Proposed Harmonized Sales Tax (HST) Benefits for Ontario’s Farmers

Starting July 1, 2010, Ontario’s Retail Sales Tax (RST) would be converted to a value-added tax structure and combined with the federal Goods and Services Tax (GST) to create a single, federally administered Harmonized Sales Tax (HST).

 It is estimated that Ontario farmers will save about $30 million annually under the HST on items that are currently not exempt from the RST.  Farmers would continue to pay no tax on the majority of inputs purchased such as feed, seed, fertilizer, farm equipment and machinery, which are currently point of sale tax-exempt.

 Under the HST, Ontario’s farmers would no longer pay sales tax on many items such as trucks, light vans and parts, furniture, lawnmowers, computers, freezers and other equipment. This would put Ontario farmers on a more level playing field with farmers in others provinces that have harmonized sales taxes.

 The HST would follow the same rules and structure as the GST. Farmers who are currently remitting their GST paperwork would continue to do so and continue to receive input tax credits on any applicable purchased farm inputs. For additional information you can find an Infosheet on the OMAFRA website  (pdf infosheet)

Programs for Ontario Hog Producers

Hog Industry Loan Loss Reserve Program

 The Hog Industry Loan Loss Reserve Program (HILLRP) assists the pork industry to deal with immediate short-term cash-flow pressures. It is designed to increase access to credit for eligible producers currently producing hogs in Canada and who can provide a business plan which demonstrates that the business is or can be viable and has a reasonable prospect of repaying the loan. For more information visit the Agriculture and Agri-Food Canada website.

 Hog Farm Transition Program

 The Hog Farm Transition Program is a $75 million initiative designed to help eligible producers by providing payments to those who agree to set aside all hog production in their enterprise for a minimum of three years.

The program is open to all hog producers that were in the business of hog production as of April 1, 2009 and are willing to set aside their entire hog production facilities for a minimum of three years. For more details visit the Canadian Pork Council website

 

Growing Forward Business Development for Farm Businesses

Business Development for Farm Businesses: A customized program just for you

 The recently launched Business Development for Farm Businesses program incorporates self-assessment and action plan development with a range of cost-share advisory services and skills development opportunities.   

 Growing Your Farm Profits workshops are the entry point to the Business Development for Farm Business program.  Set in a relaxed atmosphere where personal and financial details are not required to be shared, the workshop teaches you how to do a self-assessment of your business.  Identifying your business strengths and planning needs will allow you to take the next steps: developing an Action Plan and receiving sign-off from your GYFP workshop leader. 

 The cost share components of the program include:

 Farm Financial Assessment – hire a Farm Financial Advisor who will work with you to complete an assessment that will identify choices that you can make to reach your profitability goals. 

 Agriculture Skills Development cost-share – access farm-related courses and training opportunities that can help your farm business become more viable.

 Advanced Business Planning services provide cost-share funds to work with a consultant to build an Advanced Business Plan that focuses on business management goals. 

 Business Plan Implementation cost-share program can help you implement items identified in your advanced business plan. 

 As part of the commitment by Canada’s federal, provincial and territorial governments under Growing Forward, the Business Development for Farm Businesses program, developed by OMAFRA, delivered by the OSCIA, can equip you with innovative tools that can help you be competitive in your business.  To get started, visit www.ontariosoilcrop.org and sign up for a Growing Your Farm Profits Workshop in your area today!

 Growing Forward, a federal-provincial-territorial initiative.

2009 Farm Tax and Business Seminars

The Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) presents the annual Farm Tax and Business Seminar for Professional Advisors. The seminar is offered in 11 locations across the province during the month of October. The seminar is offered as a Webinar for those interested in attending the seminar via the web.

The seminar is an excellent opportunity for accountants, lawyers, lenders and other financial professionals to update their knowledge of tax, business and legal matters related to agriculture and farm business activities. The topics this year include:

• Farm Family Business Structures: Partnerships and Corporations
• OMAFRA Business Update
• Legal – Conflict Resolution – Practical Strategies for Avoiding Court
• Farm Tax Update
• Growing Forward Programs—Business Risk Management and Best Practices Programs Update

 The locations and dates are:

Dates and Locations
Week 1	Guelph		Tuesday, October 27, 2009
	Ingersoll		Wednesday, October 28, 2009
	Hanover		Thursday, October 29, 2009
Week 2	Alliston	Kemptville	Tuesday, November 3 , 2009
	Stratford	Belleville	Wednesday, November 4, 2009
	London	Peterborough	Thursday, November 5, 2009
Week 3	Hamilton		Wednesday, November 10, 2009
	Chatham		Thursday, November 12, 2009

 The registration fee is $150 per person on or before October 19, 2009 and $180 per person after October 19, 2009.

