Federal income tax laws are holding back pools of investment money that could be used to build the West’s agricultural infrastructure, says the head of a prairie hog barn network.
“They ought to be scrapped,” said Richard Wright, of Quadra Management. He was speaking about income tax rules that prohibit non-farmers from using losses from agricultural investments to lower their taxes on income from non-farm sources.
“We need more equity investment in agriculture.”
Tax laws allow full-time farmers to use losses from farming to reduce their taxable income from all sources, even from money earned off the farm. Part-time farmers are allowed to use some of their farm losses against non-farm income.
Read Also
Rented farmland jumps 3.4 million acres in Saskatchewan and Alberta
Farmland rented or leased in the two provinces went from 25.7 million acres in 2011 to 29.1 million in 2021, says Census of Agriculture data.
But non-farmers, and those the tax department considers hobby farmers, are not allowed to use any farm losses against their other income.
That means non-farmer investors in hog barns like the ones Quadra organizes are discriminated against, Wright said.
Farmers who invest in a barn can use any of the losses from their share of the barn to offset all their other income. Hog barns generally have losses when they start up, so being able to use these losses to lower tax bills is a powerful incentive to get farmers to invest in a hog barn.
But non-farmers don’t get any tax benefit. That’s bad, Wright said, because it makes it harder to entice people from small towns and cities to invest. Since Western Canada needs much more investment in the agricultural economy, the tax laws should be changed so that all taxpayers are encouraged to invest in farming.
“We need hog barns, feed mills, all the value-added activity we can get,” said Wright.
He made this argument to the federal Liberal party task force on Western Canada when it visited his town of Outlook, Sask., recently.
Task force chair John Harvard accepted a brief supplied by Quadra that talked about the unrestricted farm loss issue, and promised he and other government members would look at it.
But Alberta senator Dan Hays offered Wright little support.
In an interview later, Hays, who is a member and former chair of the Senate agriculture and forestry committee, said allowing non-farmers to lower their taxable income by using farm losses would be an expensive tax break. The government would have to be convinced that it was in the general interest of the country to allow the tax break.
Other investments are generally treated like non-farmer investments in agriculture, Hays said. For example, real estate losses by an investor can only be used against income from other real estate investments, Hays said. It’s the same with oil and gas investments.
The government has allowed some exceptions to this kind of compartmentalized income tax accounting. Investors in multiple unit residential buildings were allowed to use losses on these investments against their total income, not just their real estate income. That was because the government wanted to promote the construction of low income, social housing, Hays said.
Tax shelters aren’t cheap, the senator said. Once they are allowed, it is impossible to say how much they would cost, since no one knows how much would be invested in a particular area because of the shelter.
To subsidize the building of new hog barns, the government would have to accept that using tax shelters is the best way to help farmers. Hays thinks there are better ways.
Getting money directly into farmers’ hands, through aid and safety nets, is one way.
Another is getting fairer world trading rules that will restrict European and American export and production subsidies.
“I would support more dollar resources going into agriculture, but I wouldn’t put more hog barns at the top of the list,” said Hays.
