Whose Names Goes on the Co-op Equity Account?
It’s no secret that being a member of a Co-op has its benefits, the biggest benefit being the rebate cheques we receive for our purchases. As an individual, the process is very straightforward – you buy your farm inputs at the Co-op and they give you a rebate cheque for part of the purchases and the rest goes into your equity account, which will be paid out to you once you hit a certain age (usually 65).
But what do you do with a corporation?
The corporation doesn’t ever hit that required age, and thus never has the chance to receive the equity. This has caused some confusion in the past few years, especially for those farmers who had an account in their personal name, then incorporated their farm operation, but kept their personal Co-op account.
For years, when it came to corporate farms we treated the patronage income earned as corporate income regardless if the Co-op account was in an individual’s name. The basis for this was that we were matching the income to the entity that incurred the purchases, which earned the equity in the first place. This was generally accepted practice and everything seemed fine. Then the Canada Revenue Agency (CRA) instituted their own tax slip matching program to ensure all T4A slips were being properly reported, based on the name or social insurance number that was linked to the Co-op account. This is where the confusion started.
For those farmers who had the Co-op account in their personal names:
CRA was penalizing them for not reporting the income on their personal tax returns. Even after proving to CRA that the income had been reported and taxed in the corporation, and arguing that we had followed generally accepted practices, CRA held the position that the individual’s name was on the account and therefore the individual was responsible to report the income and for paying the taxes.
CRA’s solution of having the corporation “allowed” to report the income and be responsible for the taxes was to have the Co-op account switched to the corporation’s name. The issue with that, as mentioned above, is that the corporation would never reach the “magic” age to have the full accumulated equity paid out. But for CRA that was not their problem.
All this being said, we now have a system in place to satisfy CRA on the personal tax side, while still having a position to report the income in the corporation. This allows the individual to keep the account in his/her name and benefit from the Co-op by receiving the equity upon reaching the required age. The details of the proper method of reporting can be quite involved and therefore not suited to be part of a summary article. We recommend that if you have a corporate farm, or are planning to incorporate, and have a Co-op equity account registered under your personal name that you give our Ag Team a call and we can discuss your options with you to ensure that you properly meet all reporting requirements.
Colin is a financial advisor with Harbourfront Wealth Management with a specialty in working with farmers who are planning to sell or transition their farms.
If you and your spouse plan to use your capital gains exemption when selling your farmland, be sure to watch this interview between Julien and Colin. They discuss some of the many pitfalls that many couples run into when selling their land.