 For complete agenda, speaker and registration information, including a registration form, visit the OMAFRA Business Development website under conferences and workshops at www.ontario.ca/agbusiness or call the OMAFRA Agricultural Information Contact Centre at 1-877-424-1300.

 

Iowa Study Says 30 Percent of Farmers Plan to Never Retire

The following article is an excerpt from a Iowa State University news release.  What it tells me is that the next generation entering the farm business should be talking with their parents about their “retirement” and what that word really means to them.  There is absolutely no problem if a parent never wants to retire.  That is their decision to make.  But what does retirement mean to them?  Is it being able to drive the tractor when they feel like it and not drive when they don’t?  Or does it mean maintaining control and management right to the end?   If the latter then the next generation should know up front.  This is a conversation that needs to occur as soon as the child makes a commitment to the business, not 10 or 15 years later.   I have witnessed that conversation at year 10 or 15 and believe me, it’s not usually the answer the child wants to hear.    

 

AMES, Iowa – Retirement is something many long for with plans of traveling, more family time or relaxation in mind. But for the majority of Iowa farmers, full retirement is hardly considered.

According to the new publication, “Iowa Farmers Business and Transfer Plans” (PM 2074) by Ethan Epley, Michael Duffy and John Baker of the Beginning Farmer Center at Iowa State University, only 23 percent of Iowa farmers plan on retiring, and 30 percent say they never will. These statistics are part of the findings from the International Farm Transfers Study done in 2000 and 2006. It focused on the transfer of intangible assets and produced results that didn’t surprise Baker.

The study is a replication of a previous Farm Succession Survey written by Professor Andrew Errington of the University of Plymouth, England. In 1999, Errington, Baker and Duffy formed a research partnership that allowed Baker and Duffy to conduct Errington’s study in Iowa in 2000. Six years later, in 2006, they replicated it and began to analyze the data and feedback.

According to Baker, for every 10 farmers that want to get into farming, only one is getting out. Additionally, more than 70 percent haven’t identified a successor despite the high interest in the occupation, because for many, farming is more than simply a career. It’s a lifestyle that retirement will completely disrupt.

“Retirement is seen as not only a loss of occupation, but also a loss of a way of life,” the publication states. Beyond the wills, estates and trusts that determine the future of land and physical assets are things like labor, management and decision-making power that also must be handed down. This reality makes the process and idea of retirement more complicated and less appealing to those whose entire lives have been about farming. However, Baker urges farmers to reconsider.

“Farmers need to develop a retirement plan and also be willing to retire,” he said. “We have to think about what this means to rural Iowa and rural communities around the nation.” Instead of liquidation, a plan and identified successor can ensure continued sustainability and a future for young farmers, both of which excite Baker.

Growing Forward Business Development Programs

The following is a summary of the Growing Forward Business development Programs.  More information can be found on the OMAFRA website or the OSCIA website.   Growing Forward Business Development for Farm Businesses incorporates self-assessment and goal setting with a range of cost-share advisory services and skills development opportunities to help reach your farm business goals.  Applicants must meet the program eligibility criteria and adhere to all program terms and conditions and project claim submission deadlines to qualify for cost share. All cost-share funds are available on a first come, first served basis up to the available annual funds of each year of the program  Individual Ontario producers, beginning farmers, and members of a group enterprise such as a corporation or partnership are eligible to apply for cost share if they satisfy the following criteria: Have attended a GYFP workshop, and have had their Action Plan(s) Reviewed and Signed-off by OSCIA representative.; Be a Legal Farm Entity and possess a valid Farm Business Registration Number (FBRN) or equivalent;  The Growing Forward Business Development for Farm Businesses is delivered by the Ontario Soil and Crop Improvement Association (OSCIA).  For information concerning workshop schedule or eligibility criteria please contact your local OSCIA Representative or Ontario Soil and Crop Improvement Association at 1-800-265-9751  or the OSCIA website

Growing Your Farm Profits Workshop The Growing Your Farm Profits workshops are available free of charge for all Ontario producers, including farm families and farm management teams.  The workshop provides a planning process and resources to maximize your farm business long-term goals.  Participants are not asked to share personal or financial details with the facilitator or other participants. The two-day workshop will give you the tools needed to assess your business: Review current farm management practices, systems, knowledge and skills Understand how planning provides the framework for effective decision making Prioritize goals for the farm business’ future Identify resources that can help meet these goals Build on the farm business’ strengths and Write an Action Plan to improve farm management skills and knowledge.

Action Plan Review and  Sign-off After the Growing Your Farm Profits workshop, you and your management team will be able to develop an Action Plan for your farm business, start the planning process and begin to access the resources needed to achieve your goals.  Based on the needs identified in your signed-off Action Plan, the farm business may be able to access cost-share funding opportunities.  As an eligible farm business you may choose to participate in one or several areas.

