A prominent farm tax planning company wants the Federal Court of Canada to rule on a controversial clawback of close to $4 million from a safety net program.
Farm Business Consultants Inc. has filed an application for judicial review of the point of sale guidelines of the Net Income Stabilization Account program.
Under the guidelines, prairie grain farmers are not allowed to include freight and elevation costs in the net sales figure used to determine NISA contributions.
Last summer, NISA administrators audited 16,500 farmers and found about 60 percent had included freight and elevation in net sales.
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NISA has since adjusted the farmers’ accounts and recovered almost $4 million in federal government contributions.
But the Regina operations manager of Farm Business Consultants said the guidelines and clawback are inconsistent with NISA’s federal-provincial agreement, the spirit of the Farm Income Protection Act and Revenue Canada practises.
Andrew Paslawski said farmers’ freight costs have tripled since the end of the Crow rail transportation subsidy, eating into farmers’ net income.
NISA’s federal-provincial agreement states farmers are allowed to include expenses eligible for income tax, and Paslawski pointed out freight and elevation are eligible.
The guidelines are stated only in the NISA handbook, not the legislation, noted Paslawski, meaning they are just an interpretation of the law.
“We can’t find the rationale for that special treatment,” he said. “We decided to take the NISA administration to task on their interpretation.”
Never before
This is thought to be the first-ever legal challenge of the NISA program. The guidelines were developed by the National NISA Committee in 1994, a group of federal, provincial and farmer representatives which oversees the program.
It deemed the value of a product is determined when the farmer relinquishes responsibility for it, such as when he dumps his grain into an elevator pit.
On the other hand, farmers can claim freight and elevation expenses for malting barley and producer cars because they are responsible for their grain until it reaches port.
The guidelines first came under fire during the 1996 tax year, when farmers started paying the full cost of freight, and grain companies began showing the cost on grain tickets.
After its clients were audited, Farm Business Consultants appealed the clawbacks to the National NISA Committee. The appeals were denied in November 1998.
NISA clawed back about $1 million from more than 6,700 clients of the company, said Paslawski.
The company approached one client, John Boyko of Raymore, Sask., who agreed to let his NISA information be used as an example for the case.
The company has retained Regina tax lawyer Kevin Mellor. He said he hopes the federal court will hear the case sometime in 1999.
“The farmers need it desperately,” said Mellor.
NISA lawyers have until mid-February to file a response, Mellor said.
A NISA spokesperson said lawyers have instructed staff not to comment on the issue, the guidelines or an internal review of the guidelines.
“At this point, it’s all linked in with the legal case,” said Meaghan McMurray, with NISA’s administrative policy section.
