Regulations Amending the Income Tax Regulations (2017 Livestock Deferral): SOR/2019-247

Canada Gazette, Part II, Volume 153, Number 14

Registration

SOR/2019-247 June 25, 2019

INCOME TAX ACT

P.C. 2019-911 June 22, 2019

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 footnote a of the Income Tax Act footnote b, makes the annexed Regulations Amending the Income Tax Regulations (2017 Livestock Deferral).

Regulations Amending the Income Tax Regulations (2017 Livestock Deferral)

Amendment

1 Subsection 7305.01(1) of the Income Tax Regulations footnote 1 is amended by striking out “and” at the end of paragraph (b), by adding “and” at the end of paragraph (c) and by adding the following after paragraph (c):

Application

2 Section 1 applies to the 2017 and subsequent taxation years.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Background

In circumstances where drought or excess moisture conditions significantly affect forage yields, farmers may be forced to sell breeding livestock (breeding animals and breeding bees) because of the prohibitive costs of maintaining the livestock. The income earned from the sale would be an inclusion in income and subsequently taxed. If new livestock is purchased in the same year, the cost of the purchase would be deducted from income as an expense. However, the sale and re-purchase of livestock does not usually happen in the same year because drought or excess moisture conditions can persist for a longer period of time.

Therefore, the Income Tax Act (the “Act”) permits farmers who dispose of breeding livestock because of drought or excess moisture conditions existing in a prescribed region in a year to exclude a portion of the sale proceeds from their taxable income until the following year, or the year following a consecutive series of years where drought or excess moisture conditions persist, as the case may be. In this way, the proceeds of the sale will be available to fund the acquisition of replacement livestock.

The tax deferral is targeted at breeding livestock because its sale is akin to disposing of long-term productive assets. Livestock that qualifies for the deferral includes, for example

The Act defines breeding animals and breeding bees, and provides the formula to calculate the deferral amounts.

Issues

Each year, Agriculture and Agri-Food Canada recommends to the Minister of Finance that certain regions qualify as prescribed regions on the basis that they have experienced drought or excess moisture conditions. Qualifying regions for a year are then prescribed under the Income Tax Regulations (the “Regulations”) to access the tax relief and must be updated regularly.

Objectives

The objective of this amendment is to implement Agriculture and Agri-Food Canada’s advice as to which regions should be prescribed regions on the basis that they have experienced drought or excess moisture conditions.

Description

On February 6, 2018, the Government of Canada announced a final list of designated regions for which tax deferrals have been authorized for 2017.

The Regulations Amending the Income Tax Regulations (2017 Livestock Deferrals) prescribe the drought and excess moisture regions that are eligible for the tax relief in respect of 2017, as previously announced.

Consultation

The list of prescribed regions was developed through consultations held by Agriculture and Agri-Food Canada with various parties, including provincial agriculture and municipal affairs departments, municipalities, farm associations, and crop insurers.

Following the public announcements made by Agriculture and Agri-Food Canada on the prescribed regions for 2017, no comments or concerns have been raised by the public or stakeholders in response to these announcements. Additional information on these announcements is available through Agriculture and Agri-Food Canada’s website at www.agr.gc.ca.

“One-for-One” Rule

These amendments to the Regulations would not change existing administrative requirements, nor are they expected to impose new administrative costs on business. Therefore, the “One-for-One” Rule does not apply.

Small business lens

These amendments to the Regulations are not expected to impose new administrative or compliance costs on business. Therefore, the small business lens does not apply.

Rationale

The amendments are consequential to announcements by the Minister of Agriculture and Agri-Food, concerning his advice to the Minister of Finance that certain regions of Canada be prescribed as drought or excess moisture regions for 2017.

The exact amounts of income deferred by farmers living in drought or excess moisture regions is difficult to quantify as the amount deferred is not reported in a separate field in the farmers’ income tax return which can be tracked for costing purposes. However, using Statistics Canada data on farming income, it is possible to estimate that the net benefits provided to farmers through the measure, or inversely the cost for the federal government, are unlikely to reach or exceed $1 million in total annually. These benefits represent the time value of a one-year deferral of the tax liability associated with the unreported taxable income. While these benefits may vary from year-to-year depending on the severity of the drought or excess moisture conditions and the number of affected regions, they are unlikely to reach or exceed $1 million annually.

This measure has a positive impact on the economy because it provides stability to the livestock farming industry when it is affected by adverse, unpredictable weather conditions.

In accordance with The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan was conducted to determine whether this amendment would have an environmental impact. The results of the preliminary scan demonstrated that there would be no environmental impact associated with this amendment.

Implementation, enforcement and service standards

Farmers claim the drought and excess moisture regions deferral in reporting their income in their income tax return. As such, farmers claiming the deferral will be subject to the compliance mechanisms available to the Minister of National Revenue. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.

Contact

Daniella Marando
Tax Legislation Division
Department of Finance
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 613‑369‑9249