Cash deferral plan irks farmers

A proposal to eliminate deferred cash purchase tickets for grain deliveries has alarmed prairie farmers.

“This could be one of the biggest effects to agriculture that the government has really ever tried to implement in the past few generations. It’s really that significant,” said Stephen Vandervalk, a farmer from Fort Macleod, Alta.

He said most farms would be negatively impacted, but unincorporated farms could be especially hard hit if a significant portion of their annual farm income had typically been deferred for tax purposes.

“If you’re an unincorporated farm and you can’t control your income (with cash deferrals) … you could be paying about 40 percent income tax on every dollar you earn,” he said.

The federal government is looking for feedback on the plan, and judging by early reactions from western Canadian grain growers, the idea should be buried in the back 40 and forgotten.

“Many farmers use this tool to avoid having to choose between losing a sale that might bump them into a higher tax bracket that year or lose the ability to maximize their revenue due to severe tax implications,” said Alberta farmer Kevin Auch, who is also chair of the Alberta Wheat Commission.

“For many farmers, eliminating this tool also eliminates the option to sell grain when there is a good price for it.… Grain would end up sitting in storage on-farm, rather than being sold into the marketplace. This disruption in cash flow is not only a loss to farmers but to the entire value chain.”

Deferred cash tickets are a widely used cash flow management tool that can be used to defer income from grain deliveries to the following tax year.

The tool allows farmers to manage fluctuations in income and cash flow and limit taxes on farm income without affecting the timing of grain sales.

In late March, Ottawa invited interested parties to weigh in on the issue by commenting on “the ongoing utility, and potential elimination, of this tax deferral, including any appropriate transitional period or rules.”

The public consultation was launched as part of Ottawa’s 2017 federal budget process.

Comments can be sent to consultation_tax_2017@canada.ca. Stakeholders have until May 24 to submit their responses.

A federal budget document announcing the consultation says the historical rationale for cash deferrals relates to international grain shipment agreements and the Canadian Wheat Board’s former position as the sole purchaser of listed grains in Manitoba, Saskatchewan and Alberta.

“With the deregulation of the grain marketing regime and the commercialization of the Canadian Wheat Board, the delivery of listed grains (to a licensed elevator) is now the responsibility of private business rather than the federal government,” the budget document states.

“As a result, there is arguably no longer a clear rationale for maintaining the tax deferral accorded to deferred cash purchase tickets received as payment for listed grains.”

In a recent interview, AWC general manager Tom Steve said the elimination of cash deferrals would be a big change for western Canadian farmers who have been using the tool for years.

“It will have a dramatic impact on a large number of farmers,” he said.

“Farmers have had that tool at their disposal for many years … and for those that use cash accounting methods, it’s a way for them to manage their cash flow and manage their tax exposure.”

The timing of the consultation process also comes at one of the busiest times of the year for western Canadian grain growers.

“A consultation period ending on the 24th of May … is right at the end of seeding,” Steve said.

“I think it’s fair to say that this came as a surprise to a lot of people in the industry because we didn’t have any previous indication that this was under consideration.”

Vandervalk said eliminating cash deferrals could cost some farmers hundreds of thousands of dollars.

If they were no longer available, he added, some growers would respond by delaying grain deliveries until January rather than make new crop deliveries in the fall.

That would affect not only farmers but also grain-handling companies, grain transportation systems, farm retailers and the equipment manufacturing sector.

If Ottawa is determined to go ahead with the changes, he said, it will be imperative that they implement the changes over an extended period of time — say five years or more — so that farmers have time to adjust their incomes and manage their tax exposure.

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