The federal government has backed away from its proposal to eliminate the ability for Canadian farm families to manage their tax bill using deferred cash purchase tickets.
Given the significant media attention that the federal government’s July 18 tax reform white paper has received, many Canadians may have forgotten the government also proposed eliminating this strategic farming deferred tax option in the March 2017 budget.
However, Canadian farm families did not forget, resulting in a flood of submissions to the government during a consultation period that was extended from May 24 to July 24.
Many grain farmers use the deferred cash purchase tickets. The tax option enables them to average their income over several seasons by allowing income from a grain delivery to be reported in the following year.
In its March budget announcement, the government argued there was “no longer a clear policy rationale for maintaining the tax deferral” since the Canadian Wheat Board’s grain marketing monopoly ended in 2012.
However, the submissions issued by farm groups and accounting firms such as MNP appear to have had an impact.
On Nov. 6, Agriculture Canada announced the federal government had abandoned the proposal and agreed to maintain the current tax treatment of cash purchase tickets.
The legislation allowing deferment of income from cash purchase tickets was originally introduced in 1973. It was intended to remove incentives for farmers to not deliver grain during certain times during the year.
For example, many farmers have December year-ends. Without the deferred cash purchase ticket option, once they reached their desired taxable income level by say, September in any given year, they may have decided not to deliver any of the current harvest until some time after Dec. 31 so as to have the money apply to the following year’s taxable income.
The impact of not delivering grain throughout the year could include:
- Extending waiting times for ships and trains, adding to delivery costs and potentially lost international sales due to failed contract delivery dates, the result being a tarnished reputation in the world grain markets.
- Expanded use of the rail system in the harsh winter months of January to April.
- Grain spoilage because the farmer would be required to store the grain longer.
- Shutdowns of domestic processing plants if farmers stopped deliveries till the new year.
The farm community did not see why any change was required to a system that is well understood and worked effectively for 44 years.
If anything, the recent improvements in the marketing of grain in Canada have expanded the need for smooth delivery of grain throughout the calendar year.
It would appear after the consultation period that the government now agrees, given its decision to abandon the planned revisions.
The government also announced the extension of the tax deferral option for farm families who received compensation under the Health of Animals Act for the forced destruction of animals and the designated areas for the livestock tax deferral.
The impact of thoughtful submissions to the government during a consultation phase cannot be underestimated and highlights the importance of paying attention to any changes the federal government is proposing.
Negative change can be averted by ensuring farm groups and accountants are well versed on the impact of proposed changes and then by providing those insights to the government in a clear manner.
Ron Friesen, CPA, CA, is a business advisor, taxation services with MNP. He can be reached at 306.664.8324 or email firstname.lastname@example.org