Making AgriInvest tax-free investment not wise option

An idea being floated by a few farm groups aims to provide farmers easier access to tax-free money in AgriInvest to fund agriculture-related projects.

However, it comes with risks.

AgriInvest was designed as a short-term risk management tool to help protect producers from small margin declines. But there’s a second component that permits farmers to put money into investments that would help reduce on-farm risks in the future.

There is no wording as to what kinds of projects qualify, but proposals such as on-farm seed cleaning plants or tile drainage come to mind.

Some people also propose its use for projects more tertiary to actual farm operations, such as nitrogen plants or short-line railways.

This investment use is where the controversy comes in.

AgriInvest works by allowing farmers to deposit 100 percent of allowable net sales each year, called Fund 1.

The first one percent is matched by government, up to $15,000 per year — that’s Fund 2.

The only condition on fund withdrawals is that Fund 2, the government money, must be used first.

For managing margin declines, this works reasonably well. Farmers are allowed to withdraw money during times of low income, when they are not turning a taxable profit, so there are no tax repercussions.

But if the money is used for investments, withdrawals from Fund 2 are taxed at the usual rates. This is as it should be.

There are suggestions to change the rules to allow farmers to draw tax-free money out of Fund 1 first, leaving Fund 2 intact. That is something that might be considered if the investment meets a high standard for viability and the farmers’ future risk management plan isn’t jeopardized by drawing down the fund too far.

But a proposal to allow tax-free withdrawals from the government fund to use for investment is a non-starter.

Giving farmers assistance by encouraging enterprise and innovation is a worthy objective. But allowing anybody the ability to turn tax-free government funds into investments for private industry harkens back to an older time.

Governments have rightly and repeatedly said over the past few years that they are not going to return to the days when they doled out subsidies — that they would not pick winners or losers in the Canadian economy.

We might wonder how Bombardier fits into this plan, but that is a discussion for another time.

This is not about farmers and whether or not they can be trusted.

This is about the effect that free government money flowing through the economy can have — the potential false economy it could create. Not to mention the possible public backlash.

AgriInvest can be improved in other ways. The government could increase its rate of contribution and the annual maximum allowed. It could also encourage investment by maintaining a registry of preapproved investment opportunities in which producers could either invest their own portion of AgriInvest funds, if it doesn’t impinge upon the risk management utility of their plan, or invest Fund 2 money and accept the tax consequences.

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