- August 17, 2021
- Posted by: Manuels Effe
- Categories: Agriculture, Insight
Farming in Nigeria is still largely associated with getting back to the land but the fact remains that farming has changed; the long lonely days of no electricity, running water, radio, or even tools other than the hole and cutlass are fast on the way out.
Today’s agricultural operations are much more modern and business-oriented. To be a successful farmer now, you have to be a good producer and a financial manager; meaning you have to be able to keep accurate farm records and establish and maintain a proven record-keeping system.
Keeping good farm records greatly gets you prepared for the next tax season. Farmers need accurate farm records systems, bookkeeping, and financial planning systems to track all of the farm’s business activities.
Keeping the books up-to-date is critical to the overall farm management, good harvest, and profitability.
Benefits of Accurate Farm Record Keeping
- Measure efficiency and progress
- Easier to prepare accounts at year-end
- Avoid over/under tax payments
- Identify strengths and weaknesses in the farm business
- Help manage changes and improvements in agribusiness
- Make productivity projections
- Help maximize the expenses you claim and minimize the tax burden
- Make it easier to pay employees and creditors and see what is owed
- Simplify the process if you want to get a loan or sell the business
- Easier to distribute profits to shareholders (dividends)
- Quicker for partnerships to view profits and losses
- Make it easier should the business get audited by tax authorities
Outsourcing Farm Records to a Tax Consultant
Farming is a labor-intensive job, and some farms do not have anyone with the time or background in accounting. On top of that, farms have become larger and more complicated.
Outsourcing tax planning, tax preparation, bookkeeping, accounting, and financial planning services mean keeping up to date with record keeping.
Why You Need to Incorporate Your Farm
Do you want to shelter farm income from high personal tax rates due to increased off-farm income? Your profits surplus may begin to go beyond your personal expenses, necessitating you to begin to ask yourself if your business structure needs a revamp.
Farms in Nigeria remain largely unincorporated but with the trend of business today, incorporation is obviously the right choice for farms.
- Corporate tax benefits outweigh costs of extra administrative duties,
- Better for reinvesting portions of capital into expansion,
- Debt servicing demands a large portion of profits; or
- Greater flexibility for closing or selling your business.
A key benefit to incorporation is the preferential income tax rate. When you operate your business as a sole proprietorship or partnership, you include all your business expenses and income – including farm and off-farm income – on your personal tax return.
This means the sum of your business and personal income is taxed at your personal marginal tax rate. However, if you incorporate, your business income will be eligible for preferential small business tax rates that can offer significant tax savings.
For example, if your income hits N250, 000, your personal tax rate might average out to 33% federally. The federal tax rate for incorporated businesses is 15% and could be as low as 9%. Applicable provincial tax rates would also apply.
As a shareholder of a corporation, your liability in that business is limited to the amount you have invested in it. To some extent you can protect your personal assets such as your home from creditors should your business ever fail. However, many financial institutions do request a pledge against personal assets to secure business loans.
Fiscal year flexibility
You can choose a non-calendar fiscal year for income tax reporting. Depending on the cycles of your specific business, a calendar fiscal year may not be the best for income tax reporting. When you incorporate, you can choose any fiscal year that works for you.
Income tax deferral
Incorporation may allow you to defer income taxes by delaying when you take payments from the company from one year to the next. Such deferrals could become tax savings if your personal tax rate is lower when you take payments from the business.
Group insurance and retirement benefits
Corporations can create a registered pension plan and obtain tax-deductible group health and life insurance plans for their employees and family members.
Income splitting flexibility
If your spouse or children are involved in the business as employees, shareholders, and/or directors, you can distribute funds to them in several ways. These include salaries, consulting fees, dividends, directors’ fees, and even custom farming arrangements.
Additional means of compensation
You can take money out of your incorporated business in various forms, including rent, capital dividends, and loans. The company can even pay you a retiring allowance.
Capital gains exemption
When you hold shares in a business that qualifies as a family farm corporation, you may be able to claim a lifetime capital gains exemption on the sale of the shares or property.
Transferring ownership of the farm to the next generation can be a complicated process. Incorporating your farm can ease the burden of succession planning.
You are not required to change ownership of specific assets such as property or equipment if they are owned by a corporation. You are “simply” changing ownership of the corporation’s issued shares – for example when you add a child or grandchild as a shareholder.
SSAC Helping Farmers to Keep Records Accurate and Up to Date
SSAC helps agribusinesses to keep their records accurate and up to date to minimize their tax burden and maximize their assets.
Setting SSAC Advisory and Professionals apart is the fact that it offers integrated tax services all year round, assisting with tax planning and preparation, consultation, bookkeeping, and financial planning services.
It optimizes tax returns, maximizes tax savings, and supports back-office needs with bookkeeping and payroll.