By Steve Brackenridge, Director, Ontario Federation of Agriculture
As the year comes to a close, farmers are wrapping up the last of the field work and preparing their farms for the winter. It’s also time to start focusing on getting ready for tax season.
That means getting bookwork caught up, receipts and paperwork gathered and taking time to generally take stock of how the farm has performed from a business and financial standpoint over the past year.
It also means getting up-to-date on any tax policy changes over the past year that may have impact on a farm business. This is particularly relevant since the start of COVID-19, as there have been many special government programs to help Canadians cope with the impacts of the pandemic over the last several years that are still applicable today and can have implications at tax time.
For Ontario farmers, there is one change in particular that has come into effect over the past year that I’d like to draw attention to.
Earlier this year, the federal government’s Underused Housing Tax Act became law in Canada. It charges an annual tax of 1% of the value of housing the government deems vacant or underused and is owned by those who aren’t Canadian citizens or permanent residents. There are broad exemptions for individuals, charities, governments and public corporations, but any private farm corporations, farm partnerships or trusts that own residential property will have to file a return even if they are exempt from paying the tax.
The penalty for not filing is $5,000 for an individual and $10,000 for a corporation, so it pays to pay attention to this new requirement – especially since it hasn’t received a lot of attention since it became law in June.
Your accountant can provide additional information, as well as support and recommendations on other tax strategies specific to your farm business.
Farm vehicles or trucks also play a role at tax time. Farmers – and in fact, all business owners – who use farm or business vehicles for non-business purposes are required to keep a log that shows the number of kilometers they drive for both business and personal use. It’s an issue that can trigger a Canada Revenue Agency audit, so it’s worth keeping on top of. There are online templates for manual tracking of kilometres, but there are also smart phone apps that can do the job in real-time, including mileage trackers built into common accounting software packages like QuickBooks.
It’s not just tax time that makes it important to be on top of accounting and financial record keeping for a farm business. At our recent annual meeting of the Ontario Federation of Agriculture (OFA), a speaker from MNP gave a seminar on farm financial fluency, what it is and why it plays an important role in good farm management.
Chief among those was a demonstrable and measurable link between adoption of good business management practices and better farm business profitability, higher levels of confidence and a decrease in stress and anxiety.
The agriculture industry has been actively shining a light on the stresses of farming and the toll they can take on the mental health of farmers, their families and their employees – and worries about finances and profitability are key contributors to that stress. More information about farmer mental health is available on Farmer Wellness Initiative website.
Good financial management practices are also important when working with your lender, whether it’s for ongoing farm financing or if you’re contemplating an expansion, building a new facility or adding new equipment. Your farm’s financials are what they use to assess financial risk and your ability to borrow money, which can have an impact not only on whether they lend to you but also the interest rate you’ll have to pay.
Here are seven things you can do to improve your farm financial fluency:
- A commitment to lifelong learning and skills development
- Making business decisions using accurate financial data
- Seeking the help of business advisors and consultants
- Having, using and regularly updating a written business plan
- Knowing and monitoring cost of production and what it means for your farm’s profits
- Assessing risks and having a plan to manage and mitigate risk
- Using a budget and financial plan to monitor your financial position and options
OFA hopes that all members can benefit from these tips and considerations when it comes to preparing for the upcoming tax filing season.
As we wrap up 2022, we would like to wish everyone a safe and happy holiday, and all the best for the year ahead.
For more information, contact:
Tyler Brooks
Director of Communications and Stakeholder Relations
Ontario Federation of Agriculture
519-821-8883 ext. 218
tyler.brooks@ofa.on.ca