Bankruptcies of the 80s

[flea beetle]

Fleabeetle, your making management decisions based on income tax. I don't like that.

You're young and incorporating could be very beneficial. Although I do see it as a tax deferral anyway.

If you have to wind it down....manage it.

Growing the farm will be easier but the piper needs paying sooner or later, even if the "burden" is passed to the next generation.

6 figures to Ottawa.....are you FÚCKING nuts? You need better advice in my "opinion". Unless two of those figures are to the right of the decimal point.

Other than incorporating, what could I have done differently? Already have more than a years income stored in the bins before the next year starts, and growing. Don’t have anywhere to keep the stuff already. Have been waiting for a bad year to come to unload some, but hasn’t happened. And all inputs paid for. How else could I have minimized tax? Not into buying equipment just because.

Try writing that cheque to Ottawa and see how it feels. Makes me sick every year.🤮

[flea beetle]

Land here went up some in the seventies. Then it crashed in the 80’s. And stayed crashed for 30 years. How old will you be in 30 years if it happens again?

I worry about today’s sustainability in ag. I don’t think it is sustainable. In several ways. If land hadn’t taken this run up, I can’t imagine the equipment and bins etc, that would not have been bought with high land values. When most farm growth is fuelled by land value increases alone, it is a bit worrying. My own banker told me this spring, it isn’t farm income buying the land, it is paid for land, wives jobs, grandpas kindness, dads co-signing, that is buying the land. It is most certainly not the kids buying it alone and on their own. His words, not mine.

Now, you have to make your own decision on buying neighboring land. Each farm has different financial issues. We don’t know yours. Flush farmers will always say buy buy buy. I am not flush so have a different view.

How flush are you? How many millions of debt are you cozy with? Do you have to buy it all? Do you have to buy it to remain feasible? Is it really needed, or is it that having someone else buy it will drive you crazy?

I bough a section of adjoining land before the run up. Thankful for it. Had I not gotten it, i would have not been close to feasible. So I felt I needed to buy it. If prices then, were as they are now, I’m thinking I would have had to be a farmer in the footnote of history, because I simply couldn’t afford land at these prices. And these prices are way lower than most areas are.

If land dropped in half, WHEN it drops in half, it wouldn’t affect me, because I didn’t base my future on high land values, nor did I borrow against land equity to buy anything.

Land could drop in half. Don’t kid yourself.

Make your own decision, not rely on a forum, with a bunch of wealthy farmers. Use your own reality. Not theirs.

Yes sheep. That is my reservation. I can cash flow it, but is it the right move? Could I buy double in 5 years for the same $?

[flea beetle]

Edit in...God I hope you're kidding

We do pay taxes....corporately.

Waiting for an income failure.....what if it never comes?

Just cause you sell the grain(corporately) doesn't mean you have to spend the money either.

Deferring grain sales or storing graiin and prebuying alot of expenses to avoid paying personal tax....you won't win that game. Only seems to become more unmanageable.
Think of those two management decisions as two lines......you're hoping they stay parallel, maybe converge a bit but they might only continue to diverge....getting further and further apart. You become cash poor because your money is in deferred grain sales or inventory or all used up to prebuy tax saving expenses. You are running a business on "personal" income with punishing regressive tax rates at high incomes above what is needed to live day to day.

Edit in again.....so you wouldn't sell $12 canola, $17 flax, $8.00 wheat and any other commodity you grow that might have a real good price to avoid paying the crippling high personal tax? Who is your accountant?

Well that is the only place left to turn. Not sure if I can defer 2 years out? After that, I’m screwed. I usually sell the high priced crops and hold the lower stuff. (ie- have lots of wheat to sell)

So what you are saying is that I am pretty well forced to incorporate...

Edit in, accountant was a guy that retired a few years ago that dad had been using for years. Maybe too old and long in the tooth?

Guy I went to for second opinion was a well respected mid aged guy that does almost strictly farm accounting. He was gung hoe to incorporate, but like I said couldn’t answer what would happen to wind it down. If in the end more tax would be paid.

What if the govt changes the corporate tax from 17% to 30% to pay for this Covid deal? Now you have no cash accounting to hide with, plus no tax benefit for being a business. I realize that is a stretch, but don’t underestimate the govt to change the rules half way through for their benefit.

Remember, they aren’t going to get it from the personal tax payers that aren’t working...

