The Fraser Valley Regional District, one of the most intensively farmed areas in Canada, is facing both internal and external issues concerning tax increases and the transitioning of wealth to the next generations of farmers.
Agriculture has been and remains a key component of the Fraser Valley's economy, but potential changes coming out of both the Canadian and U.S. governments concerning farming, as well as steep land costs in B.C., have made financial planning more important for agriculture business owners.
Potential changes in taxation and quota farming
Todd Kesslar, a partner at accounting and business advisory firm Manning Elliott LLP, specializes in the agriculture, agri-food, and farming industry in the Fraser Valley. Kesslar says that even though many farmers in B.C. are currently operating by quota systems, that may not always be the case.
Canada is one of the only developed nations in the world that still has formal quota systems for some farm products like eggs, poultry and dairy. Farmers are able to purchase a licence to produce, and once they have bought that license they have a guaranteed purchaser. Meanwhile, most other economies operate on a free market concept. The U.S. administration is currently examining quotas, and may make changes to the way they treat the Canadian farming industry.
“We’re a bit protected from market volatility,” said Kesslar. “But Donald Trump has been rumbling about taking a look at quotas, in addition to his look at the North American Free Trade Agreement.”
Transitioning wealth to the next generation
Recently, the transition of family farms to the next generation has been a concern in the Fraser Valley community and for CPA firms like Manning Elliott. Farm owners are currently facing changes to tax rules—these proposed tax changes may affect how business owners are permitted to spread income amongst family members, and the switch will result in increased taxation.
The new NDP government will announce their next budget in 2018 and the federal Liberals will do the same in the spring, but as of right now it is unclear how much taxation will change for B.C. farmers.
“There’s a lot of transitioning of wealth from the Baby Boomer, founder-owner generation to the next generation,” said Kesslar, explaining that many farmers have multiple children and have difficulty splitting up the businesses value so that everyone is treated fairly.
CPA firms like Manning Elliott LLP deal with estate and will planning a lot more now, as farming is no longer just about farming, but also about wealth preservation and managing transition processes.
A different scene
Interest rates in B.C. are creeping up, and Bank of Canada rates have increased as well, meaning that farmers in debt are potentially facing larger payments. These are traditional issues that face any small business owner, but Kesslar stresses that given the uncertainty concerning government plans at the moment, farmers should be seeking out financial guidance from CPA firms.
“Our real-estate values in comparison to most other jurisdictions in the country are outrageously high,” said Kesslar. “So, it’s really a barrier to entry. I don’t think it’s economically possible or feasible for someone to enter the industry now without some sort of helping hand from the previous generation.”
Seeking financial advice
Those involved in agriculture need to make sure they are minimizing their tax burden on an annual basis, structuring and preparing their farms for changes in the industry and for transition of ownership.
“Back in the day you could be a good farmer and make a good living doing it,” said Kesslar. With the future of quota farming in question and tax increases about to hit, agriculture business owners are encouraged to be proactive about seeking financial advice. “Just being a good farmer isn’t good enough anymore. You also have to be a good businessman.”
To learn more about Manning Elliott LLP and their team of experienced accountants and business advisors, visit www.manningelliott.com.
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