Brooks (Rural Roots Canada) – To incorporate or not to incorporate the farm.
Tony Benevides with Farm Business Consultants says you need to weigh the pros and cons when trying to determine what is best for your operation.
And one of the major considerations should be what the tax ramifications are.
“So some of the advantages first you have limited liability. They can’t go after you personally, well they could, but a very small portion they can go after first,” Benevides said.
He says a corporation extends beyond the life of the shareholder.
“So if you’re setting up a family corporation, if one of the shareholders pass away, the corporation stays intact.”
He points out the farmer in this case avoids the sale of the farm and the selling of assets that would be subject to tax and things that you don’t want to necessarily be forced into doing.
READ MORE: FBC’s top 12 tax tips for farmers
Benevides adds the tax rate for corporations is much lower.
“On the personal side, if you’re in a proprietorship or in a spousal partnership or in a partnership, your income tax, depending on your level of income, could be as high as 50 percent.”
However, he says there are some disadvantages as well.
“It’s a lot more expensive to have corporate taxes completed by a tax provider than it is a non-corporate return; you usually have to pay a lawyer.”
You have to pay for a minute book update every year, too, just one of the added costs.
“There are some added costs associated with incorporation, so you need to consider those. Another tax return seems like it’s more complicated. So, again, another tax return to have to keep a hold on to so whatever the case may be but to some people, that is a disadvantage.”
He adds that there are no personal tax credits, so it is important to decide why you should or why you shouldn’t.
Benevides spoke at Rural Roots Canada Virtual Ag Day last July.