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Cash vs. accrual: Pros and cons of each reference margin reporting option for AgriStability

Cash vs. accrual: Pros and cons of each reference margin reporting option for AgriStability

Synopsis
3 Minute Read

Starting in 2025, AgriStability participants can choose how they report their reference margins — cash or accrual — offering greater control and alignment with tax filings. This change reduces complexity while empowering producers to optimize their financial strategies. Explore the advantages of each approach and make an informed choice to safeguard your farm’s future.

National leader, Ag Risk Management Resources

Do you know what each option means for your financial future?

AgriStability currently uses a modified accrual approach to calculate reference margins for all farms. Starting in 2025, the program will introduce a new optional reference margin model that allows farmers to choose between cash or accrual reporting for their reference margins. This change is designed to reduce administrative burdens and provide flexibility for producers to select the method that best suits their operational and financial needs.

Details on the implementation process have now been clarified, with the optional model available to all participants across Alberta and other provinces opting into the changes. Producers will need to decide whether to calculate their AgriStability reference margins using the new optional reference margin (based on their tax filing method) or the existing accrual adjusted reference margin. 

What are cash and accrual reporting?

Put simply, cash margins represent the cash you collected and spent during the year, whereas accrual margins reflect how your farm performed financially during the year, considering inventory and other adjustments.

For instance, if you purchase a large quantity of fertilizer at the end of your fiscal year but you didn’t use it until the following year, cash margins would record that expense in the year the payment was made, while accrual margins would allocate the expenses to the year the fertilizer was used.

Accrual margins also take into account the market value of inventories, such as unsold production, at the beginning and end of each year. This means there can be significant difference between cash and accrual reference margins, depending on inventory levels and market prices.

Once again, beginning in 2025, producers participating in the AgriStability program will have the flexibility to choose between these two methods for calculating their optional reference margin, based on how they report income and expenses for tax purposes. This new approach aligns program reporting with tax filing, offering a more streamlined and consistent process for participants.

Producers are encouraged to carefully evaluate the differences between these methods and consider how each one aligns with their operational and financial strategies before making their decision.

Pros and cons of cash and accrual reporting

Over a very long timeframe, AgriStability payments based on cash and accrual reference margins should produce similar outcomes. However, on a year-to year basis, the choice between cash and accrual reporting can significantly impact coverage levels and payment calculations, especially in relation to actual farm performance.

Type of reference margin reporting Pros
Cons
Cash
  • Simplifies reporting for some –– For producers who file taxes on cash basis, this option minimizes the initial complexity of reporting and aligns closely with tax filings. 
  • Eases for new participants –– First-time filers may find the initial application process more straightforward since accrual adjustments are not required upfront. 
 
  • Complexity –– While the cash-based method aligns with tax filing for those using cash accounting, the ease of filing may diminish over time as structural change adjustments and inventory tracking become necessary.   
  • Less accurate reflection of performance –– Cash-based reference margins many not fully reflect your farm’s operational performance, making it harder to estimate and anticipate AgriStability payments. 
  • Skewed projections –– Large purchases or sales at year-end could distort margins, creating less realistic coverage compared to actual financial performance.      
Accrual
  • Accurate representation of performance –– Accrual-based reference margins better reflect the true financial performance of your farm, providing a more reliable basis for AgriStability payments. 
  • Responsive to market signals –– Accrual adjustment account for inventory values and other changes, ensuring margins adjust quickly to market conditions. 
  • Tailored to operational changes –– Accrual reporting incorporates individualized adjustments when farm size or operations change, ensuring coverage remains aligned with your actual performance. 
  • Realistic coverage –– Payments calculated under the accrual method are more likely to align with your farm’s actual financial outcomes.        
  • Higher administrative effort –– For first-time participants, accrual reporting requires more time and effort to gather and report inventory, receivables, and payables data. 
  • Ongoing complexity –– The detailed nature of accrual adjustments can be more labor-intensive compared to cash-based reporting.  

Structure change implications

When your farm changes in size, your reference margins is adjusted to reflect the new scope and structure of your operations.

With the optional reference margin using cash basis reporting, structural change adjustments will generally rely on area averages to estimate the impact of changes. This may result in adjustments that are less representative of your farm’s specific performance, potentially diluting the margins you have built over the years.

For farms using accrual-based reporting (under either the optional reference margin or the accrual adjusted reference margin), structural change adjustments are based on your actual financial performance. This approach ensures your reference margin remains tied to your farm’s historical and operational data rather than generalized averages. It helps preserve the strong margins you have established and provides compensation that reflects your farm’s specific situation, even in the event of a regional disaster.

How to determine the best option for you

Assessing which choice is best for your farm is as simple as reaching out to an MNP advisor to go over your operation’s history and to examine what the future could look like.

For more information and to learn which option is best for your farm, contact AJ Gill, Partner, BC Leader Agriculture Services.    

AJ Gill

National leader, Ag Risk Management Resources

250-469-6488

1-877-766-9735

[email protected]

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