3 topics - FHSA, Land Purchases, and SRED

1. FHSA – First time home savings account

In my experience, the recently announced First Home Savings Account (FHSA) is an account that hasn’t been used as much as it should. Some examples I have run into:

• Farmers whose home might be owned corporately may be eligible for the FHSA as they don’t own a home personally;
• Parents/grandparents who want to provide assistance to their kids/grandkids in buying their first home in the next 5 years can gift money for the kids/grandkids to deposit into their own FHSA; and
• Individuals who haven’t owned or jointly owned a home in the current or past 4 years. These might be older individuals who have been renting due to changes in life events.

The FHSA might be more applicable than you might think.? Everyone who turns 18 and is eligible should open an FHSA account - even if they don’t make the $8,000 contribution right away. Unless someone opens an account; the FHSA room doesn’t start accumulating. This is different from other accounts like TFSA and RRSP. The FHSA account needs to be active for 5 years to get the full $40,000 room.

FHSA Rules

2. Land purchases

For those of you who are buying irrigated land or water rights, these next comments are for you.? Water rights whether they are bought individually or combined with a land purchase; can be allocated to the depreciable class - 14.1.? This is for intangible assets and can be deducted at 5% declining balance rate.? While this seems small; the tax shield on this could be large when dealing with land selling for what it is.

Let’s say in your area land without irrigation is selling for $5,000 and with irrigation rights it is selling for $25,000.? The difference between these relate to the water rights and irrigation infrastructure.? Both of these are depreciable asset classes and should be broken out when doing a purchase price allocation of the land price.? By allocating? a larger portion of the land purchase to water rights; you are reducing the after-tax price of the land with the tax shield.

Ensuring you are allocating the proceeds to the appropriate asset class will ensure your tax filings are correct but also may provide increased tax savings.? These classes may include:

• Land – non-depreciable;
• Depreciable assets such as irrigation equipment, grain handling equipment, and buildings;
• Water rights - depreciable;
• Standing crop - deductible; and
• Principal residence – potentially tax-free.

Make sure you are discussing your land purchases with your advisor so you aren’t missing these tax advantages.

3. SRED

Recently, CRA has made filing for SRED from checkoffs a lot easier.? Even if SRED expenditures are only $1,000 – it will result in a tax credit of $280 [calculated as follows $1,000 x 80% (inclusion rate) x 35% (refund rate)].

Here are some examples of organizations that are providing SRED information you could be using:

• Alberta Canola Growers
• Alberta Grains
• Potato Growers of Alberta
• Alberta Sugar Beet Growers
• SeCan
• Many others...

If you are growing these commodities; contact your advisor to get the tax credits you are entitled to.

Thanks for reading!

Bruce