FA R M F I N A N C E 2 0 1 7 FarmFinance February 2017 Promotional Supplement 71 Planning for the future? Here’s why you should gift your farm A significant amount of wealth can be tied up in farm businesses—including partnerships and corporations. Our financial experts at Collins Barrow consider succession planning an ideal opportunity to distribute that wealth on a tax-free or tax-deferred basis. Much of this wealth is eligible for capital gains exemptions, allowing it to be passed on to future generations who continue to farm, without a heavy debt burden. So as you plan for the future of your farm business, consider the tax benefits of gifting your farm assets. Who can receive a gift? Generally, a farming gift—which can apply to almost any kind of farm asset except inventory—can be given to a child or a grandchild. However, the definition of “a child” can include a broad range of people, from a stepchild to the spouse of a child. Transferring tax-free If you meet the definition of a qualified farm property, including farm partnership or a qualified farm corporation share, you can transfer wealth to another generation without a tax impact. In a sense, you’re passing that tax on to the next generation, but if the current tax laws remain in effect, they can employ the same strategies when succession planning for their heirs. Essentially, these gifting options are set up to allow successful farm businesses to be passed on generation to generation. Maintaining ownership Our industry experts at Collins Barrow help farmers choose which plan (there are many options) is best for them to transfer property, while still maintaining ownership in some way. For instance, if you transfer your farmland to a family member, but maintain beneficial interest, you are allowed to live there for a lifetime. You can also reorganize your business as a farm corporation and still maintain control, passing the growth on to a child without any tax consequences. Common mistakes As beneficial as gifting can be, there are a number of common mistakes that can be made when working through the succession process (especially if you don’t have the benefit of expert advice, like what our Collins Barrow professionals provide). For one, attempting to transfer an asset that you’re not allowed to. If you transfer inventory during your lifetime, it’s got to be at fair market value, not cost base. Another common mistake is attempting to transfer property in order to gain a benefit through the Income Tax Act. For example, if you’re transferring farmland in an attempt to multiply your capital gains exemption. Say you have land that is worth $4 million and you only have $1 million of gain exemption and you’re trying to get three or four family members involved, so you don’t pay any tax. Unfortunately, this is not allowed, and the entire capital gain can be attributed back to the transferor if the property is sold or an agreement to sell occurs within three years. To navigate the pitfalls that can occur if you (a) transfer the wrong asset, (b) contemplate a sale or (c) fail to hold on to an asset for long enough, be sure to contact an expert. Your Collins Barrow advisor will keep you out of trouble—and ensure you maximize all the tax benefits available. John Bujold, B.Sc., CPA, CA, is a partner at Collins Barrow SGB LLP. He provides accounting, auditing and tax services to a wide variety of clients, including not-for-profit, commercial, individual, professional service and farm clients. Watch your bottom line grow With the right advisors planted next to you Turn to Collins Barrow for objective, actionable advice to help you maximize opportunities in virtually every area of your business. With more than 48 offices from coast to coast offering audit, tax and advisory services, we’re here to help you get the most out of your business. Look to Collins Barrow, Chartered Professional Accountants, to help your agri-business grow and prosper. Call the experts. collinsbarrow.com/grow Audit | Tax | Advisory 7327_CBN_Farm_Advertorial_Final.indd 1 2017-01-06 10:24 AM