NISA: THE FARMER'S FIRST PLACE TO SAVE
Originally published on March 15, 2001
By now most of you should have received your Net Income Stabilization Account 2000 forms package.
Fellow Western Producer columnist Ian Morrison advises us to invest between five and 10 percent of our farm's net income outside of agriculture. NISA, which could be considered a super-charged guaranteed income certificate, is a means to do just that.
You can deposit money into your NISA based on your farm's eligible net sales, or ENS, for the year.
For NISA purposes, ENS are calculated by taking gross sales of qualifying commodities and subtracting purchases of qualifying commodities.
For the 1999 stabilization year, the base contribution rate allowed you to deposit up to three percent of your ENS and receive matching contributions cost-shared between the federal government at two percent and participating provinces at one percent.
For the 2000 stabilization year, the base contribution rate has yet to be determined but according to my sources, will most likely remain at three percent of your ENS.
A base contribution rate of three percent means that in 2000, a farmer with net qualifying commodity sales of $100,000 will be able to contribute $3,000 to his account and then see it matched by federal and provincial coffers.
If your farm's gross margin is lower than your historical average or if your family's net income is below the $20,000 threshold, then a trigger may entitle you to skip your initial contribution of $3,000 and access the matching amount as a withdrawal.
Farmers cannot afford to forgo the rewards of NISA and should follow the investment suggestions outlined in Table 1.
■ Know your account balance limit.
You will not be permitted to make deposits into your NISA once it reaches its balance limit. As a result, you will not receive matching government contributions.
There is a common misconception that everyone has an account balance limit of $250,000.
Instead, your account balance limit is 11⁄2 times your farm's average ENS in the most recent five-year period.
By bringing in your spouse or active farming child, you will be able to increase your respective account balance limit and your overall NISA benefits.
■ Record your commodity sale deductions and adjustments.
It has been my experience that a farmer who is not properly recording his or her grain deductions is missing approximately $700 in combined
NISA and refundable GST on every $100,000 worth of gross sales.
■ Livestock producers who are expanding their herd should consider accrual filing their NISA return. The account will grow faster and they will be able to capture NISA benefits on the increasing value of their growing herd.
If you are in the custom feeding business, be sure that you capture your NISA entitlements for all the feed you produced and fed.
As of March 1, 2001, Canadian farmers had accumulated $3.2 billion in NISA. A provincial breakdown of these account balances is shown in Table 2.
Over the past two years my office has seen fairly significant NISA withdrawals. Table 2 seems to contradict what our experience has shown.
For whatever reason, some Canadian farmers are reluctant to withdraw their NISA funds. For some, it may make sense to defer a withdrawal to 2001.
This strategy may be because they expect a 2000 Agricultural Income Disaster Assistance payment. Or they might want to defer NISA income to the 2001 taxation year when tax rates are lower.
Others may simply view NISA as their retirement nest egg.
The deadline for submitting NISA forms is June 15 for individuals and June 30 for corporations and co-operatives.
Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at email@example.com or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan. The opinions expressed in this column are for information only.