“LOOPHOLES FOR FARMERS” - Rossworn …

1 loopholes FOR. farmers TM. 2015 2016. A tax planning checklist for farmers . Rossworn HENDERSON LLP. Chartered Professional Accountants Tax Consultants "Tax Planning Professionals". Toll free 1-888-818-FARM. loopholes For farmers is a tool that can be used to reduce the overall taxes that you pay. This is not an exhaustive list of tax planning ideas, but is simply a summary of the more significant savings and planning opportunities available today in British Columbia. Professional advice should be sought to ensure that a particular idea is applicable to your personal situation. Please review the checklist, and if any of the items seem to relate to your situation, please do not hesitate to call. Copyright 2016 Rossworn Henderson LLP $ + GST (complimentary for clients). All rights reserved. loopholes FOR farmers . Tax Law Planning Point HOW TO USE THIS CHECKLIST: This loopholes for farmers guide has been divided into the following sections: Page General information 2.

2 Deductible expenditures 5. Using your vehicle for farming 8. Capital expenditures 9. Farming in a corporation 10. Selling a farm & transfers to children 12. Government programs 18. There are very specific tax laws that relate only to farmers . It is very important that you are aware of how to use these rules to your advantage. If a tax rule is missed or misused, this error could easily cost you hundreds of thousands of dollars. This is especially true when you are selling your farm or transferring it to children. 1. Read each section that applies to you. Check the b box of each loophole that could be used in your circumstance. 2. BE SURE TO TAKE NOTE OF THE NEW TAX RULES FOR THIS YEAR, WHICH HAVE BEEN HIGHLIGHTED IN BOLD. 3. Bring this booklet with you when we are tax planning for you or preparing your income tax return and we will help you get the maximum benefit from those planning points. If you miss available deductions or planning points, it may cost you thousands of dollars.

3 4. These loopholes represent various methods to use existing tax laws to your greatest advantage. As a taxpayer, you should always look at the tax rules from different angles and structure your tax planning in a way that will result in a benefit for you and your family. 5. For further information regarding your tax issues, please contact our offices at: Armstrong: 250-546-8665 Enderby: 250-838-7337. Lumby: 250-547-2118 Salmon Arm: 250-832-5129. Sorrento: 250-675-3440 Out of town (toll free): 1-888-818-FARM. Email: Chris Henderson Dustin Stadnyk Nathalie Merrill Rossworn Henderson LLP. Chartered Professional Accountants Farm Tax Consultants 1. loopholes FOR farmers . Tax Law Planning Point GENERAL INFORMATION. farmers are classed into three categories: Full-time farmers Full-time farmers are not subject to a You should try and establish your limit on the amount of losses that are farm operation as full-time.

4 Deductible. Part-time farmers Part-time farmers are restricted to If possible, set your farm operation the amount of loss that can be up as a partnership as each partner claimed. The maximum that may be will be eligible for a maximum loss claimed in one year is $17,500. of $17,500. Hobby farmers Hobby farmers cannot deduct any Never advise CRA that you consider farming expenses as CRA views your farm a hobby. Ensure you have them as being entirely for personal documentation supporting a benefit. reasonable expectation of profit. If you or your spouse are self- You may want to consider making a employed, you have a June 15 lump-sum instalment before April 30. deadline for your personal income to cover the estimated taxes owing if tax returns, however, any taxes you cannot file your return by that owing are still due on April 30 and date. CRA will charge interest for unpaid taxes as of April 30. Business losses created on or after If your business has losses that are 2006 can be carried forward for 20 about to expire, it may be possible to years.

5 Losses occurring prior to renew these, so that they are available 2006 are limited to a 10-year carry for another 20 years. forward. Rossworn Henderson LLP. Chartered Professional Accountants Farm Tax Consultants 2. loopholes FOR farmers . Tax Law Planning Point Partnerships that have more than $5 The T5013 must be filed by March million in assets OR revenues plus 31st each year. Please note, the assets expenses greater than $2 million are are calculated as the cost of all assets required to file a T5013 Partnership both tangible and intangible Return. excluding any depreciation. If you think that this may apply to you please contact our office. Partnerships with less than 6 You may want to consider filing a partners are not required to file a T5013 Partnership Return even if not T5013 Partnership Return. If no required to do so to ensure that your T5013 is filed, CRA could take the Partnership Return is statute-barred.

