad business.

Lep - I had asked this question to my accountant once when planning structure for son.

Many people have husband and wife as shareholders of first company already. Creating a company n spouse's name would be very risky even if you one spouse transferred everything to the other as they are closely related. If your sole reason is lower tax, nothing flies anymore

[Rareearth]

Some advice has been to set up a Partnership then roll into a corporation after a few year to use up your capital gains.
You own land and machinery personally now, forget the partnership route(time, money, complicated, etc)transfer in personal assets into new corporation and trigger or take advantage of capital gains tax this way. Saves one step. Then the share holders loan account in the company is tax free money if you “want it” or “need it”

Buy the land, it’s not that complicated. Set up a corporation.

[Richard5]

Before taking on my parents side of the farm, debt was very manageable. Most debts before buying out parents including purchased land are to be finished in 2025.

I have now added 3 quarters of land from my parents and their equipment this last year. So taking money personally to pay these payments while incorporated would be tax suicide i believe.

Would updating equipment, but leasing it and buying it out at the end instead of buying it outright in the beginning help? I am not talking about going on a spending spree, but naturally replacing equipment as it wears out.

One question I have always had about incorporation is:
Do you not pay the corporate tax while in operation, and then pay personal tax on everything again if there is nobody to take it over? So 17% corporate tax rate, and then 35% when closing it down? Versus just paying the 35% if keeping it personal the whole time?

As to the land payments, its only the principle that becomes part of the tax problem. Its really the same if one has company or doesn't. The only difference is if you don't have a company you are offsetting other things to make you think the land payments aren't a problem.

Leasing or buying is the same for tax, the only difference is timing of the deduction. If you want a deduction faster you are probably making much bigger payments under a lease which then is hard on cash flow. I don't know if many have ever bragged about having fantastic cash flow

For your final question, the tax should end up similar if done right. I take a small salary to keep CPP entitlement, disability benefits fully eligible, some cash land rent to get to $50,000 and then dividends of 50-75,000 on top of that. I am trying to use the personal tax brackets to my advantage while the rates are reasonable. My marginal rate on total dollars over income is 20-22% which I feel is acceptable. Once over $50,000 income, every dollar more is approx. 33-35% if salary or rent. When taking a dividend, the easiest to explain is its the difference between 33-35% and what the company has paid (in your question 17%). So a dividend of $50,000 would be around 18% on the personal side.

Ignoring the partnership benefits, a corporation is like an RRSP and someday you pay. Manage the deferral wisely by dealing with the right amount annually. If you don't you just end up buying shit you don't need, falling for the leasing scam or paying a pile of interest - imo

And if you are over 500,000 in a company, just accept some of the high rate after buying your inputs. It still is the cheaper alternative and if over 500 then obviously very profitable or it hasn't been managed in the years prior.

[Rareearth]

Don’t lease, “the effective” or actual interest rate is higher than you think.

Transfer equipment into Corp first , then land only as much as needed to trigger or use full remaining capital gains exemption, then leave the rest of the land in personal name.

Get a good accountant

[fjlip]

We did equipment, buildings and inventory, used most of CG deduction. After 20 years in partnership. The Alternative Min tax is new to most, good advice, do before age 60 or you lose your OAS for 5 years, unless you prepay ALL Alternative Min Tax owing on CG. Agree getting all back in 7 years, 4 more to go.

[Sodbuster]

I believe that you have to be in a partnership first to be able to use your CG exemption when rolling equipment and inventory into a company.

[tmyrfield]

partnership shares are considered qualified farm property and can be rolled into a corporation using a section 85 rollover. this is a way to crystalize your lifetime capital gains exemption. however you will be required to pay the alternative minimum tax on the capital gain. you can get this tax back over the next 7 years if you have taxable income. dividends don't count as taxable income. but rrsp withdrawals do so this may be a good way to wind down your rrsp accounts.
cra considers farm wives very different than family law would...you will need to rigorously defend a decision to allocate half the farm partnership to your spouse to the cra. family law will automatically give it to her. right or wrong this is how it is.