In Canada, agriculture is a huge industry. According to the Tax Planning for Farmers Website, there are 189,874 farms in Canada with yearly cash earnings of over $54 billion. The agriculture sector must always respond promptly to a variety of issues, including extreme weather occurrences, trade conflicts, and changing market conditions. The well-being of farm operators is impacted by each of these problems. It is crucial to gather data on the state and resilience of the agriculture industry in light of these difficulties.
As a farmer, you have a variety of special tax considerations. You should take the time to think about both short-term and long-term planning strategies that will assist in reducing the amount of tax that you and your whole family have to pay. So if you are a farmer who doesn't know how to save tax, then don't worry. In this blog, you will learn the top eight tax-saving tips for your farm.
Tip number 1: Record transactions when cash is paid or received
According to albertafarmexpress, Carman Praski, business development representative at Farm Business Consultants, said that recording transactions when cash is paid or received is very crucial. Doing this will determine how much cash in hand you have at any given time. You can also look into accrual accounting, which gives you a clearer view of your revenue and spending over a certain period. Moreover, until and unless you don't have the cash, you will not be taxed upon it. However, knowing all your cash flow is very essential.
Tip number 2: Retain accurate records
Retaining accurate records is very important if you are looking for ways to reduce your taxes.
Carman Praski, business development representative at Farm Business Consultants, said that,
“If you don’t maintain good records and are audited by Canada Revenue Agency, you could be charged with fines and other penalties."
Keeping proper records entails preserving any documents that may support your expenditure claims on your tax forms, such as sales invoices, cash deposit slips, reimbursements, agreements, cash purchase tickets, and check slips.
Tip number 3: Borrow money to invest and save money to purchase
The third tip is to borrow money to invest and save money to purchase. The smart way of making your debt decrease is by taking a loan from a bank or any close relative and investing in your farm, for instance, machines, crops, seeds, and more. The advantage of taking debt might be that it might reduce your tax burden a little. According to the Canada Revenue Agency (CRA), purchasing items with debt or loan amounts is not subject to tax.
The better way is to take a loan for your farm and purchase items from that loan and invest them in the farm so that you can pay it back.
Tip number 4: Timing capital gains and losses
Another tip for readers is a simple one: timing capital gains and losses. You can look at your lifetime capital gains or profits that you have earned and find a capital exemption. For example, if you are selling your land or machine, instead of recording it as a profit, you can record it as a loss to save tax deductibility. For better understanding, you can always contact a professional.
“It’s good to look at things over the years, such as cash flow planning, profit margin opportunities with your production, controlling expenses, and even using insurance strategies as well, to help with your farm operation,” said Carman Praski, business development representative at Farm Business Consultants.
Tip number 5: Custom or contract work
Custom or contract work is the best way to reduce your taxes. The literal meaning of custom or contract work is hiring someone for rental work or equipment that will produce output for the farm business. This helps farm businesses produce more output than they were earning before. Rental products are the best and easiest way to invest in your farm.
Tip number 6: Insurance
You can write off the cost of your business insurance premiums for coverage on farm structures and some agricultural machinery. You can deduct your insurance payments from your motor vehicle costs and also from:
- Interest and bank charges
- Livestock
- Machinery expenses
- Motor vehicle expenses
- Office expenses
- Pesticides
- Professional fees
Tip number 7: Bad debts
The meaning of "bad debt" is any loan or outstanding balance that a business deems uncollectible. If you owe a customer money and can't get it back within a year, you might be entitled to claim it, according to the Canada Revenue Agency (CRA). Not every defaulted debt qualifies. You cannot claim bad debts resulting from a conditional sales agreement or obligations connected to a mortgage with the CRA. For more information related to bad debt, it is important to take your case to an expert.
Tip number 8: Depreciation
The last tip to saving taxes on your farm is deprecation. In accounting terms, depreciation means allocating the cost of a tangible asset over its useful life to account for declines in value over time. So depreciation will be used if you purchase a structure, a piece of furniture, equipment, a machine, or a vehicle that is valued at more than $500, then you need to write off the cost over several years. However, you must adhere to a few conditions.
- Subtract the cost of the property or asset you have bought in a few years.
- CCA can deduct class 8 property by 20%.
- 30% deduction in class 10, identified as vehicles, tractors, and trailers.
Conclusion
According to the Tax Planning for Farmers Website, there are 189,874 farms in Canada with yearly cash earnings of over $54 billion. Retaining accurate records is very important if you are looking for ways to reduce your taxes. In this blog, you will learn the top eight tax-saving tips for your farm. Some tips are to borrow money to invest in and save money to purchase. Rental products are the best and easiest way to invest in your farm.
You can write off the cost of your business insurance premiums for coverage on farm structures, machinery, and some agricultural equipment. The meaning of "bad debt" is any loan or outstanding balance that a business deems uncollectible. If you owe a customer money and can't get it back within a year, you might be entitled to claim it. These eight tips will help farmers save tax in a smart way.