6 Position that the Partnership Return is never statute-barred. A farmer can use deductions such You should deduct CCA for GIS. as CCA for Guaranteed Income purposes but not for income tax Supplement ( GIS ) purposes. purposes. This way you do not waste personal exemptions. If you had a profit from your farm Individual farmers are allowed to last year and had to pay taxes at the make one annual instalment due on end of the year, CRA will likely December 31. Farm Corporations require that you make instalment are required to make monthly payments for this year. instalments. On April 1, 2013 BC returned to Be sure your record keeping system charging GST at a rate of 5% captures all the GST paid on (previously HST at 12%). expenses. There are some sales items that GST must be charged on by farmers . For example, farmers must charge GST on the sale of equipment, land and hay for horse consumption. Taxpayers with gross revenue of less Consider registering voluntarily, as than $30,000 are not required to you will not charge GST on most register for GST.

7 Farming income, but then you can recover the GST paid on your purchases. Rossworn Henderson LLP. Chartered Professional Accountants Farm Tax Consultants 3. loopholes FOR farmers . Tax Law Planning Point Easement sales qualify for the If possible, consider using the ACB . capital gains deduction ( CGD ). adjustment instead of using the ALR swaps and the first year capital gains deduction. changes on surface leases may also qualify for the CGD. Properties with farm status have Try to have your property assessed as lower rates of municipal taxes and farm. Farm property taxes are property insurance. The BC considerably lower than residential. Assessment Authority determines There are developing farm . your status. classifications for starting farms. There is a farm class for retired Provided you meet all of the criteria, farmers under BC Assessment your property may still qualify as farm property without having the prescribed amount of sales.

8 farmers can earn Carbon Credit by Carbon Credits can be bought and adopting practices that reduce sold on an open market, which will emissions, such as no-tilling and be taxed as income to the farm. direct seeding. Partnerships provide a lot of In situations where you are adding a flexibility with respect to future tax new partner, removing an old partner, planning and the ability to access the moving a partnership into a company, Capital Gains Exemption. However, or dealing with a partner, you should there are very complex tax rules that always consult with a knowledgeable can apply. Joint ventures offer high advisor. income farms the possibility of increasing the amount of income that is taxed at low rates. Siblings may break the ownership Take this into consideration when line for the capital gains exemption. structuring farm ownership and succession. There are income tax issues if life Ensure the payor and the holder of insurance policies are not properly the life insurance is the same or there structured.

9 Are taxable benefit issues. You can earn up to $3,500 of Consider issuing yourself and your employment income before it affects spouse a T4 $3,500 each. your Guaranteed Income Supplement. Rossworn Henderson LLP. Chartered Professional Accountants Farm Tax Consultants 4. loopholes FOR farmers . Tax Law Planning Point DEDUCTIBLE EXPENDITURES. farmers may report income on either a Consider using the cash basis for cash or accrual basis. your farm operation, as it is generally easier to manipulate the income reported in any given period. Any expenses relating to the farm are Cash basis farmers should purchase deductible, including: supplies at year-end to increase - livestock purchases expenses for the year if a farming - containers and twine profit was generated in the year. - fertilizer and pesticides Credit card payments qualify as - seeds and feed paid in the year. A note payable - property, equipment, and crop issued to a supplier may also qualify insurance as paid.

10 The purchase of additional - custom contractor fees livestock will be beneficial if in a - machinery rentals profit position, but will not be - utilities permitted as an expense if doing so - office and supplies will create a farm loss. Leasing . - professional fees cattle can sometimes get around - rent and property taxes these farm inventory rules. - wages - motor vehicle expenses - veterinary and breeding fees - machinery, fence and building repairs - fuel - licenses - small tools The portion of expenses that relate to Generally, it is easier to increase your personal use ( slaughtering a cow for reported farming income to include the freezer or using hay for your hobby what that farm would have received horses) is not deductible by the farm. had these items been sold to someone else. 50% of meals and entertainment expenses Keep good records to support your are deductible. claim, including who you attended with and for what purpose.