MYFB — Ep. 30: When and why to incorporate the farm

Perhaps more contentious than the buy versus rent debate is the question of when and why to incorporate the farm.

The federal government proposed sweeping changes to how taxes were calculated for corporations last summer. The changes were met with significant push-back from the farm community, as the new rules would have a significant impact on business planning, farm retirements, and succession, and Ottawa has since backed off on some of the changes.

However, the question on incorporation remains.

In this episode of the Mind Your Farm Business podcast, Dean Klippenstine, from MNP, joins Shaun Haney for a thorough and thoughtful discussion on when and why to incorporate.

From using litmus tests on how assets would be taxed, to turning the question around to ask when it may be prudent to NOT incorporate, to a discussion on passive income (see more below the player), this episode is a don’t miss for any farm business, full of real-world examples you can use for your own evaluation.

The 2018-19 federal budget was announced February 28. While it didn’t have a lot in it for agriculture, it did lay out the new rules involving passive income as it relates to corporately held investments. These rules apply to all investments generating passive income held in a corporation — GICs and mutual funds, yes, but also land.

To summarize, the passive income changes mean as a corporation builds passive income, the amount of business income eligible for the small business tax rate will decrease. Starting when passive income reaches 50,000, income is indexed to the point where there’s no small business tax rate benefit when passive income reaches 150,000.

As with any taxation questions, consult a tax expert to find out how these new rules may impact your business.

Disclaimer: Royal Bank of Canada and its subsidiaries are not responsible for the information provided in this podcast, and this information does not necessarily reflect the views of Royal Bank of Canada or any of its subsidiaries. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its subsidiaries.

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