Whether you are a small or large producer, you have a lot of things to consider when it comes to the Canada Farm Tax. For one thing, it is important to know how to calculate the farm tax, as well as the benefits of the tax.
Capital Gains and Losses affect farm tax
Whether you’re buying or selling a farm, chances are you’re going to get hit with a hefty tax bill. As such, the best way to reduce the sting is to take the time to educate yourself on the ins and outs of Canada’s tax system. To help you out, the Canadian government has outlined a number of tax calculators that can be found on its website. Using one of these will ensure you pay the least amount of taxes possible. It is also a good idea to consult with a trusted advisor to make sure you’re not making any uninformed tax decisions.
The most common types of farm owners include individuals, partnerships, and estates, all of whom are subject to taxation. As a result, many affluent families are eschewing the bucolic for the city, a.m., or both. It’s no secret that Canada’s largest city, Toronto, is a veritable magnet for Canadians looking for a change of scenery. To that end, the city has a plethora of parks, trails, and open spaces that make it a desirable destination for visitors looking for a change of pace. On the flipside, Toronto is an expensive place to live, a fact which is accentuated by the presence of a few billion dollars in foreign investment.
Rollover provisions should recognize the breadth of family relations
Creating tax policy that is conducive to future generations has been a pillar of CFA’s pre-budget consultations. As far as the octogenarians go, the average age of a Canadian farmer is 55. With more than a third of farms being owned by multiple households, maintaining financial viability over the course of several generations is no small feat. Using the right taxonomy-approved tools, families can make informed choices and ensure the next generation’s farming success. If your farm is more than a hobby, OMAFRA can help. They have created a fact sheet devoted to Taxation on the Sale of Farm Assets. Hopefully, the government can take heed and rewrite the rules for future generations. In the ensuing years, farmers across the country will be able to celebrate their heritage while ensuring that their future is bright and their family is healthy and happy. In fact, in the past few years, the number of farm families across Canada has increased by over 20%. As such, there is a huge market for savvy family businesses.
As such, the most pertinent question is: What are the best ways to foster family-based, entrepreneurial enterprises that will be able to sustain their agribusiness over the long haul? The answer lies in tax reform and increased regulatory certainty that allows businesses to grow, expand, and thrive. The good news is, this can be achieved without breaking the bank.
Fertilizer prices for Canadian farmers increased by 31.8% to $7.5 billion in 2021
Several factors were blamed for the fertilizer price run-up in 2021. High natural gas prices, a lagging spring planting season, and Russia’s attack on Ukraine all contributed to the steep increases in price.
In addition to Russia’s invasion, the COVID-19 pandemic, and trade policy, supply chain disruptions continue to impact the agricultural input markets. These factors impact the availability of inputs, which in turn impact the cost of inputs.
While Russia’s ban on exports of nitrogen-based fertilizers until June 2022, and China’s quota on exports of potash and phosphorus through December 2022 decreased global supplies of these materials. The tight global supply of these commodities, which are mainly used to produce ammonia, also increased prices.
In addition to supply-chain disruptions, there were also record yield declines in the 2021 harvest. The resulting crop insurance payments increased significantly. In Saskatchewan, more than four-fifths of the increase was attributed to drought-related losses. The other provinces that posted the largest increase were Alberta, Ontario, and Manitoba.
The price run-up is expected to continue into the next year. Many farmers are preparing for the upcoming growing season by locking in input prices. These prices are likely to depend more on input costs than output prices.
The quota can be transferred to a child on a completely tax-deferred basis
Buying a quota is no doubt a fun and rewarding experience, but there are also significant tax considerations to consider. For instance, you can transfer a portion of your farm to your children on a tax-deferred basis, making the transition smoother than it could have been. In addition, you can also transfer your inventory on a rollover basis. A major component of most transition plans is the farm asset rollover. Whether you are transferring a quota or a family business, ensuring that you have a solid tax plan in place is crucial.
In general, you can depreciate a quota at 7% per year, which isn’t a bad deal considering most farm equipment has depreciated over the years. In fact, many families opt to transfer a portion of their farm to their children on a tax-deferred basis to minimize the impact of taxes. The trick is to make sure that you transfer the quota at a value that will allow the child to benefit from the tax savings. You can use a calculator to figure out how much to pay, but if you have the time to spare, you might be able to negotiate a better deal.
Feed expenses for livestock producers increased by 23.0% to $9.6 billion
Across the globe, livestock are a major contributor to food security. These systems directly support the livelihoods of 600 million poor smallholder farmers in the developing world. They also provide a vital source of nutrients and liquidity for urban and rural communities.
Livestock products contribute about 17 per cent of the global protein consumption. These products have substantial health benefits. The global livestock sector employs about 1.3 billion people. The production of livestock has increased substantially in the last few decades. These improvements were largely driven by animal science and technology.
As the human population grows and develops, the demand for livestock products is expected to grow. This will create competition for land and water. A major challenge to livestock production is to use resources efficiently.
The evolution of the livestock system will involve trade-offs between environmental sustainability and economic development. These can have both positive and negative consequences. The growing scarcities of water and land will require improved resource-use efficiencies.
The livestock sector has evolved in developed countries in response to increasing environmental and economic sustainability. In addition, livestock industrialization has progressed in many regions. This process may have negative consequences for developing smallholder systems.
Despite the importance of livestock for the economy and society, there are concerns regarding the effects of this increase in industrialization on the environment. Some issues include the emissions of methane and residues from livestock, antibiotics used in animal production, and microbiological hazards. In the future, the livestock sector will need to adapt to climate change.
Machinery fuel expenses increased by 29.1% to $2.9 billion
Despite a dry winter and summer, wheat production remained strong in the Prairies and Ontario. Combined with a healthy crop insurance market, crop prices were elevated. Exports of the stuff took a hit, with Canada’s total wheat imports down 17.7% in 2021. A drought akin to those experienced in the past few years also had an effect on wheat yields in Western Canada.
Overall, total farm operating expenses increased by 10.4%, and depreciation charges rose 9.2%. A few other noteworthy items include a new crop insurance program and the introduction of the Canada Emergency Business Account. The latter will facilitate shared financing arrangements through Export Development Canada. The government is also investing an additional 5 billion in lending capacity and 65 billion in loan guarantees.
The aforementioned COVID-19 measures also contributed to the price spike. The largest increase was attributed to a temporary shutdown of operations in the Gulf of Mexico following Hurricane Ida. This was not as significant a change as the drought in Western Canada, which saw total farm stocks decline to the lowest levels since 2002. This is in part due to a lack of livestock to feed, a trend that is unlikely to change.
Drought and excessive moisture tax measures for farmers
Currently, the Federal Government is incentivizing farmers to adopt drought resilience practices, such as crop insurance, by paying a portion of the premium. The program has also been used to incentivize farmers to make investments in drought resilience that can reduce the cost of responding to droughts. For example, farmers can choose to rely on cover crops or no-till tillage to retain soil moisture. Alternatively, they can retire water rights permanently to avoid groundwater conflicts and to reduce the risk of surface water conflicts.
In addition to federally subsidized policies, there are a number of state initiatives. Some states have water conservation programs, while others may leverage USDA programs. Some programs, such as the Agriculture Risk Coverage and Livestock Forage programs, provide partial compensation for revenue declines due to yield reductions during drought. These programs are indexed to the severity of droughts according to the Palmer Modified Drought Index.
These programs, along with other measures for farmers, can help to improve drought resilience. In the short term, farmers can reduce the risk of drought by leasing or trading water, or by using water conservation measures. In the long term, farmers can increase their resilience by enrolling in programs that provide rental payments or emergency haying provisions.
