Regulations Amending the Income Tax Regulations (2023–2024 Livestock Deferral): SOR/2025-194

Canada Gazette, Part II, Volume 159, Number 21

Registration
SOR/2025-194 September 19, 2025

INCOME TAX ACT

P.C. 2025-668 September 18, 2025

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Regulations Amending the Income Tax Regulations (2023–2024 Livestock Deferral) under section 221footnote a of the Income Tax Act footnote b.

Regulations Amending the Income Tax Regulations (2023–2024 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 (d) and by adding the following after paragraph (i):

Application

2 Section 1 applies to the 2023 and subsequent taxation years.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

The Income Tax Act (the Act) provides a tax deferral in respect of the sale of breeding livestock used in a farming business carried on in a region that has experienced drought, flood or excess moisture conditions as prescribed under the Income Tax Regulations (the Regulations). There were 422 regions in 2023 and 178 regions in 2024 identified as having been affected by drought, flood or excess moisture conditions. The amendments to the Regulations are needed to allow for the application of the tax deferral in these regions.

Background

In circumstances where drought, flood 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 in these types of poor conditions.

The income earned from the sale of livestock would be required to be included as income in the year of sale 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, in regions where drought, flood or excess moisture conditions exist, the sale and repurchase of livestock do not usually happen in the same year because it is difficult to replenish a breeding livestock population in such a region. Therefore, having an income inclusion in one year without a corresponding deduction in the same year typically results in a significant tax bill.

The livestock tax deferral provision, pursuant to section 80.3 of the Act, permits farmers who dispose of breeding livestock because of drought, flood or excess moisture conditions existing in a prescribed region in a given 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, flood 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.

To defer income, the breeding livestock population must have been reduced by at least 15%. Where the breeding livestock population has been reduced by at least 15% but less than 30%, 30% of income from net sales can be deferred. Where the breeding livestock population has been reduced by 30% or more, 90% of income from net sales can be deferred.

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

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

Typically, the Minister of Agriculture and Agri-Food compiles and publishes a preliminary list of regions impacted by drought, flood or excess moisture conditions in the summer. Publication of the preliminary list has generally been in July or August of each year. As more data becomes available during the year, Agriculture and Agri-Food Canada (AAFC) updates the list of regions. The list is finalized in December or early in the following calendar year, when finalized forage yield information is available. Such timing can be impacted by additional moisture conditions that need to be considered. The recommended regions for a particular taxation year are proposed to the Minister of Finance in the initial and final stages, and following the concurrence of the Minister of Finance, public announcements are made on AAFC’s website to allow impacted farmers to make decisions with respect to livestock management in a timely manner. Throughout the process, Department of Finance officials review the lists and work collaboratively with AAFC officials to make any necessary adjustments. Subsequently, the Minister of Finance recommends to the Governor in Council the addition of the regions to the list of prescribed regions in the Regulations.

Objective

The objective is to amend the Regulations to designate prescribed regions for the 2023 and 2024 taxation years.

The objective of the amendments to the Regulations is to allow farmers in a designated area who sell all or part of their breeding livestock population due to drought, flood or excess moisture in 2023 and 2024 to defer income tax on the sale of breeding livestock.

Description

The Regulations Amending the Income Tax Regulations (2023–2024 Livestock Deferral) prescribe the drought, flood and excess moisture regions that are eligible for tax relief in the 2023 to 2024 taxation years, by listing them in the Regulations. The list of designated regions to be prescribed in respect of each taxation year is published on the Livestock Deferral Provision page of AAFC’s website.

Regulatory development

Consultation

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

Following the public announcements made by AAFC on the prescribed regions for 2023 and 2024, no comments were raised by the public or stakeholders in response to these announcements. However, general feedback received from stakeholders raised concerns about the timeliness of publishing the preliminary list of regions. Their concern is that impacted taxpayers need to make decisions in mid to late spring regarding whether to sell their breeding livestock. Consequently, publication of the preliminary list in July or August means that impacted farmers are often required to make decisions earlier in the year without certainty on whether they can access the livestock tax deferral. This creates additional stress and frustration during an already difficult time. To address these concerns, AAFC made changes to its approach to expedite the process of approving the preliminary list of regions. For 2024 and onwards, it has implemented a new scientific process that will use a shorter period of observable data to enable it to determine the preliminary list of regions earlier in the summer. Using this approach, AAFC officials have been able to provide their initial recommendations in May or June, earlier than the historical July submissions under the prior approach.

Modern treaty obligations and Indigenous engagement and consultation

The Department of Finance, in accordance with the Cabinet Directive on the Federal Approach to Modern Treaty Implementation, completed an assessment of modern treaty implications and determined that the amendments to the Regulations are not expected to impact Indigenous peoples or the Government’s obligations in relation to rights protected by section 35 of the Constitution Act, 1982, modern treaties obligations or the United Nations Declaration on the Rights of Indigenous People.