[Sodbuster]

You need to incorporate, deferring and storing grain for tax purposes is a poor idea. If you have good prices on grain you want to take advantage of it. You still might end up paying six figures for tax but at least you can average you income easier. Don’t be afraid to pay tax, I pay my wife and me around 115 each every year no matter what the year was like, take rrsp’s hat brings you to the top of 2nd bracket about 95. Let the Corp pay tax on $500 every year have a poor year use optional grain inventory to boost income to 500, have a good year use your optional inventory to reduce income. Always pay tax on 500 every year to optimize and average tax.

[STR1]

WOW!! This thread took a positive turn, as most do not........Started of as “Bankruptcies of the 1980s” and is ending on “paying too much income tax in 2020!!!!”
This thread says it all........farming has changed!!!

[flea beetle]

The other scenario is hire a herd manager and start buying cows to offset income. You get to write off the wage for the guy managing the herd, plus write off the cost of the cows. I realize, that this is adding to the problem at the end, but so does incorporating?

Not a cow on the place at the moment. Just thinking outside the box?

Want to sell some cows woodland?

[Guest]

Incoporate .......ideally would of been a few years ago

[blackpowder]

Wow, this thread just went from business to pshycodelic fantasy.

[flea beetle]

Another tax deferral. You don't want to make money owning cattle? A one time fix.

The idea would be to keep buying more and hiring people to offset the tax. Eventually giving it to the kids for 25 cents on the dollar. They show more interest in animals than the grain/hay end. They would have served the purpose for me, and I get to give my kids the saved tax vs. to the government.

Although as I am writing this, I realize that they will eventually end up paying the piper anyway as they would have no cost base.

I don’t know...incorporation it is I guess!

[canolacrazy]

finally, a good discussion related to farming.
merle good says to think about incorporating and selling some of your land to the company to trigger the captial gains exemption for both mom and dad. he figures you can sell at a 30% premium to current market prices in order to maximize the sale and the government won't have an issue with it. take back an interest paying note from the company and have it paid off over time to manage personal tax. when trudeau decides to go reduce or take away the exemption it's already locked in.

[woodland]

The other scenario is hire a herd manager and start buying cows to offset income. You get to write off the wage for the guy managing the herd, plus write off the cost of the cows. I realize, that this is adding to the problem at the end, but so does incorporating?

Not a cow on the place at the moment. Just thinking outside the box?

Want to sell some cows woodland?

Our cattle marketing guy we deal with used to be in the Edmonton stockyards and he said they had millions of dollars of cattle bought “on paper” at Christmas and then magically sold the first week of January. Businesses and people not even connected to Ag were doing this. I agree though it is kicking the can down the road.

Cows should be cheaper this winter based on current barley (high) and calf (low) prices. Currently in expansion mode with cows here so none available. If bred heifers crack $3500 like the last cycle top call me up. Heck I’ll throw in delivery too😉

In all seriousness if you want cows .............. more importantly if the wife will allow you to have them............ it’s not a bad time to jump in. Just remember you can get calls from the neighbour when you’re about to sit down for your dad’s birthday supper (two weeks ago) to say there’s a bunch of yearlings in their yard because a beaver dropped a tree on a fence .............. I have yet to receive a call saying my barley is running down the road😉


P.S. I am biased. I love my cows.............. most of the time😎

[foragefarmer]

Flea

Lots of advice on here, not all good some good, but seriously you have to get a good accountant before doing anything regarding incorporating so you can put your mind at ease.

Getting advise on a farmer chat line is ok but you need a professional farm account who can explain everything to you when it comes to reducing tax issues and helping you in make the right decission

[jazz]

Flea there is a lot less risk storing cash then grains. The defering thing is kinda old school and I remember my dad and when I started out trying to duck and weave, defer and prebuy and eventually got caught anyway.

Incorporation is the only way. Then you can buy and sell anytime and you can set your corporate year against the calendar year and the crop and calf season to create max flexibility.

My accountant uses a rent back strategy of the company renting my personal land and that can really hammer down the income tax.

We also take a lot of personal income from stock dividends which are taxed very lightly. A good chunk of our personal taxation is property taxes, probably more than income taxes or equal.

6 figures to Trudeau? hell no. I would buy iron just to park before that would happen.

Also, the it is easy to add kids as share holders to a corporation and it can continue on after you are done. They can draw an income from it from any RE.

Also, I think if you do incorporate, you cant go to the local guy for accounting advice. Gotta go to the majors, KPMG, MNP. You accounting bill will triple but its worth it because those guys know every trick in the book because they have huge corp clients.

[Sodbuster]

Land rent works good for income, it’s rrsp eligible and don’t have to pay CPP or EI. When winding down dividends work good, that’s my plan and I’m sticking to it.

[Bowerpower]

I have a Corp and I’m still deferring