Cash Reference Margin Calculation Tool
and the Importance of the Cash Margin on Preliminary Tax Planning
As you may have read in our November newsletter, AgriStability is offering a pilot program for calculating reference margins based on cash transactions and not including any year-end accrual adjustments. What this means is that the ability to estimate the potential for AgriStability payments has become more user-friendly.
While the current year ‘program year margin’ will continue to use year-end accrual adjustments, the reference margin, in which it will be compared against, will be based on your cash basis eligible revenues less eligible expenses, for the previous five years.
Cash vs Accrual Margin Calculation Tool
To assist you in performing your own analysis on whether to opt into the cash reference margin pilot program, we have created a ‘Cash vs Accrual Margin Calculation Tool’. This tool will allow you to estimate your cash-based reference margins and compare it to your estimated accrual-base reference margin. From the results, you will be able to conclude if your reference margin will be better off under the cash or accrual method and thus put your operation in a better position to qualify for AgriStability benefits in the future.
Note that the preliminary calculation tool is for estimates only and does not guarantee whether a payment from AgriStability is forthcoming. It is only meant to assist to determine if your reference margin under the cash basis pilot program would improve the odds of being in a payment position.
It is also important to note how opting into the cash reference margin pilot program could have an impact on your tax planning decisions. We always recommend farm operations to consider their tax position before the end of each fiscal year by performing a tax planning preliminary, either by performing this yourself or with the assistance of a trusted farm tax professional. These preliminaries are often driven by planning out a desired net income position for the farm to result in a certain tax position. Now with the cash reference margin option, this introduces a new aspect to the preliminary, where the tax planning should involve how the net income for tax purposes will affect your reference margins for AgriStability purposes. This new impact offers new possibilities to strengthen your risk management strategies.
Your tax planning decisions should never be solely based on always paying the least amount of taxes, but rather the most efficient amount of taxes over the long term. If your operation opts into the pilot project now your tax planning decisions should also include having your AgriStability margins at the most efficient level. Therefore you should always be aware of the impacts of the tax planning decisions that you make for your own farming operation. Don’t base your planning decisions on what your neighbor is doing or what you hear at the coffee shop (although there are not many coffee shops visits these days, thanks COVID). Ensure you have a good understanding, or have a trusted professional help, on how decisions made affect your operation.
If you are interested in receiving a copy of the calculator please reach out to our Ag Team and we will forward it to you. If however you struggle with the whole idea of the AgriStability program and you would prefer our assistance in providing you with recommendations on the benefits of joining the cash reference margin pilot program, or if you require assistance with tax planning preliminaries please don’t hesitate to contact us and we can determine how best to help you.
If you know someone who benefits by having access to our Cash vs Accrual Margin Calculation Tool, feel free to encourage them to sign up to our newsletter and reach out to us and we’ll gladly share with them the calculator.