Farm Financial Assessment Based on your Action Plan, you may require access to a professional Farm Financial Advisor who will review past financial performance, analyze your current business situation, discuss objectives, and help you identify options to meet your farm business profitability goals.  Note: If your business is experiencing financial difficulty you may be able to access the Farm Financial Assessment without completing the Growing Your Farm Profits Workshop.  The program covers up to $2400 of eligible costs to hire an advisor to complete an Assessment. The participant pays $100.   A Farm Financial Assessment includes: A review of past financial performance An analysis of the current farm business situation, A ratio analysis and assessment of liquidity, profitability, solvency and repayment capacity The identification of options to meet the farm business profitability goals

Agriculture Skills Development Farm business owners that identify the need in their Action Plan will be able to access cost-share funding to take farm related training and skills development intended to support greater farm business viability. A list of farm-related skills and training opportunities is available on the OSCIA website.  Eligible participants will receive cost share funding for up to 50 per cent to a maximum of $3000. Eligible costs include:  Tuition Textbooks Travel expenses

Advanced Business Planning Advanced Business Planning services are available on a cost-share basis to help meet the business planning needs specified in your Action Plan.  You may work with an advanced planning consultant to focus on business management goals such as succession, marketing, diversification, expansion and/or feasibility plans.  Eligible farm businesses may receive cost-share funding for up to 50 per cent to a maximum of $8000. Eligible costs are items that support the advanced business planning needs specified in the Action Plan.  A list of advanced planning consultants can be found on the OSCIA website.

Business Plan Implementation To help you implement elements of your Advanced Business Plan, you may receive cost-share funding assistance for one-time non-capital costs.  Eligible participants will receive cost share funding for up to 50 per cent to a maximum of $3000. Eligible costs may include soft (non-capital) costs of implementing: Specialized contracts Business agreements Legal documentation Licensing agreements Trademarks and/or patent registration Certification.       Growing Forward – Best Practices Suite is a federal-provincial-territorial initiative, that supports the development and implementation of best practices in four key areas: Environment and Climate Change; Food Safety and Traceability; Business Development; and Biosecurity.  Participants are encouraged to develop strategies across all areas to meet their business goals through information sessions, workshops, training and technical assistance.

Canadian Agricultural Loans Act (CALA)

The Canadian Agricultural Loans Act (CALA) is a loan guarantee program which provides loans to farmers and agricultural co-operatives.

 Who can apply?

• Existing farmers
• Beginning/start-up farmers (i.e. less than 6 years of farming)
• Farmers taking over the family farm
• Agricultural co-operatives with a majority (50% + 1) farmer membership

 If a purchase has already been made, a farmer has 60 days to receive funding from a lender for a CALA loan. A beginning or start-up farmer should be prepared to provide the lender with a business plan and/or an income tax form showing no farm income and/or expenses at least once in the last six years.

 Agricultural co-operatives will need to be prepared to provide a current income tax return showing farm income and/or expenses from 50% + 1 of its members or a notorized attestation as to their membership.

 Where to apply?

The following financial institutions offer loans under the CALA:

 • Chartered banks • Trust companies • Alberta Treasury Branches • Loan companies • Credit unions • Insurance companies • Caisses populaires • Other designated organizations

 Fees

The farmer must pay a fee to have the loan registered and guaranteed under the CALA. This fee is 0.85% of the amount of the loan. The lender may also charge an administration fee of 0.25% of the amount of the loan up to a maximum of $250.

 What is eligible?

Eligible loan purposes include the following that must be used in the applicant’s farming operation:

• Equipment
• Building/ Construction
• Land
• Livestock
• Shares in a farming operation

 Loan Amount

The maximum loan is:

• $500,000 for land and the construction or improvement of buildings.
• $350,000 for all other loan purposes.

 The maximum aggregate loan limit for any one borrower is $500,000.   The maximum aggregate loan limit for agricultural cooperatives, is $3 million, with the Minister’s approval.

 Repayment terms

The maximum term for loans is 10 years, with 15 years for loans on land purchases.

 Interest rates

Interest to be paid on a floating rate is the lender’s prime rate plus a maximum of 1%.  Interest to be paid on a fixed-term rate uses a formula based on the lender’s residential mortgage rate plus a maximum of 1%.

 For more information:

• Contact your financial institution
• E-mail CALA at fgp-pgf@agr.gc.ca
• Call the CALA toll-free line at 1-888-346-2511
• Visit the CALA website at http://www.agr.gc.ca/cala

Maple Production Information Centre

 Ontario’s maple syrup producers have a new tool to make production easier. Those crisp spring days of maple season seem far off but the timing is right to start planning for next spring’s sap run. The Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) has packaged all facets of production into one business information bundle to make finding information easier for producers.

 The maple syrup production business information bundle is a one-stop maple storehouse for commercial and hobby producers.  Created in consultation with producers, the maple syrup bundle is part of the government’s efforts to make it easier to do business in the province by consolidating all related information in one place, in this case – www.ontario.ca/maple.

