Hello everyone.
I have read many of your topics comments and responses and enjoy some, understand others and agree with many.
Some background on myself: I am an accountant that works with about 400 producers ranging from 1000 acres to over 12000. Some are mixed farms as well. In addition to this I believe in the business of farming and operate my own grain farm inside a corporation. The truth is that my farm is profitable and always shows a black ink. I draw money out of this farm every year as rent and wages for my family living in addition to the off farm income my wife and I earn. I never put money into my farm from outside sources, it sustains itself.
My purpose of this topic is not to instigate many of you to critique my situation but to sit back and really look at your own, especially from the mindset that I am going to illustrate.
After working just about 15 years in the profession and more than that in the farming business I have worked with many types of people with variable conditions and circumstances. To try and find out why one producer is different that the other I ask various questions at our meetings.
The one comment that the producers that have done well have always said is that they have never avoided the tax. In other words, they have never gone out of their way to avoid paying or significantly reducing their annual income tax bill.
Now the first reply that I know someone will say is that you have to be profitable in order to pay tax. To some extent this is true and does make it easier, but think of it this way.
If you don't have outside income on the farm and your annual living, debt repayments, savings generation, inventory carryover etc comes from the farm you have made money. If it costs you in excess of $30,000 to cash flow your living costs, debt repayments etc you must make sure you are accounting for at least $37,000 on your annual tax return so that after you pay your tax and CPP you have $30,000 left to provide for those cash flow costs. If your debt is relating to equipment you will have capital cost deductions that will shelter some of your income. I caution those that living on capital cost will cause more problems down the road other than cash flowing $5-7000 in income tax each year.
The problem that is created if you don't pay the right tax amount each year is that the living needs cash comes from increased borrowing (Cash advances, line of credits etc). It costs money to service that debt in both interest costs and eventual repayments. This is where after many years farms experience cash flow problems, stress and the major decision, can I go on.
Its truly amazing what some producers do in order to avoid paying tax. An illustration: If you are in the lowest tax bracket below $36,000 in Sask, to reduce your tax by $1 you need to spend almost $4. If spending that $4 does not make you farm more profitable take the cheaper route and pay the $1. At least that leaves you with the difference of $3 which was already spent on your living in the past year. This "clears" the year and accounts for those living dollars that have been spent.
On the other hand, the next person will go and spend $30,000 which he has to borrow and eventually repay to reduce the tax bill to zero. His other choice would have been to pay $7000 in tax. Do the math, if you don't have the cash for the tax, you definitely don't have the $30,000 either.
Many of you comment on the design of the CAIS program and I am one to admit it does have flaws, it does need changes. Now if you understand the design and that it is a historical based program based on production margins, how do you think tax manangement effects it???
Well of course it does. If we are a tax driven producer, the easiest way to regulate tax is to prebuy inputs and defer grain sales. This hugely effects the margin information that creates your history and helps calculate CAIS payments.
In closing, if your farm has paid the right amount of tax your CAIS will work well for you and you will receive assistance. For those that have never paid tax from your farm income, you may have received your "CAIS" money in advance as it never left the farm in the first place.
The other thing I want to stress is that even though someone may be preparing these applications for you make sure you/they calculate the payment. If you just send in the form information, guaranteed you will not receive you proper entitlement. These errors can continue to result in lower claims year after year.
I am a proud farmer and an accountant. I believe I have the best understanding of the program and farm management. Some of the comments above are major mis-understandings that many of you have and are the result of your frustration.
A final question to all of you is that if farming is so tough out their then why are 2 farms that are beside one another different even though they may have the same acres, family size, equipment invesment, startup situation, etc. It is so amazing that one client is so profitable and the next one right beside is losing so much each year. I have clients all over central Saskatchewan that this is exactly true.
I have read many of your topics comments and responses and enjoy some, understand others and agree with many.
Some background on myself: I am an accountant that works with about 400 producers ranging from 1000 acres to over 12000. Some are mixed farms as well. In addition to this I believe in the business of farming and operate my own grain farm inside a corporation. The truth is that my farm is profitable and always shows a black ink. I draw money out of this farm every year as rent and wages for my family living in addition to the off farm income my wife and I earn. I never put money into my farm from outside sources, it sustains itself.
My purpose of this topic is not to instigate many of you to critique my situation but to sit back and really look at your own, especially from the mindset that I am going to illustrate.
After working just about 15 years in the profession and more than that in the farming business I have worked with many types of people with variable conditions and circumstances. To try and find out why one producer is different that the other I ask various questions at our meetings.
The one comment that the producers that have done well have always said is that they have never avoided the tax. In other words, they have never gone out of their way to avoid paying or significantly reducing their annual income tax bill.
Now the first reply that I know someone will say is that you have to be profitable in order to pay tax. To some extent this is true and does make it easier, but think of it this way.
If you don't have outside income on the farm and your annual living, debt repayments, savings generation, inventory carryover etc comes from the farm you have made money. If it costs you in excess of $30,000 to cash flow your living costs, debt repayments etc you must make sure you are accounting for at least $37,000 on your annual tax return so that after you pay your tax and CPP you have $30,000 left to provide for those cash flow costs. If your debt is relating to equipment you will have capital cost deductions that will shelter some of your income. I caution those that living on capital cost will cause more problems down the road other than cash flowing $5-7000 in income tax each year.
The problem that is created if you don't pay the right tax amount each year is that the living needs cash comes from increased borrowing (Cash advances, line of credits etc). It costs money to service that debt in both interest costs and eventual repayments. This is where after many years farms experience cash flow problems, stress and the major decision, can I go on.
Its truly amazing what some producers do in order to avoid paying tax. An illustration: If you are in the lowest tax bracket below $36,000 in Sask, to reduce your tax by $1 you need to spend almost $4. If spending that $4 does not make you farm more profitable take the cheaper route and pay the $1. At least that leaves you with the difference of $3 which was already spent on your living in the past year. This "clears" the year and accounts for those living dollars that have been spent.
On the other hand, the next person will go and spend $30,000 which he has to borrow and eventually repay to reduce the tax bill to zero. His other choice would have been to pay $7000 in tax. Do the math, if you don't have the cash for the tax, you definitely don't have the $30,000 either.
Many of you comment on the design of the CAIS program and I am one to admit it does have flaws, it does need changes. Now if you understand the design and that it is a historical based program based on production margins, how do you think tax manangement effects it???
Well of course it does. If we are a tax driven producer, the easiest way to regulate tax is to prebuy inputs and defer grain sales. This hugely effects the margin information that creates your history and helps calculate CAIS payments.
In closing, if your farm has paid the right amount of tax your CAIS will work well for you and you will receive assistance. For those that have never paid tax from your farm income, you may have received your "CAIS" money in advance as it never left the farm in the first place.
The other thing I want to stress is that even though someone may be preparing these applications for you make sure you/they calculate the payment. If you just send in the form information, guaranteed you will not receive you proper entitlement. These errors can continue to result in lower claims year after year.
I am a proud farmer and an accountant. I believe I have the best understanding of the program and farm management. Some of the comments above are major mis-understandings that many of you have and are the result of your frustration.
A final question to all of you is that if farming is so tough out their then why are 2 farms that are beside one another different even though they may have the same acres, family size, equipment invesment, startup situation, etc. It is so amazing that one client is so profitable and the next one right beside is losing so much each year. I have clients all over central Saskatchewan that this is exactly true.
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