Farm Machinery Lease To Own Agreement

In all cases, qualified persons, whether as an individual entrepreneur, as a company or as a shareholder of an agricultural company, must actively participate in the management and/or day-to-day activity. The most important thing you can do as a tenant or landlord is to submit your contract in writing. This action alone would eliminate the vast majority of disagreements that occur. Although handshake has long been a method of doing business in the rural commune and an oral rental contract is a valid contract, it has serious drawbacks. However, many farmers and landowners are reluctant to use a written lease for several reasons: for tax reasons, machines and other depreciable assets are placed in classes with specific depreciation rates. For example, there are tractors, combine harvesters and other Class 10 machines that have a capital repayment rate of 30% per year. Equipment such as balers, grubbers, saais and plows are Class 8 which has a CCA of 20% per year. Assets such as cereal tanks are class 6 and have a CCA rate of 10% per year. This term is called « off-balance sheet leasing » because the asset does not appear on the balance sheet. In order to benefit from the conversion, the property must have been used primarily in agriculture before the transfer by the taxpayer, the taxpayer`s spouse or their children who have been actively and continuously involved. This means that the use of the country has been managed for more than 50% of the time (as defined by the rating agency).

However, it is not necessary to use the property in agriculture immediately before a transfer to qualify for the rollover. An equipment rental payment consists of two components. One of them is the interest calculated on the total value of the machine; the other is the principal amount, that is, the lower selling price of the residual value. The residual value is the value of the machine defined in the lease at the end of the rental period. Generally, rents are lower than comparable purchase payments, as only part of the total cost of the machine is covered in the main portion of the payment. Since leasing is not considered agricultural, a lease agreement during the sale year could deter the landowner from benefiting from the profit exemption, as it was not operated immediately prior to the sale. Even a portion of the harvest, where part of the crop is paid to the landowner as a payment for the land, does not meet the definition.

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