 It’s entirely online so producers can access the information whenever they can make time in their busy schedule. The maple syrup bundle offers information on everything from production, sugarbush management and sales, to food and occupational safety, labour laws and links to industry organizations. Provincial and federal production information is at a producer’s fingertips so it’s much easier now to stay up-to-date.

 The business resources section of the maple bundle also links to various government programs such as Growing Forward which has food safety and business development components. The suite of programs offers producers workshops and resources which can open the door to cost-share funding for improvements in a farm operation.

 Next season’s sap run is a few months away but planning can start now with a few clicks at the maple syrup business information bundle now online.

Diversifying Your Business – What does the Taxman think about that?

 If you’re like many Ontario farmers you have no doubt thought about getting closer to your customer.  In other words you’d like to be closer to their wallet.  Diversify your business and produce a finished product. Get some of that middleman cash.  I applaud you.  Good strategy for those who have the skills, inclination and personality to pull it off. 

 On top of that Canada Revenue Agency (CRA) applauds you.  More revenue.  And while they are cheering you on they are also interested in how you are structuring that value added or direct to the consumer or farm related business.  Here’s why.  CRA is happy to allow farmers to file income tax on a cash basis.  Very advantageous for farmers.  You don’t have to report income until you receive it.  You don’t report inventory.  This allows you to smooth your income to some extent.  Non farming businesses on the other hand must report income on an accrual basis.  That means accounts receivable are counted as income whether of not you have received them.  An increase in inventory becomes income. On the upside accounts payable and a decrease in inventory reduce income. On the whole though, not so flexible.  

 So CRA wants to know if you’re farming or not. They also want to know if you have one business or two. 

 So What

Why worry you say.  Here’s why.  If the new business is not farming then the income has to be reported on an accrual basis.  And if your new business is a separate business it means that you need to keep 2 sets of books. 

 At this point many of you have had enough.  You’re tired of reading this stuff.  That’s fine because you have all you need to know.  The take home message is check with your accountant about your specific situation.  And check ahead of time not after you have dropped a lot of cash into the project.

 If you want the details keep reading.

 Separate Business or Not?

The answer to this hinges around how connected the businesses are.  Producing electricity from biogas would probably be closely connected to the farming business especially if the farming operation alone supplies the manure or crops for the digester.  Under that scenario a case could be made that they are one business. This might be the case for a winery as well where a vineyard supplies all or a large portion of the grapes to the winery.  So lets say you are connected and you have one business. Is it a farming business or not?

 Farming or Not Farming     

Farming is defined in the income tax act.  You can look it up. Section 248.  To paraphrase, (which I know I should never do with tax legislation), it is as you would expect – tilling of soil, raising of livestock, keeping of bees etc, etc.  The point is, things like producing electricity, selling wood, producing wine, and running a retail outlet are not in the definition and therefore not farming.  This means you have to file on the accrual basis and you’ll likely opt to keep two sets of books and not be seen as one business even if you could.  This is because most farmers want to keep the farm business on a cash basis and want to have farming income so they can access the capital gains exemption on qualified farm property.   

 Wait you say.  I know a person who sells non farm stuff and puts it on the farming statement.  So does CRA.  They let farmers do that when:

1. the activities are related to the other farming activities
2. the activities are undertaken on a small scale
3. the income generated by these activities is incidental to the taxpayers other farming revenue. (meaning it is small compared to the other farming revenue)

 An example would be a dairy farmer who sells firewood from a farm woodlot.  If the sales are small compared to the dairy sales then it is all farming income. If however the amount became significant or perhaps the farmer started buying other logs to split and package then it would be a separate business. 

 At Last… a Summary

In a nutshell there are three possible outcomes for the diversified farmer.  You may have:

1.  Two separate businesses – one farming (cash basis filing) and one non farming (accrual filing)
2. One business non farming – all accrual filing
3. One farming business– cash filing

 Remember – keep in touch with your account. 

 The really keen folks can check a couple of interpretation bulletins on this oh so interesting topic.  Here they are. 

 IT-206R – Separate Businesses and IT – 433R – Farming or Fishing – Use of Cash Method

Canada Revenue Agency Changes Adminstrative Policies for Taxable Employment Benefits

Canada Revenue Agency (the “CRA”) has just released some administrative changes regarding taxable employee benefits in its Technical News Issue #40.  The changes relate to the following:

• Overtime Meals and Allowances Provided to Employees
• Municipality or Metropolitan Area
• Loyalty Programs
• Employer Provided Motor Vehicles Required to be Taken Home at Night
• Non-cash Gifts and Non-cash Awards
• Surface Transit Passes Provided to Family Members of Transit Employees

 The full details can be found on the CRA website.