The future is now
Why planning for generational ‘transition’ of a farming operation can’t wait.
By Tamara Leigh F
arming is complex business, oftenmademore complex by having to navigate family
relationships, responsibilities and expectations in a business setting. Managing effective business transitions fromone generation to the next is one of themost important and sensitive transactions a farmfamily willmake, but it gets easier if you start today. JimSoldan, of the Family Furrow/
The Canadian Family Business Institute, has stopped using the words “succession planning,” preferring to call it “transition planning.” “The transition period is anywhere
fromone to 20 years,” says Soldan. “That’s the period when the different generations of family work together, and have to sort out how they are going to approach decision-making, ownership, compensation and roles and responsibilities. It takes a lot of effective communication so those things can be established properly.”
Setting the foundation Soldan talks about the family
the first leg on a three-legged stool that also includes accountants and lawyers.He stresses the importance of sitting down as a family to work out the code of conduct, values and goals. “When wemix the generations
together everyone comes with their own values and personal styles, and they need to live and work together,” explains Soldan.“The entry point should be themoment that the next generation hires on full-time so you lay a proper foundation and don’t get into conflict. “Until the foundation is established
you can have all kinds of tax strategies, but it will do nothing for the working of the team. Family need to establish a working protocol and how they want to be and before they take it to their accountant and lawyer,” he adds.
Less taxing transitions DebbieWinter is the senior
manager of tax at KPMG Enterprise. While the financial side is her area of expertise, she agrees it has to start with proper planning and communication. “Improper planning or not planning
at all is usually where you end up with family feuds,” saysWinter. “If you can get around the table in advance, you can try to resolve some of the issues before the transfer takes place. Ultimately that affects operations and cash flow.” Froma financial perspective, proper
planning and communication piece as 10 British Columbia Berry Grower • Fall 2013
transition planning focuses largely on ensuring the farmbusiness can
sustain both generations involved in the farm, andminimizing the amount of tax paid in the transfer. There are several benefits tomaking
the transfer while the parents are alive and able to participate in the process, including the ability for both parents to claimup to $750,000 in capital gains exemption on the transfer. (This will increase to $800,000 in 2014.) “Making best use of the capital gains
exemption, and being able tomultiply it by both parents is worth it froma tax perspective,” saysWinter. “The $800,000 exemption (the 2014 rate) is worth about $176,000 in taxes in BC.” Another important option in the
transition toolbox ismaking use of inter-vivo farmtransfer rules. Under the inter-vivo rules, farmers can agree to transfer the farmfromone generation to another at a price between the parents’ cost and fair market value. This can result in a significant tax savings. Planning ahead and transferring the
business while the parents are alive makes it possible to use these tools most effectively, and reduces the risk of the next generation having to pay probate tax or having assets held up waiting for the courts. Winter also advises people to look at
their business structure as they plan to transfer the business fromone generation to the next. “Sometimes we see a healthy cash
flow farm, with little debt and a build- up of cash. If it’s a corporation, the
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