incorporation
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Find yourself a good fiscalist that will give you good advise. No farm is the same and sometimes, other options could be worth to look at. It's expensive but can make you save a lot on the long run
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Make sure you understand the best way for you to deal with land. I believe there is no capitol gains exemption on assets held within a corporation, only on the shares of the corporation. It is more difficult to move land out of a farming operation once it's incorporated. I personally believe it's better to leave land out of the corporation. Regardless of how long you intend to farm, it will have to be dealt with at some point, and it's easier and you have more options if it's held personally rather than corporately, in my experience.
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To do it well and take advantage of all aspects it takes time and is not cheap. It has ongoing costs which occur yearly and are not cheap to wind down should the business cease.
Seriously consider becoming a farm partnership for two years prior to incorporating, if you are in the right position it can provide huge advantages as opposed to going from sole proprietor directly to incorporation.
Hire a good accountant who is not afraid to go your pace, and answer your questions. There is a lot to understand, and like Farmer 4 Ever and Tswanson eluded to, there are certain aspects in which corps create advantages. One of them in my experience is succession planning and asset transfer.
I do not believe all farms should be incorporated, however more profitable ones have serious advantages if they are. Size should not dictate whether you should be incorporated, profitability should be your determining factor.
Seriously consider becoming a farm partnership for two years prior to incorporating, if you are in the right position it can provide huge advantages as opposed to going from sole proprietor directly to incorporation.
Hire a good accountant who is not afraid to go your pace, and answer your questions. There is a lot to understand, and like Farmer 4 Ever and Tswanson eluded to, there are certain aspects in which corps create advantages. One of them in my experience is succession planning and asset transfer.
I do not believe all farms should be incorporated, however more profitable ones have serious advantages if they are. Size should not dictate whether you should be incorporated, profitability should be your determining factor.
Thanks for the responses. The land would be held outside the corporation so that when sold it is eligible for the capital gains tax exemption. The one caveat to this is that it has to be qualified- meaning it has been farmed by you. Farmer 4 ever what is a fiscalist? I think I am going to make my fiscal year end mar 31.
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I incorporated my farm few years back. Not that expensive when u consider the tax savings. Good accountant who knows a good lawyer is a must. As for year end, talking with guys who have year ends other than dec 31, said it was a huge mistake, and very hard to change down the road
Our year end is March 31. Only reason for it is that we've been a corp since 1979. At that time, Dad and his brother figured that they would have the crop sold by then so the year end statements would be a true representation. (No $$$ then to pre-buy crop inputs!)
Now, we find that crop sales are never complete by Mar 31. Also, nh3 is done in the fall, along with winter wheat/fall rye/other fall applied products (edge, etc). So the fiscal year end is never 100% easy! Also, most accountants seem to wait til the deadline (6 months after year end) which means we get our books back just as harvest is getting underway. When harvest is done, we can finally sit down with our credit union to do the annual review. By the time paperwork shuffles between us, credit union and credit union central a few times, it's usually in to the new year. By this time, the books are almost a year old!
Doesn't seem to matter what your year-end is, it won't fit the program for some company/government. ie: Our 2014 year end has been done for months. Where are the final forms for Agri-Stability?? Oh, that's right...they won't be available for many months yet! (OK, 2013 crop was a bad year to use as an example, but same thing applied in 2010, 2011, 2012!)
If you pick Dec 31, you have the same year end as the majority of farms, so guess how busy the accountants are then? Could go with Oct 31, but then your tax is due by Apr 30. That seems to be a busy date for accountants and CRA for some reason.... And then you need to try to work around the busy times on the farm too!
Dec 31 is an easy year end to start with because currently your assets are held personally and your personal "year-end" is Dec 31. Makes rolling assets into the corp easier.
Basically, there is no "good" year-end date. Or at least, I haven't talked to anyone that thinks theirs is the best choice yet anyway!
Andrew
Now, we find that crop sales are never complete by Mar 31. Also, nh3 is done in the fall, along with winter wheat/fall rye/other fall applied products (edge, etc). So the fiscal year end is never 100% easy! Also, most accountants seem to wait til the deadline (6 months after year end) which means we get our books back just as harvest is getting underway. When harvest is done, we can finally sit down with our credit union to do the annual review. By the time paperwork shuffles between us, credit union and credit union central a few times, it's usually in to the new year. By this time, the books are almost a year old!
Doesn't seem to matter what your year-end is, it won't fit the program for some company/government. ie: Our 2014 year end has been done for months. Where are the final forms for Agri-Stability?? Oh, that's right...they won't be available for many months yet! (OK, 2013 crop was a bad year to use as an example, but same thing applied in 2010, 2011, 2012!)
If you pick Dec 31, you have the same year end as the majority of farms, so guess how busy the accountants are then? Could go with Oct 31, but then your tax is due by Apr 30. That seems to be a busy date for accountants and CRA for some reason.... And then you need to try to work around the busy times on the farm too!
Dec 31 is an easy year end to start with because currently your assets are held personally and your personal "year-end" is Dec 31. Makes rolling assets into the corp easier.
