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When it comes to diversified agri-food activities, it is to the entrepreneur’s benefit to undertake an in-depth tax analysis and optimize the business’s structure.
The agri-food sector is distinctive in that agriculture and food processing activities overlap. This makes the industry interesting, but also adds numerous tax considerations.
Tax credits and benefits
The agricultural sector enjoys enviable advantages from a tax point of view. For example, holding eligible farm property and/or corporate shares that qualify as eligible farm property can result in a $1,000,000 capital gains deduction when the business is sold.
In addition, an exclusive and specific provision for this sector is the possibility of transferring the property to family successors with no tax impact. However, compliance with certain conditions is essential in order to avail oneself of these benefits. It is therefore important not to “contaminate” an agricultural activity with non-agricultural operations if the ultimate objective is to take advantage of these tax incentives.
On the other hand, there are also advantages available for manufacturing and processing activities, or M&P as they are often called, such as certain investment tax credits or favourable capital cost allowance rates.
The importance of an appropriate structure
As a general rule, it can be more complicated to benefit from the tax advantages inherent to both activity sectors (agricultural and non-agricultural) if they are grouped under the same entity, hence the importance of discussing with a tax specialist who will be able to help you plan an appropriate and customized structure for your business and projects.
Here are a few key moments in the life of an agri-food entrepreneur where it is essential to consult the right specialists:
Business start-up
Proper guidance and planning will help you determine the most appropriate structure for your business (sole proprietorship, corporation, partnership, trust).
Activity or product diversification
Experts will be able to accompany you in your plans to diversify your activities or products. For example, you own an orchard and want to start producing cider. Does it make sense to combine these two activities into one entity in your situation?
Integrating the various activities
You can choose vertical integration (from cultivating to processing, marketing, distributing and selling your product) or horizontal integration (through the development of services related to your operation, such as organizing weddings and tourism activities at your vineyard).
Growth by acquisition or partnership
Experts can also assist you acquire a competitor, integrate shareholders, develop partnerships, expand or purchase buildings, land or equipment.
Succession planning
Think about succession planning, a possible divorce or estate planning as well.
It is in your best interest to be well supported through the maze of a sometimes complex tax system. Contact our experts to optimize your business’s situation.
Updated on February 16, 2021.