New beginnings, new choices
The Net Income Stabilization Account (NISA) is coming to a close following
the 2002 program year and will be replaced by the CAIS program. What is going
to happen to producers who have NISA accounts?
Producers have the option of withdrawing NISA Fund 1 (producer’s deposits)
and Fund 2 (government contributions) balances in full or in installments up
to five years. The deadline to withdraw all funds and close their accounts is
March 31, 2009.
If producers choose to close the account through installments, March 31, 2005
is the deadline for the first installment. The account balance in Fund 2 as
it stands on March 31, 2004 will determine the minimum withdrawal each year.
Producers must take out a minimum 20 per cent of their Fund 2 account balance
and an equal amount will be taken from Fund 1. Equal withdrawals from Funds
1 and 2 will continue until one or both accounts are depleted.
In the meantime, there are a variety of options available to producers to maximize
the money they have in their NISA accounts. According to Brian Little, National
Manager, Agriculture and Agri-Business at RBC Royal Bank, financial institutions
like RBC Royal Bank are developing programs that will allow producers to make
the best of the investments they have made in NISA.
“Producers need to discuss their NISA and CAIS options with their accountant,
financial advisor or bank account manager to be sure they are using their NISA
funds the best way possible,” advises Little.
Here is a brief overview of options available to producers with NISA accounts:
FUND OPTIONS
Transfer Fund 1 into CAIS program account
Beginning in early 2004, producers can open a CAIS account and contact NISA
requesting that money from Fund 1 be transferred to their financial institution.
There are no tax consequences to this option.
Deposit Fund 2 to an RRSP
If there is contribution room available, NISA funds can help build up a Registered
Retirement Savings Plan (RRSP) and allow the funds to grow tax-free. In most
cases, you are allowed to put money into an RRSP and claim a deduction on your
taxes in that year (or a future year) for your contribution. Contributions will
accumulate with investment income tax free. Money may be withdrawn at any point
and is taxed as income. A good strategy is to let the funds accumulate until
retirement and then purchase an annuity or Registered Retirement Income Fund.
Invest
If invested funds distribute capital gains and dividends effectively, investing
may prove to be a tax-efficient option. RBC Royal Bank’s Prime-Linked GIC
offers excellent returns with minimal risk. It is important to remember that
while investing is one of the best ways to establish a financially secure strategy,
money is not always easily accessible. Discussion with a financial advisor is
recommended to determine the best strategy.
Pay down
debt Using NISA funds to pay down non-deductible debt is one way to improve
cash flow and reduce high-interest payments. However, this may result in lost
tax breaks and leave less cash to invest in a nest egg.
Establish an emergency/contingency
fund This might be a good time to build up an emergency fund that can cover
at least three months of expenses.
Build the farm business
As a tax-reducing strategy, direct funds toward capital expenditures like new
equipment or expanding/ modernizing facilities.
RESOURCE
NISA Toll-Free Phone Line: 1-800-665-6472
Fax: 204-984-3717
www.agr.gc.ca/nisa
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