Basically, there is no "good" year-end date. Or at least, I haven't talked to anyone that thinks theirs is the best choice yet anyway!
Andrew
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Mine is July 31, seems to work pretty well for a grain farm.
If you are profitable or if you plan to buy land having a corporation makes good sense. I was in a conversation about this the other day and someone said "The day you start farming is the day you should incorporate". I would tend to agree.
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July 31st is actually a bad time if you borrow money from chartered banks, they base a lot of there financial ratios off of the balance sheet, which on July 31st you have no grain, no money, and lots of debt. So it paints a really poor picture of what the farm actually is. sometime between Oct 31 and Mar 31st would be best in my opinion. Also with Agstability if you get into a wreck, the first guys to file get paid first, last guys to file might not get paid at all... (if it was a wide spread disaster)
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The trouble with year ends that are not Dec 31st it that your T4's, T4A's, crop ins and other government program payments are issued on a normal calendar year and don't recognize year ends that are not Dec 31st. If I had to do it again I would have a Dec 31st year end.
I agree! Unless you are "hobby farming", get your farm incorporated!Mine is July 31, seems to work pretty well for a grain farm.
If you are profitable or if you plan to buy land having a corporation makes good sense. I was in a conversation about this the other day and someone said "The day you start farming is the day you should incorporate". I would tend to agree.
We have some land in the corp, some held personally. You have to sell a lot more grain to buy land personally. (Taxed 2x!!)
Andrew
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536 Posts
I'm talking about land already owned and whether or not it's a good idea to move it into the company. In our case it wasn't and became a problem when sons (me) wanted to get involved. Once we were incorporated, any land purchased was by the company.
There are significant advantages to incorporation. You have flexibility in how much and what for of income to claim on your t1(personal return). You can take income as t4(salary), dividends, directors fees etc. if you have a big income year inside a corp, u can decide how much you want to take in as personal income (usually taxed higher) and let the rest grow inside your corp. You will have to pay tax on that amount, but will be lower.
As for year end date. You want your year end date to be within 180 days(i'll have to check forsure) of Dec 31 as it opens up options for what tax year to claim bonuses and dividends in on you t1. It is not a big deal to change year ends. You file an election to change your year end and you will have to file a stub year end (for the year you are cutting short).
A corporation also limits liability. So if your hired hand runs over a family with your semi while intoxicated, they can sue your corp not you personally.
A corp can give you flexibility in ownership too. You can have your wife, brother, dad, uncle, whomever be a shareholder.
Best advice, talk to a good accountant and plan you your corporate structure to fit your needs and your future plans. if you are worried about costs, the longer you wait the more its gonna cost.
As for year end date. You want your year end date to be within 180 days(i'll have to check forsure) of Dec 31 as it opens up options for what tax year to claim bonuses and dividends in on you t1. It is not a big deal to change year ends. You file an election to change your year end and you will have to file a stub year end (for the year you are cutting short).
A corporation also limits liability. So if your hired hand runs over a family with your semi while intoxicated, they can sue your corp not you personally.
A corp can give you flexibility in ownership too. You can have your wife, brother, dad, uncle, whomever be a shareholder.
Best advice, talk to a good accountant and plan you your corporate structure to fit your needs and your future plans. if you are worried about costs, the longer you wait the more its gonna cost.
Lots of good points to consider above. In my mind, land already owned should stay in personal name, as it is already bought with tax paid $. New land could be bought inside the corp to utilize the lower tax rate.
Another important step of incorporating to look at is formal partnerships. If you are in a formal partnership for 2 years of more, there can be significant savings based on the valuations you use when incorporating. I don't know the exact details, but explore this option with your accountant. I was able to use the majority of my gains exemption up during this process as well. It will be more expensive, but worth it in the end.
I like the Dec 31 year end. It lines up with the personal tax filing, and have time to work on it in the winter. The July 31st always looked poor on paper (As Lambear said), as a lot of money was spent on crop in the field and typically smaller amounts of inventory. The Dec 31 also made for less trips to the accountant getting, as everything is done at the same time.
Another important step of incorporating to look at is formal partnerships. If you are in a formal partnership for 2 years of more, there can be significant savings based on the valuations you use when incorporating. I don't know the exact details, but explore this option with your accountant. I was able to use the majority of my gains exemption up during this process as well. It will be more expensive, but worth it in the end.
I like the Dec 31 year end. It lines up with the personal tax filing, and have time to work on it in the winter. The July 31st always looked poor on paper (As Lambear said), as a lot of money was spent on crop in the field and typically smaller amounts of inventory. The Dec 31 also made for less trips to the accountant getting, as everything is done at the same time.
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Pick a year end between July 31 and Oct 31. Gives you lots of flexiabity to plan personal side tax. You will also find it way easier for agri stability and deferring grain sales
If it's owned personally (and paid for!) then I would keep it that way too.
With us as well, any new land is being purchased by corp.
Personal land was sold to corp for enough to pay off the personal mortgage leaving roughly 2/3 of parents' land in their name and roughly 1/3 of mine in my name. Let it continue to appreciate and use the remaining capital gains later in life.
Andrew
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