Business | Spring 2009
TFSA: savings and succession.
By Joy Gregory
The Tax Free Savings Account (TFSA) will be a major tool in farm succession planning because it gives farm owners a way to “retire without cannibalizing their farm's assets or business,” predicts Reg Shandro, an agricultural business advisor based in Red Deer, AB.
Next to money, time and discipline are the two most important things farmers will need to make TFSAs a workable part of their succession plan, adds Shandro. Time matters because contributions and interest accumulate over time, and discipline is critical because it's not always easy to make and stick with a long-term savings plan.
“If you look at your farm business timeline and see you have 20 years until your son or daughter takes over, then a TFSA can give you a very successful savings plan over those 20 years — provided you leave the money in place,” explains Shandro.
And he has tough words for farmers who don't think they can afford to build a personal savings account. “What is your job as a farmer? I ask my clients that because as a business person, the answer should be simple. They are farming to make an operating profit and to protect their business assets for the future. If you let tax drive your business plan, you'll have a very weak succession plan.”
While TFSA benefits may be more obvious to a wage earner who can allocate a portion of salary to savings, farmers should get some advice on how they can make the program part of their succession plan. It may make sense for some producers to borrow a TFSA contribution from their operating loan, says Shandro.
“Eighty per cent of succession problems or complications have nothing to do with legal or accounting issues. It's the soft issues that prevent people from doing some planning,” he adds. “With good advice, you can make a tax free savings account one more way to talk about how a farm will move from one generation to the next.”
