Each year, Canadian farmers receive federal tax breaks worth more than $400 million, the finance department reported last week.
The major farm sector tax break is the ability to claim a $500,000 lifetime capital gains exemption for farm property. This year, Finance Canada estimates it will reduce the farm sector tax bill by $305 million.
Also, deferral of tax on government contributions to Net Income Stabilization Accounts, as well as on bonus and interest income, give farmers a benefit.
Deferral of income on grain sold through cash purchase tickets is another avenue for reducing annual tax bills in higher-income years.
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In total, finance department economists estimate the value of what they call “tax expenditures” for farmers in 1997 will be $413 million.
In some recent years, when more farmers were claiming the once-in-a-lifetime capital gains exemption because of fears that the tax break might be cancelled in the cause of deficit fighting, the value of tax breaks for farmers has approached $600 million.
Government economists call such exemptions “tax expenditures” because it is a way governments offer selective help to certain sectors, just as “program expenditures” are policy tools for the same goal.
However, economists say tax breaks should not be equated to government subsidies or program spending.
“There is a benefit for farmers, no doubt,” said Agriculture Canada economist Roger Eyvindson. “But it is difficult to determine exactly the benefit of a tax deferral, particularly in cases like NISA when tax is owing later when funds are withdrawn.”
He said the department does not include the value of tax breaks when it calculates the cost of support programs and services that the federal government offers farmers each year.
“It is not a part of what we consider the support package but it is useful to know what tax breaks are out there,” he said.
“At some point, there might be a debate about whether a tax break is the way to pass on the support.”
George Brinkman, chair of the agricultural economics department at the University of Guelph, said tax breaks are more properly seen as a tool governments use to distribute wealth in Canada.
“It isn’t really treated as a subsidy,” he said. “If you look at it from a trade perspective, you don’t really want it to be seen as a subsidy. All countries tax different sectors at different rates. If governments considered them subsidies, it would be another red flag for trade complaints.”
Tax exemptions and loopholes are sprinkled throughout the tax system for businesses and individuals.
Each year, the federal government foregoes billions of dollars in potential revenue through tax credits on charitable donations, pension plans, registered retirement savings plans and hundreds of other measures.
