The Rural Voice, 1980-04, Page 29Advice on Farming
Is your farm really more
than one business?
BY DONALD SHAUGHNESSY, CA
Income tax time is an appropriate time to
consider whether your farm business is
really more than just one business.
For example, a farmer bought a grain
dryer and built storage alongside it. To
help pay for it, he started drying and
storing his neighbour's grain. In order to
transport the grain, he bought a truck, and
within a short time had developed quite a
thriving sideline.
After a few years, he decided to separate
his grain business from his farming
business for income tax purposes and
discovered, to his astonishment, that his
farm was operating at a loss, and all the
profit was being earned from his "side-
line."
He subsequently incorporated the grain
business, paid himself a salary, and used
the farm losses to reduce his income tax!
While this would probably be an
exception, it illustrates one good reason
why a farmer, when sitting down to fill out
his tax form, should consider whether he is
operating more than one business. If he
earns income for doing welding jobs in the
neighbourhood, selling sand and gravel, or
doing mechanical repairs, it may be best
that he keep the income and expenses
separate.
At the very least, it will simplify
bookkeeping and income tax reporting.
If you use the cash method of accounting
your income includes all revenue actually
received in the tax year. This could be
cash, property or service. All expenses are
deducted in the tax year they are paid.
Most farms can operate on a cash basis.
When the business involves inventory,
such as parts, supplies or accounts
receivable, the accrual method of account-
ing should be used. Under this system, the
income is reported in the year it is earned,
not when it is actually received. Expenses
are deducted in the year incurred, whether
they are paid or not.
Normally, a combination of the two
methods is not allowed. You use either the
cash or the accrual method. But it is
possible for a farmer to operate his farm
on a cash basis, and the other business by
the accrual method.
To do so, the farmer must fill out
PG. 30 THE RURAL VOICE/APRIL 1980
Revenue Canada's form T2032 --Statement
of Income and Expenses --for each oper-
ation, and include them as part of his tax
return. If he uses the accrual method to
account for his sideline business. he must
also include a balance sheet showing the
assets and liabilities of that business.
He might find the services of a financial
advisor helpful in advising him on the best
methods of reporting his methods of
reporting his income and preparing his tax
statements.
Manure still the
cheapest fertilizer
Livestock farmers are confronted with
manure disposal almost every day, and
many regard it as simply getting rid of a
waste product. Researchers at the Univer-
sity of Guelph hope to change this attitude
to one of using a valuable by-product, says
Dr. D.P. Stonehouse, School of Agricul-
tural Economics and Extension Education.
Dr. Stonehouse is coordinator of a new
project to encourage the most economic
use of manure in liquid and solid handling
systems. Proper handling is important
during the stages of collection, storage,
distribution on land, and incorporation into
the soil.
"Manure can replace expensive chem-
ical fertilizers that are energy intensive in
their manufacture," says Dr. Stonehouse.
"Besides, the organic content of manure is,
a useful component that breaks down into
humus in the soil. This restores the natural
balance of soil structure and helps prevent
erosion."
Manure handling systems are expensive
and complicated propositions. But re-
searchers are investigating alternative
systems.
"The objective of our research is to use a
computer to sort out the pros and cons of
various manure handling systems," says
Dr. Stonehouse. "This means that many
variables are weighed against each other.
In advising farmers on the most appropri-
ate system for their particular circum-
stances, three major criteria are considered
--environmental concerns, and economic
and energy efficiency."
Physical constraints such as available
labor, type and amount of land, and type of
crops grown, affect the way the manure
must be handled. Economic variables, such
as investment and operating capital, also
affect the farmer's choice of system.
The complex problem demands a team of
experts from the departments of engineer-
ing, land resource science, animal and
poultry science, environmental biology,
and agricultural economics.
The project got under way this fall with
funds from the Ontario Ministry of
Agriculture and Food. The scientists are
gathering current information on technical
and physical processes, but more research
is needed in biological and engineering
areas. For example, researchers do not
have sufficient information on retention
rates of nutrients in manures that have
been handled in different ways.
Once tnese technical problems are
solved, the computer will be invaluable in
simplifying the maze of manure handling
systems. In this way, the ultimate user, the
farmer, will be greatly assisted.
High interest farming
thru U of G course
Farmers who are feeling the financial
pinch of interest rates and the cost of
interest can learn how to ease this pressure
through a correspondence course spon-
sored by the Ontario Ministry of Agricul-
ture and Food.
"Farmers must make large capital
investments to compete," says Professor
Gary Hutchison of the independent study
office, University of Guelph. "This course
was developed to help farmers cope with
the high level of financial management
required to obtain credit."
Professor Hutchison developed the
course based on his experience with the
Farm Credit Corporation and his firsthand
knowledge of farm financing. The course
defines the types of production and
financial information that lending insti-
tutions require, and describes how to
prepare financial statements and analyze
them to obtain the greatest benefit. The
response from farmers who have taken the
course has been excellent.
"Well-prepared technical and financial
plans could mean the difference between
an adequate line of credit and a stagnating
farm operation," says Professor Hutch-
ison. "Good projected plans could also
mean as much as a one-half per cent
reduction in interest rates. That's a saving
of $500 on a $100,000 loan -- a good return
for a few hours of bookwork."
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