Manitoba and Saskatchewan both saw reduced seeded acreage this year because of excess moisture problems
Both provincial governments are looking at assistance programs, but many farmers say they never got a penny from similar flood damage in 2011. Crop insurance isn’t much help either because it applies only if the producer seeds a crop.
However, some producers could wind up with revenue from both grain sales and insurance.
In effect, they are doubling up on their taxable revenue, but their expenses are lower than normal because of prevented planting. This is an extraordinary circumstance that creates its own storm of tax implications.
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Farmers can dampen the tax impact by accelerating expenses, such as buying next year’s seed and other inputs now to add expenses to partly offset income. However, this strategy has its traps as well.
Accelerating expenses could merely transfers the problem to the following year, when farmers will have revenue with no expenses. This is not considered a wise tax strategy when assets are tied up in inventory.
Tax deferral is another strategy, but the costs of recognizing these amounts in the final year of business can be substantial.
Perhaps a better plan would be to take a longer term view and focus on permanent tax deductions or deferrals, which will benefit taxpayers in their retirement years, much like a Registered Retirement Savings Plan.
For instance, tax investment strategies such as buying equity in companies that have flow-through shares can add tax deductions immediately and lead to capital gains in the future.
Flow-through shares are investments in Canadian companies that explore for minerals, oil and gas. They provide a 92 percent write-off in the purchase price of the shares and deductions for the remaining eight percent over the following two to three years through renounced expenses, which may be deductible in the year they are spent or over a number of years.
This type of investment converts what would have otherwise been potential investment income to future capital gains.
There are additional ways to cushion the tax problems of excess income, but whatever farmers choose, it is wise to consult with a tax specialist or financial adviser, ideally before their tax year-end so as to take action before taxes are locked in.
Correction
In my last article, entitled Beware snowbirds: Uncle Sam wants your money, I referred to the potential estate taxes on U.S. property, including securities in American corporations, debt from a U.S. person and the sun belt homes that some of you enjoy. The column said that U.S. federal estate taxes for last year were scheduled to rise to 55 percent and the exemption would drop to $1 million.
Although that was the stated intention of Congress, an astute reader corrected us, noting the law never passed. Instead, the American Taxpayer Relief Act of 2013 became law on Jan. 1, 2013, permanently raising the maximum federal estate tax rate to 40 percent and maintaining the $5 million effective exemption for estates of those dying after Dec. 31, 2012.
