Off-farm income | Group says 23-year-old rule ‘penalizes’ young farmers
TORONTO — The Canadian Federation of Agriculture plans a Parliament Hill campaign this autumn to try to change a 23-year-old Income Tax Act rule on farm loss tax writeoffs against off-farm income.
Under Income Tax Act rules last amended in 1989, part-time farmers trying to claim farm losses against off-farm income are limited to an $8,750 annual tax deduction claim.
The CFA will argue that the rule should be inflation-adjusted to allow a maximum annual writeoff of $40,000.
“This really is a key issue for young farmers working off the farm who want to invest and to build their operation,” CFA British Columbia director Garnet Etsell said in a July 26 interview during the CFA summer board meeting. “They work off-farm to build their farm but this restriction really penalizes them.”
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The CFA pitch will be that the legislation should be updated to reflect the change in the cost of farm investment since the last amendment 23 years ago.
“Costs these days are much higher and watching your off-farm income get swallowed up by farm losses is a significant problem as we try to attract more young people to farming,” said Etsell from the B.C. Agriculture Council.
A briefing note prepared by the CFA for MPs this autumn notes that while the value of farm assets increased by more than 150 percent in inflation-adjusted terms in the 30 years to 2003, the value of farm loss claims actually decreased by 65 percent.
The federation will tell MPs considering their recommendations to the government about its 2013 budget that the low limit on farm loss writeoff under Section 31 of the Income Tax Act is a significant impediment to attracting new farmers.
“In addition, (it) places Canadian producers at a disadvantage in international markets as American producers do not face any tax impediments equivalent to the inequity posed by Section 31 for Canadian part-time farmers,” says the federation’s taxation committee background brief.
It notes that in 2006, almost 49 percent of farm operators under age 35 reported that their main source of income was off-farm. “Without certainty that they can deduct a significant portion of the losses from start-up operations, new entrants are limited in terms of both the amount of capital and time they are able to devote to these operations as they must focus on other sources of income.”
However, the farm lobby is offering an olive branch to Ottawa’s taxman, assuring Finance Canada that it understands the instinct to prevent use of small money-losing farms as tax shelters for high earners.
However, “we believe the current restriction in Section 31 negatively affects the ability to attract new entrants to the industry as well as the ongoing viability of existing start-up agricultural operations and as such, the future of all farming in Canada.”
Etsell said so far, MP reaction has been positive and the lobby will step up once MPs are back on Parliament Hill in late September.
