Last updated: Jul. 12, 2017
Tax Planning for Canadian Agribusinesses
There are a lot of important factors that Canadian farmers need to consider when running their business. One of the most important is tax planning and how it affects the day-to-day operations of the farm business.
Fortunately, there are significant tax strategies out there for Canadian farmers to take advantage of. Unfortunately, not being aware of them means they won’t be incorporated into the farm business.
For many Canadian farmers, tax planning just means filling out their annual income tax return and making sure they don’t end up owing anything at the end of the year.
But there’s much more to tax planning than that.
When it comes to tax planning for Canadian farmers, the goal is to maximize after-tax income and minimize any tax obligations.
Importance of Tax Planning for Canadian Farm Businesses
From a business and personal perspective, the more money you make, the further ahead you are. Effective tax planning can help farmers achieve both their business and personal goals.
When it comes to tax planning for farm businesses, the most profitable course of action is to maximize the amount of money you keep and minimize how much you pay to the Canada Revenue Agency.
Tax planning falls into two categories: tax deferral or tax saving.
Tax Deferral
Tax deferral is all about the timing of payments on any tax liability that does not necessarily reduce the overall amount of taxes paid.
For example, registered retirement savings plans (RRSPs) and rollovers are great ways to defer tax payments.
You will eventually pay taxes on the income, but when the time comes to tap into your RRSP, for example, the tax rate will be lower than what it would be if you were taxed on the income today.
Moreover, a tax deferral can lead to real savings when you factor in inflation. The future tax liability is paid on future dollars that are not worth as much as today’s dollar.
Tax Saving
Tax saving is about reducing the amount of overall taxes you pay to the CRA.
Where some tax-deferral measures might draw the attention of the CRA, tax-saving measures, like income splitting between a husband and wife or using other business arrangements, can help reduce your total tax bill.
Most people tend to think of tax planning as something they do the closer they get to the annual tax deadline. But tax planning should be something you look after all year long.
Effective tax planning requires: personal financial goals, up-to-date records and financial information, and a reliable long-term projection of potential income.
Other important tax planning considerations include relevant tax laws (which are constantly changing) and bank interest rates and inflation rates (which are in a state of flux).
The goal of tax planning for farmers, of course, is to make sure that any taxable income is reported in the year where it is taxed the least.
Just because one tax planning measure works for one person and their farming business does not mean it will work for you.
Connect with your Local Farm Tax Specialist to learn more
FBC, Helping Farmers Pay Less Tax Through Tax Planning
If you need help with your tax planning or help understanding Canada’s ever-changing tax laws, you need to contact a tax consultant that is up-to-date with Canada’s farming tax laws.
Since 1952, FBC has worked exclusively with farmers and small business owners. We have helped tens of thousands of farmers and small business owners from coast-to-coast minimize their tax burden and maximize their assets.
For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.