As the owner and operator of a successful farming operation, you understand the importance of taking care of what is yours. You take pride in the operation you maintain.
Your organizational structure and the underlying records should be no different. Whether your plans are to pass the farm down or sell it, it pays to have your ducks in a row.
Maintaining an appropriate structure (corporation, sole proprietorship, partnership or a mix) and appropriate records isn’t something to put off — these are matters you should contemplate now.
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Records
One of the best things that provides evidence of your farm’s success is your records. If not properly maintained, this image of success can be easily blurred by things such as inaccurate margins and profitability, missing records or personal expenses flowing through your farm’s books. These seemingly insignificant issues become increasingly problematic as you make those larger decisions, such as expanding or selling your operation.
Firm up your structure
Many farms have more than one family member in the mix who has an interest in the farm’s future. When going through the steps of a transfer or sale, last-minute changes or differences of opinion can be costly.
To hedge against these potential hurdles, start the conversation about the farm structure now. If some form of conclusion is reached, the next step would be to consider formalizing the decision with the assistance of your professional advisers.
This could be as straightforward as a right of first refusal or lease agreement on the farming operation and assets or as involved as setting up new entities, transferring assets and bringing additional family members into the ownership structure.
Simplify your structure
Transferring ownership of the farm is exponentially easier when its structure is simple and clean.
If you are operating in a partnership or have incorporated your farm, the first step toward a simple and clean structure is ensuring you understand what assets are owned personally and what assets are owned by the partnership or corporation.
Succession and tax planning are much easier when the business and corporate structure are clearly laid out.
Further, if your farming operation consists of different segments, such as farming, trucking or processing, it may be worthwhile to consider splitting these segments into multiple entities to allow you to make independent decisions about the segments and deal with them separately in a sale or succession plan.
Another option is to separate your farming operation from your real property. In this option, you could put your farming operations, including all your equipment and inventories into one entity (such as a corporation) and you can hold the land in a different entity (such as personally).
This form of restructuring would allow for a situation in which you can sell or transfer the farming operation while still maintaining ownership of the land. Potentially, you could reduce your involvement of operating the farm while maintaining the cash flow generated by maintaining ownership of the land, through crop sharing or leasing. Such an arrangement would be something to consider if retirement is on your horizon.
Take action
Start the conversation now. When that conversation starts, seek professional advice — you and your operation will benefit. Whether it’s cleaning up your day-to-day records or reevaluating your organizational structure, your trusted adviser can help.
Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: colinmiller@kpmg.ca.
