For many agricultural producers, it’s time to park the combine and start thinking about filing their taxes. The good news is that farmers have some special tools that can help them pay fewer taxes. Scott Dickson, director of livestock services with MNP in Red Deer, Alberta, offers these tips.
Farmers are allowed to file both personally or as a corporation on a cash basis, says Dickson, which means they can pre-buy expenses before their year-end to reduce taxable income or defer payment.
He says it’s a good strategy for grain and oilseed farmers who have a high number of deductible expenses. “Livestock farmers have no real way of deferring payments, other than true receivables,” says Dickson.
If necessary, incorporate
Incorporation can get a farmer into a lower tax bracket, says Dickson. In Alberta, for example, the low corporate tax rate is 14 percent compared to the low individual tax rate of 26 percent. It can also help provide an exit strategy for producers wishing to get out of farming. “If they’ve managed their taxes well over the years, incorporation allows producers to take a big bite out of the taxable income they’ve deferred,” he says.
Incorporation also allows farmers to pay themselves tax-free dividends as a method of payment. “Dividends come at a very low, attractive rate if you’re only taking $30,000 or $40,000 out of the company.”
Farmers tend to prefer paying casual wages from which no taxes or other remittances are deducted, says Dickson. However, they need to be careful. “If you’ve paid an employee on a regular basis, it’s no longer casual labour. Be sure to make the appropriate deductions or else the Canada Revenue Agency can come back to you and demand them after the fact.”