12 Game-changer on dividend splitting


by DAVID SCHMIDT ABBOTSFORD – Federal, provincial and


even international tax rules are becoming increasingly complex and more onerous but some of the most onerous proposed rules have been shelved, at least for now, a panel of tax and legal experts told Fraser Valley members of the Canadian Association of Farm Advisors at a breakfast meeting in Abbotsford, May 17. Bryan Hubbell, a tax principal with


Manning Elliott in Abbotsford, said the federal government changed income tax rules for corporations in 2016 to prevent them from multiplying access to the small business deduction (available to businesses with annual incomes below $500,000).


Although the measure is aimed at


professionals, it also affects inter- connected family businesses. As an example, Hubbell said a chicken grower who sells to a processing plant owned by his brother-in-law could lose his small business deduction when the revenue of the two businesses are aggregated. In 2017, the federal government


released a consultation paper regarding “income sprinkling,” a common practice of issuing dividends to low-income family members as a way of income splitting. Under the new rules, family members must own at least 10% of the voting shares and at least 10% of the value of


the business and work for the business at least 20 hours per week to receive dividends. “The new rules will impact a lot more people than we thought,” noted panel chair Rick Genderman, one of Hubbell’s partners at Manning Elliott. In a nod to retirees who rely on the business to fund their retirement, the government has agreed to make those dividends eligible for income-splitting. Hubbell notes this makes their situation equitable with those of retired “employees” who can split their pension income with their spouses. Fortunately, the government has


backed away from proposals which would have put a serious crimp on intergenerational transfers. “You can still transfer the family farm and multiply lifetime capital gains exemptions,” Hubbell said. At the provincial level, Aaron Salter, an associate counsel with Wilson Rasmussen of Surrey, warned of the new Employer Health Tax which will kick in with the end of Medical Services Plan premiums at the beginning of 2019. Since the EHT applies to any entity with an annual payroll of $500,000 or more, Salter encourages farm business owners with payrolls in that neighbourhood to analyze their own salaries. It may be possible to avoid the new tax by reducing the amount of money an owner takes out of the


company as salary and increasing the amount taken out in the way of dividends. On a more positive note, Salter notes BC has extended the food donation credit for another year. Farmers who donate food to a registered charity are eligible to receive a 15% provincial tax credit for the value of their donations. All the new federal and provincial tax rules suggest farmers look south of the border for opportunities to expand. “About two years ago, I realized it’s better to be on the US side,” Michael Shields, partner of PriceWaterhouseCoopers in Surrey, told the meeting. It’s only gotten better since then, he


noted. Recent US budgets have reduced the US corporate tax rate to 21% from 35% to 40%. US president Donald Trump’s bid to “make American great again” has also introduced new measures to encourage business investment. For example, it is now possible to expense certain capital investments which previously were subject to depreciation. “You need to set up a separate US business to take advantage of the new US rules,” Shields stated, adding Canada is keeping an eye on those new rules. “There has been a lot of pressure on


government to put us closer to the new US rules,” he said, noting the backlash has already caused the federal government to pull back some of the more “punitive” tax measures it had been proposing.


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COUNTRY LIFE IN BC • JUNE 2018


Mushroom merger


by PETER MITHAM


LANGLEY – BC’s two biggest mushroom producers are now foreign-owned. Champ’s Mushrooms Inc.


of Aldergrove announced its merger with South Mill Mushroom Sales Inc. of Pennsylvania in January. The deal came just 15 months after the acquisition of Langley organic mushroom producer All Seasons Mushrooms Inc. by Ireland’s Fyffes in September 2016 for $59.1 million. All Seasons now operates as part of Highline Produce Inc. of Leamington, Ontario.


South Mill handles about 75 million pounds of mushrooms annually while Champ’s produces 35 million pounds of mushrooms a year, giving the company a combined volume of 110 million pounds. This is nearly double the combined production of All Seasons and Highline, which produced 57 million pounds in 2016. Terms of the South Mill-


Champ’s merger were not disclosed. The two brands will continue to exist. The combined clout of the new company positions it for a competitive global environment. Champ’s has expanded both its domestic and international markets from humble beginnings as a small, family-run operation in 1998. Just a small player when the industry deregulated in 2002, it was able to expand to fill the void left when Money’s Mushrooms Ltd. – the successor to the Fraser Valley Mushroom Growers Co-operative – experienced financial difficulties in 2001 after an ambitious expansion into the US. Money’s was the biggest of


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five mushroom marketing agencies, handling nearly three-quarters of the BC mushroom crop. Approximately 65 growers produced more than 52 million pounds of mushrooms when the industry deregulated. Statistics Canada reports that BC now has 45 growers producing more than 100 million pounds annually. This makes the province, and the Fraser Valley in particular, the most significant mushroom producing region in Canada and among the most important in North America. The acquisitions promise to benefit local producers, who export more than $131 million worth of mushrooms each year. The humble fungi are BC’s fifth-biggest agri- food export.


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