Accountants Can Boost Farm Incomes

EDMONTON - Mar 17/04 - SNS -- Alberta Agriculture reminds agricultural producers that if they are better prepared for their annual visit with their tax accountant and arrive with more organized records, they can often take better advantage of the accountants knowledge of the income tax system.

Keeping poor records and waiting until the last minute to consult a tax accountant can result in higher tax bills because there is less time available to fully consider available deductions and tax reduction strategies.

"When you take your records in, don't just tell your accountant to minimize the amount of tax you have to pay, says Dale Robinson, business development specialist with Alberta Agriculture, Food and Rural Development, Stettler. "Get the accountant to ensure that you are using the tax rules fully to your advantage. Some areas to discuss include income splitting with your spouse, paying wages to the kids, making CPP contributions, and using all the personal exemption even if you have a farm loss."

There may be years when you might even want to pay some income tax. While that situation goes against the grain for most, there can be some very good reasons to do so. Anyone with off-farm income who doesn't want to become restricted to part-time farmer status needs to show a profit every few years to demonstrate that farming is a business for them and not just a hobby. In this instance, paying taxes once in a while makes good sense.

"For many farmers, especially those approaching retirement age, it is important to declare a modest level of profit to create some RRSP room," adds Robinson. "If you don't show income this year, then you won't be able to contribute to your RRSP next year. Remember that by making an RRSP contribution, you reduce your taxable income.

"While you are at the accountant's office, ask them about the impact of your deferred tax liabilities. You may want to ask the accountant other financial and income related questions, such as whether or not cattle purchased before year-end to minimize taxes could cause a bigger tax problem later on. Individuals who are considering retirement within the next five years need to start planning their tax strategy now to avoid a $75,000 (or worse) tax bill later on."

If you are going to be selling property or transferring the farm to your children in the near future, you will want to discuss capital gains on farmland, recaptured capital cost allowance (CCA) on machinery, and the rollover rules for farm property. Ask what your potential tax impact will be if everything was sold or transferred at once versus spreading it out over several years.

"Your accountant is a very important resource for your farm business; make sure that you take full advantage of their knowledge and expertise," says Robinson.

Another important resource on tax matters is the book Tax Management Strategies For Farmers. Copies are available by calling the Publications Office toll free 1-800-292-5697 or (780) 427-0391 in the Edmonton area.

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