Instrument choice

Regulatory amendments are required to designate regions as eligible for the livestock tax deferral. No other type of instrument is available under the Act to achieve this objective.

Regulatory analysis

Benefits and costs

These amendments codify previously announced prescribed regions that qualify for the livestock tax deferral, which has already been applied in the 2023 and 2024 taxation years.

While the value of deferrals may vary from year to year depending on the severity of the drought, flood or excess moisture conditions and the number of affected regions, it is unlikely to reach or exceed $1 million annually.

These changes are relieving in nature. These amendments benefit farmers located in the designated regions because the tax deferral allows them to defer reporting the income of the sale of the livestock until the moisture levels improve, which removes the immediate obligation for them to pay tax on the income from the sale. They can use the proceeds from the sale to replenish their breeding livestock population, and the income reported will be offset in a future year with the expense associated with the purchase of new livestock.

The benefit of this measure to farmers represents the time value of the deferral of the tax liability associated with the deferred income. Instead of farmers paying tax in the year the livestock is sold, the income is deferred until the taxation year when the region in which the farming business is carried on is no longer a prescribed region. If the farmer purchases replacement livestock in that taxation year, the cost of purchasing replacement livestock can partially or fully offset the deferred income. The cost to the Government is the time value of the deferral of the tax revenue associated with the deferred income. Instead of taxing the income in the year the livestock is sold, the taxation of the income is normally deferred until the taxation year when the region in which the farming business is carried on is no longer a prescribed region. The cost to the Government and the benefit to farmers are offsetting, and no exchange of goods or services occurs. Therefore, this is considered a transfer payment within the cost-benefit framework.

Without these amendments, it would be necessary for the Canada Revenue Agency (CRA) to reassess farmers in those regions to deny the tax deferral and add 100% of the amount to the farmer’s income in the year of sale. This is because farmers will have already sold livestock and claimed the deferral in respect of the 2023 to 2024 taxation years in reliance on the announcements made by the Minister of Agriculture and Agri-Food. The administrative cost for farmers and the Government to undertake this could be considerable. Avoiding these outcomes is the primary benefit of the amendments to the Regulations.

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.

Small business lens

These amendments were analyzed in the context of the small business lens, and it was concluded that they would impact small businesses. The amendments are not expected to impose new administrative or compliance costs on business. Rather, as described in the “Benefits and costs” section, these amendments are intended to give farmers, many of whom are small businesses, the option to defer reporting of income and have greater flexibility to recover from drought conditions.

One-for-one rule

The one-for-one rule does not apply, as there is no incremental change in administrative burden on business, and no regulatory titles are repealed or introduced.

Regulatory cooperation and alignment

These amendments do not have a regulatory cooperation component.

International obligations

Because the focus of the Regulations Amending the Income Tax Regulations (2023–2024 Livestock Deferral) is providing temporary tax relief to farmers affected by extreme weather conditions (drought, flood or excess moisture), there do not appear to be direct international obligations triggered under the most frequently applicable World Trade Organization agreements. These amendments do not impose barriers to trade or conflict with international obligations.

Effects on the environment

In accordance with the Cabinet Directive on Strategic Environmental and Economic Assessment, a preliminary scan concluded that a strategic environmental and economic assessment is not required.

Gender-based analysis plus

Broad-based farming measures do not easily lend themselves to gender-based analysis plus (GBA+) because they can affect a wide variety of stakeholders. It is also difficult to discern how each of the various stakeholders is affected by a given farm tax initiative. Nevertheless, gender impacts are considered for all farm tax measures and assessments undertaken, to the extent that relevant information is available. Based on Statistics Canada Table 32-10-0381-01 “Characteristics of farm operators: Age, sex and number of operators on the farm, Census of Agriculture, 2021,” 30% of farm operators that were in Canada in 2021 were female. Therefore, it is estimated that the measure will benefit fewer women farm operators in comparison to men; however, it is not expected that women would be impacted differently based on gender.

Implementation, compliance and enforcement, and service standards

The Act provides the necessary compliance mechanisms for enforcement of the Regulations. These mechanisms allow the Minister of National Revenue and the CRA to assess and reassess tax payable, conduct audits and seize relevant records and documents. The amended Regulations would come into force on January 1 of the respective taxation year to which they apply and would apply retroactively.

Contact

Alex Menethil
Tax Legislation Division
Department of Finance
James Michael Flaherty Building
90 Elgin Street
Ottawa, Ontario
K1A 0G5
Telephone: 343‑571‑4736