The Rural Voice, 2001-01, Page 3311
A
quota but this can trigger the
Alternative Minimum Tax and force
the clawback of social, benefits
payments, depending on the tax
situation and the age of the giver.
Gifting can be combined with
family notes and mortgages as
another succession planning tool,
Coughler says. Since gifting is
allowed within families, interest rates
from zero per cent up to fair market
value can be charged. The
outstanding principal remaining on
mortgages can then be bequeathed
through your will, provided the will
states this intention properly.
Inventory is often sold on account,
with an unpaid invoice that is paid
off over a number of years to reduce
the tax liability to the parent and to
spread the purchase over a number of
years. The invoice must be prepared
on the date the purchase occurs or
Revenue Canada could deem that all
of the sale proceeds are taxable to the
seller, regardlessof when payment is
received.
Equipment can be sold using
either a promissory note or a
secured mortgage. Dairy quota
can be sold the same way but quota
itself cannot be taken as a security.
Instead, a "Letter of Direction" is
registered with Dairy Farmers of
Ontario, and funds from the sale of
the quota are directed to the secured
party, with the residual then going to
the vendor. Letters of direction
should be irrevocable, containing a
clause which will not allow the
direction of funds to be altered
without the written permission of all
parties to the original agreement.
Farm land, including the principal
residence, is normally sold with a
mortgage being held by the vendor.
Parents who self -finance the sale of
their farm property should always
have their security position registered
on title in the event the farm gets into
financial difficulty and the parents'
equity is put at risk, says Coughler.
As a secured creditor the parents will
have first call, ahead of unsecured
creditors like suppliers on whatever
assets remain. At the same time, he
says, parents shouldn't oversecure
their position or their child will not
have access to additional security for
the purchase of other farm assets.
But the success of these plans still
depends on the business viability of
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JANUARY 2001 29