Frequently Asked Questions - The Retiring Farmer™

Frequently Asked Questions

See below for a list of frequently asked questions:

The Retiring Farmer™ Newsletter

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LEARNING DASHBOARD

If there is a topic that you would like to see addressed on the Learning Dashboard, please email us and we would be happy to consider your request. There are always others out there with the same question(s)!

Of course, feel free to contact our office at 1-877-996-8696 to discuss your issues directly with a professional adviser.

What is the Canadian Farm Learning Centre?

You can find more information about the Canadian Farm Learning Center by clicking here.

Simple. To give farm business owners the tools to develop a deeper understanding of how to best manage their farm business.

As stronger business skills are developed, a farm business manager is better equipped to work alongside their professional advisory team to develop a stronger and more efficient farm business plan.

Tax Planning

Yes to the first question and ABSOLUTELY NOT to the second. The belief that there is nothing that can be done to minimize taxation on farm liquidation is commonly advised but is far from reality. It would be highly unusual that tax planning prior to a farm sale would not significantly reduce the income tax burden. In many cases tax planning prior to the farm liquidation can result in tax savings sufficient to fund retirement. It is when tax planning is left until after the farm sale that many opportunities to reduce taxation can be lost.

Tax planning not only involves the reduction of income tax but also the deferral of taxation. By deferring taxation, the additional funds that are not yet collected by Canada Revenue Agency can be invested by the retired farmer to generate wealth and retirement income.

Yes, minimal tax will be deferred or avoided if you personally withdraw all cash from the company immediately after the farm sale. However, each shareholder can withdraw approximately $35,000 annually from the farm corporation as a dividend and pay minimal personal income tax assuming each shareholder has no other income.

Withdrawing cash from a farm company over a number of years is generally the best strategy.

This scenario is likely the largest tax saving opportunity available to farmers that is most often overlooked. The answer is to create a farm partnership and transfer the partnership to a qualified farm corporation before the sale.

A farm partnership will provide a tax efficient vehicle to reduce taxation in many cases from 48% to 12.5%. Assume Dad will realize $500,000 of taxable income on the planned sale of equipment and grain upon retirement in three years’ time. Farming as a sole proprietorship now, Dad could in effect transfer his equipment and grain into a partnership with Mom as the second partner. After farming as a partnership for at least two years, Dad and Mom can then transfer their partnership interest into a qualified farm corporation for liquidation. What this accomplishes is that Dad’s equipment and grain has been converted for tax purposes into what is referred to as “qualified farm property” taxed as a capital gain as opposed to ordinary farm income. Dad’s partnership interest, with a $500,000 value derived from equipment and grain, is taxed upon transfer to the farm corporation as a capital gain which is exempt from taxation through applying the capital gains exemption. The farm corporation owes Dad $500,000 for his partnership interest. Once the corporation has sold the equipment and grain the cash can be used to repay this debt to Dad free of income tax. As Dad’s income was subject to taxation within the corporation at 12.5%, tax of 35.5% or $177,500 was saved because this same income may have been taxed at 48% if taxed in Dad’s hands personally.

Farmers are advised to consult with qualified farm tax advisers when applying this tax strategy as there are elections that need to be filed with the Canada Revenue Agency and the farm partnership and farm corporation must be created meeting certain tax and legal criteria.

Sometimes you need someone to “quarterback” your affairs. Our team of professionals have experience in dealing with matters “new” to you such as minimizing income tax, selling or transferring the farm or managing investment portfolios. We can help facilitate the lines of communication between you and your current network of financial professionals to ensure the best possible solution is achieved. We have legal, tax, insurance, estate and investment specialists within Assante Private Client, a Division of CI Private Counsel LP that will work along with you. We also have a working relationship with outside professional firms (lawyers, accountants, auction companies, realtors) that can be engaged to assist and ensure your success

The Retiring Farmer™ Wealth Management Process coordinates the tax, retirement, estate planning, farm succession, legal and insurance strategies of the farm family documented in a comprehensive written financial plan. We find that many farm families are paying significant income tax on the liquidation of the farm and throughout their retirement years that can easily be avoided or minimized through planning.

Through our relationship with Assante Private Client, a division of CI Private Counsel LP, we work closely with investment management to deliver customized investment solutions and integrated wealth plans that meet the diverse financial needs and goals of Canadian farmers. With active money management from portfolio managers around the world, our clients have exclusive access to customized investment solutions for the Canadian farmer that are integrated with their wealth planning strategies. We also have strategic alliances with major insurance companies to provide insurance products and solutions to meet the personal and business wealth management needs and goals of our clients.

To deliver the services of The Retiring Farmer™ Wealth Management Process, it is critical that we coordinate our services with those of our clients existing accountants, lawyers and other professional advisors.

In many cases we act as “quarterback” to implement the advice provided by professional advisors. Should a client not have professional advisors we are able to recommend a specific advisor who best meets the clients personalized needs

Life Insurance

Not everyone needs or requires life insurance but it is always a good idea to review how life insurance can fit into your individual situation. Some people feel whatever they have left after repaying debt and income tax upon death is a sufficient inheritance for their family. Many think otherwise.

There is no right or wrong answer; it depends on what is important to you. Some of the ways we can use our insurance solutions to protect and enhance your personal life include:

• Preserving your estate so that what your children inherit is not eroded by income tax
• Maximizing your estate using the significant tax advantages of life insurance
• Protecting your quality of life against the financial impact of prolonged illness or injury

We can also offer insurance solutions to protect your farm and contribute to its success by:

• Protecting your farm against the loss of an owner or key person
• Protecting your farm if an owner or key person suffers an accident, sickness, disability or critical illness
• Meeting the tax and estate planning needs of transferring farm ownership to a family member

Not everyone needs insurance but most can use insurance to their advantage to build or preserve wealth. It is a personal decision as to whether this is important to you.

Getting in Contact With Our Team

Currently we have offices in:

• Saskatoon, Saskatchewan
• Swift Current, Saskatchewan
• Outlook, Saskatchewan

To contact any of our offices, please call toll free 1-877-996-8696 or view office locations here.

Please call 1-877-996-8696 or fill out the contact form here. A member of our team will be more than happy to assist you.