The Rural Voice, 1988-02, Page 14COMPLETE LINE OF
ANIMAL FEED
– Hog
– Veal
– Dairy
treleaven'
– beef
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wed. to wed.
111
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feed mill ltd.
box 182, lucknow, on!. NOG 2H0
519.528-3000
1.800-265.3006
12 THE RURAL VOICE
ACCRUAL ACCOUNTING:
A FAVOUR TO FARMERS
The proposal of finance minister
Michael Wilson to change the way
Canadian farmers are taxed from cash
accounting to accrual accounting — a
proposal now on hold — has drawn a
great deal of criticism. Objections
have been raised not just by farm
organizations but also by accountants.
The farm groups complain that
farmers wouldn't be able to juggle
year-end purchases under accrual
•accounting and so could be forced to
pay taxes they could avoid under cash
accounting.
Accountants have figured that
accrual accounting would bring them
a good deal of money from farmers in
accounting costs that would be better
spent on the farm.
Wilson's concern is with hobby
farmers (he may know some from his
Bay Street days) who use farm losses
to decrease their taxable income. If
farm hobbyists are allowed to do this,
why not ski hobbyists or snowmobile
hobbyists and such?
The problem arises when trying to
differentiate between hobby farmers
and those who take an outside job
either to build up a full-time farm
business or to augment inadequate
farm income. The law now grants a
five to seven-year period for farm
build-up. This eliminates the Bay
Street broker or other professional
who has no intention of going into
farming full-time. But it also elimi-
nates the farmer who needs more time
to rebuild his business after the disas-
trous years of the eighties.
Farmers have protested against
hobby farmers for as long as 1 can
remember. It is said that they contri-
bute to over -production because the
profit motive is secondary to the
pleasure of producing food — not that
many won't do their very best to make
a profit. They will, and some of the
most efficient farmers are hobbyists.
Hobby farrners also perform very
well in on-farm research, as shown by
such hobbyists as Stephan Roman, the
chairman of Denison Mines, whose
dairy herd is famous.
But there are also many who make
a greater profit from deducting taxes
than from farming. It is difficult to
separate the goats from the sheep.
Farm organizations should consider
seriously how to assist Wilson in
finding a way to a fair separation.
This would be much more productive
than blindly resisting just about
everything the government does.
The tax proposal itself has some
positive features. The method of
accrual accounting, in which an
inventory of all farm assets is done at
the same time each year, should be a
must for all farmers. How else can
one determine if the business enjoyed
a profit or suffered a loss? One year
the silo may be full and the feedlot
nearly empty, and a year later the
situation may be reversed. The cattle
just sold may show a profit, but the
difference between assets from one
year to the next may be dismal.
If not to do a favour for the tax
man, farrners should do themselves a
favour and use accrual accounting for
their own information. This is not as
difficult as it appears. The first time
may be a rather big job. But the next
year the list is ready; there are only
new items to be added and other items
to be scratched. Farmers are already
familiar with depreciation, which is
used to decrease assets. What is the
use of having a combine of a certain
value when bought and then assessing
a value over the present market value?
The new tax, if it is ever imple-
mented, would do farmers a real
favour in forcing them to face reality
through accrual accounting.0
Adrian Vos, from Huron County, has
contributed to The Rural Voce since
Its Inception In 1975.