Get the best profit for your AgriInvest money

Investing time in planning AgriInvest withdrawals can save taxes and help farmers build their cash flow and pension funds for the future. But it is a management opportunity that too many accountants leave on the table, according to a national accounting firm.

Canadian farmers have money in AgriInvest accounts that earn almost nothing in interest, says BDO partner Don Simpson. The collective total was $ 2.27 billion to $ 2.37 billion in 2020, and deposits earn about 1% interest, less than the inflation rate.

Why does it matter: Farmers should talk to their accountants about planning AgriInvest withdrawals. A proactive management approach can save taxes and build business and pension funds.

“Farmers need to talk to their advisers about how they can best benefit from their assets,” says Simpson. “AgriInvest taxation is one of the things that people don’t pay enough attention to.”

As withdrawals from government funds have correlated and interest earned on deposits is taxable, some farmers may be upset about accessing this cash, so they treat it as a rainy day fund.

With a proactive approach, Simpson says there are many ways to make money work for them.

He notes that those who report a small annual profit or loss using cash-based accounting can withdraw AgriInvest funds with little or no tax cost. Using this money to buy tickets for next year would be both an income and a compensation expense, which means that it would not have generated any net taxable income.

“As costs have risen in recent years, we are seeing more farmers using short-term debt to buy inputs,” says Simpson. “If you would otherwise pay four to six percent interest to the bank, it makes sense to give up the one percent interest earned on the AgriInvest deposit to reduce interest costs and have more value on the farm.”

In terms of investment, he advises farmers who do not use a corporation for their farm to attract AgriInvest taxable income and make a contribution to the RRSP that directly offsets the amount.

Farmers with corporations can also withdraw funds and deposit them in a secure investment account within that corporation. The value after tax will accrue faster than the value accumulated in the AgriInvest account.

“Taxation is not a once-a-year exercise, so we always have to look at the big picture,” says Simpson. “Properly planning to pay a reasonable amount of tax on a recurring basis over a lifetime will result in significant savings compared to unplanned transactional events.”

AgriInvest accounts have a maximum balance limit based on the most recent three years of net sales allowed. If agricultural production falls, the farmer may be forced to withdraw funds and incur an unmanaged tax cost.

Closing an account during a year with significant income from the liquidation of other assets can also lead to an unfavorable tax position.

AgriInvest is a producer-government savings account designed to help farmers manage small incomes. Account holders may submit up to 100 per cent of the net allowed farm sales each year and may receive a contribution equal to one per cent of the net allowed sales from Agriculture and Agri-Food Canada. Get the best profit for your AgriInvest money

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