Farm incorporation rate highest in Saskatchewan

Farms continue to incorporate, according to the latest census.

One-quarter of all farms were incorporated in 2016 compared to 20 percent in 2011 and two percent in 1971.

“Overall we’re seeing a shift to more incorporations,” said Erik Dorff, an analyst with Statistics Canada.

That doesn’t mean farms are being run by men wearing ties and women in pantsuits. Nearly 90 percent of farms that identified themselves as corporate entities still consider themselves to be family run operations.

Saskatchewan has the highest proportion of incorporated farms on the Prairies at 27 percent, followed by Alberta at 25 percent and Manitoba at 22 percent.

The proportion of farms being incorporated rises as gross farm receipts rise: nine percent in the under $10,000 category to 85 percent in the $2 million and over group.

The largest number of incorporated farms —nearly 10,000 — is in the $500,000 to $999,999 category of gross receipts, or 59 percent of the farms in that group.

Stan MacEwen, senior associate with Laskowski & Wright, an accounting firm in Warman, Sask., said there are a number of reasons why farms are increasingly adopting a corporate structure instead of sole proprietorships or partnerships.

“Buying land is the biggest trigger to incorporation,” he said.

In some areas land is selling for $500,000 a quarter.

“To buy that on a personal tax basis you’re going to have to be taxed in at least the second or third bracket, which is going to run you up to 38 percent or more tax,” he said.

By contrast, a corporation in Saskatchewan is taxed on the first $500,000 of a farmland purchase at a rate of 12.5 percent. That’s a 25 percent tax savings.

“That’s significant,” said MacEwen.

Another reason to incorporate is to get one step removed from liability issues. It doesn’t completely protect a farmer from being sued, but it does provide a bit of a buffer.

An incorporated farm can have an operating company and a holding company above it. Cash can be moved from the operating company to the holding company, where it is protected.

Another advantage is simplicity. An incorporated farm owned by a number of farm families has only one crop insurance contract and one grain contract and more marketing clout, said MacEwen.

One perceived disadvantage is that incorporated farms have to file a balance sheet to Revenue Canada.

“You have to have better records to file as a company,” he said. “But for me, better records is good because the better your records the better your management decisions will be.”

Running a farm as a corporation also makes it easier to transition the operation to the next generation because the corporation doesn’t cease to exist upon the death of one of the shareholders.

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