Accountants are calling it a $4 billion agricultural mystery – what will farmers do with the money they have accumulated in their Net Income Stabilization Accounts?
The federal government wants to phase out the popular program beginning April 1, assuming that by then, either the Saskatchewan or Ontario governments will have joined the agricultural policy framework that replaces NISA and crop insurance with the new Canadian Agricultural Income Stabilization Program.
If that happens, farmers will have five years to close down their accounts beginning next fiscal year. They must withdraw at least 20 percent a year.
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Jack Gerger, a grain farmer and tax consultant from Weyburn, Sask., doesn’t have to worry about what to do with his NISA funds. Bad years beginning in 2000 led to withdrawals of most of the money.
“I have triggered most of my fund already,” he said. “It’s not such a big issue for me.”
But for many farmers, the dilemma is how to use the money, when to withdraw it and whether to reinvest it in the industry.
Even more fundamentally, there is a question of whether NISA really will end March 31. Will either Saskatchewan or Ontario sign?
“I certainly agree that there are a lot of unanswered questions that farmers have and they are legitimate,” Gerger said. “If there is no agreement by March 31, NISA is around for at least another year.”
Meanwhile, farmers must realize the program still exists and make choices about investments or withdrawals for the 2002 tax year by Dec. 31.
Orville Acton, a Weyburn-based financial adviser with the investment firm Edward Jones, said the real issue facing farmers with NISA funds is how to withdraw them in a way that minimizes tax.
Money in NISA’s fund two, which contains government matching funds plus interest earned, must be withdrawn first and is taxable.
“It is important that farmers looking to withdraw not take it all out in a year they are having the auction and accumulating lots of taxable income,” he said.
Money in NISA fund one, the farmer investment fund, is not taxable and will be drawn down in proportion to fund two withdrawals.
“The bigger funds tend to be held by older farmers and if they are seeing this as a cushion to use for their retirement and a way to move off the farm, it is important that they get advice to make sure most of that does not get taxed away,” Acton said.
