The more things change, the more they stay the same. Over the past year we have witnessed a number of changes to the Canadian Agricultural Income Stabilization (CAIS) program. While the changes may have improved the program for the average farmer, there is minimal net new benefit for greenhouse operators.
What will become of CAIS is a guessing game at this point. The current Agricultural Policy Framework that established the CAIS program is set to expire in March 2008. Chuck Strahl, the federal Minister of Agriculture and Agri-Food, the Honourable, has reaffirmed the government’s campaign promise of replacing the CAIS program with a program that farmers have been asking for. Farmers want a program where the benefit can be easily calculated, predictable and paid in a timely manner.
KEY POINTS AND UPDATES
Annual Fees: As we discussed in our last article (December 2005), the CAIS program has replaced the program deposit with an annual fee equal to 0.45 per cent of your estimated reference margin. On a reference margin of $500,000, the fee would be $2,250. Most of you should have already received your 2006 CAIS Fee Invoice and remitted the required payment prior to the Dec. 31, 2006, deadline.
Late Application Fees: For those of you who received the invoice but did not make the payment before the deadline, don’t despair. The payment can still be made up until April 30, 2007. However, a late payment penalty of 20 per cent of your original fee will be charged to your account. You need only pay the original fee amount, as the late payment penalty will be deducted from any future program payments. If you received an invoice and do not pay the invoice before April 30, 2007, you will be opted out of the program for both the 2006 and 2007 program years.
Inventory Values: The calculation of inventory values was another area that was changed over the past year. For the 2006 program, the inventory will be valued at the start of the year, at start of the year prices and at the end of the year, at end of the year prices. The change to this calculation was intended to capture decreases in commodity prices but also penalizes the applicant for any increases in commodity prices.
Negative Margin Coverage: Enhancements were made to the negative margin coverage in the CAIS program. Negative margin refers to the situation where your direct expenses exceed your sales. Previously, you were restricted to two negative margin payments in a five-year period. That restriction has been lifted.
2007 Tentative Deadline: Administrators of the CAIS program in all provinces have indicated that April 30, 2007, is the tentative deadline for 2007 CAIS fee payments.
For the greenhouse industry, the structural change adjustment remains a key issue. Structural change adjustments are calculated by CAIS whenever there is an increase or decrease in the size of the operation or a change in the mix of commodities grown. The structural change adjustment is meant to adjust the prior years’ margins to reflect the current size or commodity mix of the operation. While the CAIS administrations in all provinces have increased their knowledge of the greenhouse industry, we have still found that corrections to the structural change adjustment calculations have resulted in significant payments upon appeal. Structural change adjustment calculations are complex and should always be reviewed by someone very familiar with the program.
Another area in the greenhouse industry where we have noted increased benefits upon appeal is where greenhouses utilized accrual reporting for NISA purposes and cash reporting for tax purposes. In this instance, the reference margins for the non-NISA years (2003 to 2005) should be adjusted to accrual margins. This may be of benefit to you if there has been an increase in inventory and/or accounts receivable over the affected years.
From this brief overview of the CAIS program, you can see that while the changes may not greatly impact greenhouse operators, they may be of benefit to those with falling inventory values, those with limited access to cash, and growers struggling to regain profitability. It is important to ensure that the benefit calculation accurately reflects your operation. To ensure that you are receiving all the benefits that you are entitled to, it is advisable to work with someone very familiar with this program.
Brian Blommaert is a tax manager with the Windsor office of Deloitte. • 519-967-7746,
IN CAIS YOU WERE WONDERING (PART TWO)
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