CAIS Questions

[Yusishen]

Went to the local CAIS presentation last week and sort of understand it (maybe!). My question is why would you bother to participate for the 2003 year unless you already know you are in a claim position? If you start with 2004 (which is allowed, I was told), they'll still use your 2003 information for your reference margin (won't they?). Why rush to send them a 1/3 deposit when you can wait until Dec 31 to do it?

We are definitely not in a claim position for 2003 (corporation, non-Dec 31 year-end so accountant has already completed the books). I just had an argument with my accountant on whether I should sign-on to CAIS for 2003 versus beginning with 2004.

Am I missing something fundamental here? I will phone the CAIS number when I get a chance and make sure I'm not mis-understanding something obvious but figured I see what people think.

Any opinions on coverage levels either? Accountant recommends 92%, we had figured 80% was best bang for buck. NISA account has enough to cover most of deposit so cash is not the limiting factor.

[stretch35]

I have the same dilema as to whether or not sign up for the 2003 year or just leave it and sign up for the 2004 year as I wouldn't qualify for 2003.

As for the amount of coverage... if my memory serves me correctly, and you sign up for the 70% coverage you will have to have a drop of approx 45% of your margin before you will actually see a difference in the amount the government pays you as compared to if you would have taken the 92% coverage.

IE: 50,000 average margin at 92% coverage
- the government share would be $15,000 if you had a 45% margin drop

IE: 50,000 average margin at 70%coverage
- the government share would be
$14,500 if you had a 45% margin drop

Any governemtn share payment from 0% to 45% margin drop is the same if you would sign up for 92% coverage or 70% coverage.

Tough decision ... I agree

There is a formula available that a person can use that will actually show these amounts depending on the amount of coverage you are wanting so that you can see these comparisons.

[Yusishen]

I spoke to CAIS yesterday and confirmed that it is your choice whether you start in 2003 or 2004 as they still use 2003 to calculate your 2004 margin. They also mentioned they've extended the signup deadline until April 30 and the contribution deadline is now Dec 31 for 2003 and 2004. Good thing as I still don't have my 2003 Options notice (though I do have 2004) and they tell me they are still working on it!

I asked specifically if there was any benefit to starting in 2003 if you aren't in a claim position and the guy agreed that there didn't seem to be.

As to percentages, I've played with the calculator and found 80% to be a fairly reasonable number. Admittedly, it's not that much more to go to 92% but we looked at our worst year of the past few and we still weren't at 0 based on their margins (probably about 50%). Keeping in mind they use most of your income but only a portion of your expenses, what you consider a total loss (expenses >= income) would not necessarily be a total loss for CAIS (though it would still likely be a claim).

Still not sure what to do though at least now I've got another month to consider it.

[rsomer]

Yusishen: you asked why bother to participate for the 2003 year unless you already know you are in a claim position. That is an interesting question. There is a very good reason not to participate any sooner than necessary.
CAIS has a very important difference from FIDP or CFIP in that you join CAIS. Once you join, if you decide not to participate any further you are out for that year and two more years. To stay participating in CAIS you must send in your supplementary form every year. If the form is not received it is deemed you have opted out of CAIS even if you have sent in your election.
This is an important difference from the previous FIDP/CFIP program. With FIDP/CFIP the government only knew your inventory and AR/AP numbers when you sent them in with your claim. Unless you were claiming every year which would create a chain of starting and ending accrual adjustments there was some room for flexibility when making a claim for a particular year, particularly for cattle operations and home raised feed. Once you join CAIS that loophole or moral hazard will be eliminated. Once in CAIS the government will receive your accrual adjustments annually and will know everything about your operation on an ongoing basis. The only opportunity for flexibility with the accrual adjustments will be in the first year you participate in the CAIS program assuming you did not send in a FIDP/CFIP claim the previous year. For most operations, the accrual adjustments have quite a bit of flexibility in that first year easily amounting to many thousands of dollars.
In Alberta the deadline for CAIS elections is May 31 for 2003 and June 30 for 2004.

[Yusishen]

I did finally get my 2003 options notice and guess what, same margin as 2004 as the missing year ended up being tossed out for the olympic average anyway!

Because we are an incorporated operation, we keep accrual books and have all our inventory recorded at year end anyway (we file income tax on a cash basis however). Filling in the CAIS form is minor for us as our inventory and a/r and a/p are already done. We are strictly grain so not much wiggle room there in inventory (just need to look at grain tickets).

I also just got my 2003 supplementary forms in the mail (sometime in the past two weeks, we've been away). I'll pass them onto the accountant and let him go from there.