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HomeMy WebLinkAboutFarming '89, 1989-03-22, Page 14A14. FARMING ‘89, WEDNESDAY, MARCH 22, 1989. Plan for taxes if leaving farm to children BY HAROLD SMITH, CA Harold Smith is with Hyde Houghton. If you own a farm and have children, do you have a plan for handing it over to them? You should, and the sonner the better. In order to avoid heavy taxes you’ll require careful think­ ing and perhaps as long as 10 years. Simply willing the farm to your children can create problems. It’s true that the Income Tax Act provides for a tax-free rollover at death to the children of many assets. However, the farm must be a “qualified farm property.’’ Does your farm qualify? For shares of farm corporation to be transferred in this way, over 90 per cent of the assets must be used in active farming. You must take stock to be certain, and this cannot be done at the time of death. If you do it beforehand, you will be able to take remedial action if the assets used in farming fall short of 90 per cent. If the farm does not qualify there can be drastic tax effects at death. Another way to transfer a farm is by giving your children land, shares of a farm corporation or depreciable assets bought since 1971. There can be problems, however. Cash-basis farmers - and most farmers report their income on a cash basis - have a particular problem with inventory. Assets such as crops, supplies and live­ stock appear on their farm financial statements as having no value. When these assets are given to the next generation, there are no rollovers available. Therefore tax planning is necessary. Often the answer is to give or sell such assets in stages over perhaps 10 years. This way, the assets are transferred without tax consequen­ ces and the parent is able to build up retirement income. Another transfer method be­ tween generations is selling assets at, or below, fair market value. Under the rollover section of the Income Tax Act, the assets roll over at their adjusted cost base if you choose to pay nothing. If you choose to pay something, however, anything in excess of the adjusted cost base is subject to tax. Sometimes you want to trigger taxes this way. For example, it could be beneficial for a farmer to sell his land to the next generation. Any capital gains would be eligible for the $500,000 exemption, avail­ able on farm property only. Thus the transfer would not cost the parent any tax, other than perhaps some alternate minimum tax. It would also give the next generation a bump-up in the cost base and reduce taxes if the person decided later to get out of farming. There are other cases where it would be preferable to transfer assets at fair market value. These could be situations where a farmer over time has built up substantial tax losses. Such losses have a limited life, and it may be advanta­ geous to transfer assets at fair market value to use up the losses. Under similar rules, a deceased farmer’s lawyer can elect to trigger taxes on assets transferred from one generation to another at any­ where between their adjusted cost base and their fair market value so that the person’s $500,000 capital gains exemption can be used. Farm Safety is up to you Clothes which have farm chemi­ cals spilled on them should be removed and washed before reus­ ing. Remember, ‘Farm Chemical Safety Is In Your Hands’. McKILLOP MUTUAL INSURANCE COMPANY 91 Main St. South. Seaforth Office 527-0400 FARM, HOME, COMMERCIAL AUTO COVERAGES AGENTS Bob McNaughton Graeme Craig Donald Taylor 527-1571 887-9381 482-9976 Banter & MacEwan Insurance Brokers Ltd.524-8376 John Wise Insurance Brokers Ltd. 482-3401 BLYTh 523-4241 WINGHAM 357-2700 FERTILIZERS MILLS HOWSON AND HOWSON Asnssgj * !cps j WE GET THE JOB DONE RIGHT TRUCK SPREADER UNIT •Low soil compaction *Saves time & labour •Dickey-John computer for accuracy •Straight mixed or micro ingredients •120 tonne per hour baffle blender •Bulk delivery - anytime - anywhere •Spreaders readily available CHEMICALS SPRAYER UNIT - 500 GAL SPRAY TANK • PPI, pre or post applications •Low soil compaction & very accurate •Dickey-John monitor •52 foot boom width Howson & Howson Ltd. FLOUR & FEED MILLERS COMPLETE FARM SUPPLIES, GRAIN ELEVATORS SUPPLY •Large supply of chemicals on hand at the right place CALLUSTODAYORCOME IN-WE’LL HELP YOU BUILD A FERTILIZER & CHEMICAL PROGRAM TO SUITE YOUR SPECIAL NEEDS.