There are nearly 205,750 farms in operation in Canada, based on the latest statistics from the Census of Agriculture.
While this is down rather significantly from the more than 280,000 that there were in 1991, it's still enough to make Canada a major world hub for agricultural activity and profitability.
"There are over 205,700 farms in Canada."
Though many of today's farms are only a few years old, launched by people who were born with a green thumb, they are often handed down from generations gone by, as farming is one of the oldest professions in the world.
Do today's farmers plan on passing off their passion to agricultural enthusiasts of tomorrow? If you're basing it on what types of preparation people have put into it, apparently not, according to the results of a study conducted by the Royal Bank of Canada.
Roughly 33% of farm owners say that they expect their business to change ownership within the next 3 years, the RBC survey revealed. Of these, more than 60% said that a family member will succeed them, or a partner who currently operates in a secondary or accompanying capacity.
Only 3 in 10 Have Formal Succession Planning Procedure
Yet despite these succession expectations, few have put pen to paper.
In other words, a meager number have put together a system that clarifies how their business will change hands. The poll found that just 30% have a formal succession planning procedure in place.
Gwen Paddock, national director of agriculture at RBC, indicated that it's little wonder why so many farm owners have neglected this key aspect of business management, as despite being early risers, there's almost never enough hours in the day to get everything done.
"Farmers are often so busy with their day-to-day work, it can be difficult to even think about the day when they won't be farming," said Paddock.
"But we also know that the future success of their farms depends upon having a well thought-out succession plan in place."
She added that farmers can address this by reaching out to a qualified tax specialist, legal expert or advisor who has the skills needed to chart out a reliable succession plan so that the transition is streamlined and the new owner can pick up right where the former head of management left off.
Several Tax Implications To Consider
In addition to the compliance procedures that owners often have to go over with those who are succeeding them, there are a number of other tax-related issues to account for as well.
For instance, if you're in the black as far as revenue goes, that income will likely be handed off to a family member, friend or whoever else will be taking the reins of the business and how it operates.
These assets may be taxable, depending on the capital that's being handed off.
Additionally, what your successor does with his or her earnings can factor into tax planning. For example, they may decide to donate a portion of what the company makes to a charitable foundation. If this is something the farm hasn't done before, there are tax implication and deductions that apply.
FBC serves as your succession management headquarters. Speak with an FBC specialist to learn more.