AgriStability changes must be considered before filing

As the owner and operator of your farm, you know the history better than anyone. Understanding the AgriStability program and its application to your business is important and your professional adviser can help. The enrolment deadline is approaching. | File photo

AgriStability is a hot topic among producers and our provincial, territorial and federal governments. In November 2020 it was announced that changes “may be coming” and last month changes were finally approved for applicants. These changes are expected to result in an additional $95 million in payouts annually across Canada.

In 2013, when Growing Forward 2 was announced, the reference margin limit was introduced to AgriStability participants. This change had a significant impact and added complexity to an already complex program.

The reference margin limit made the producer’s support level (payout level) either the lower of the traditional reference margin (allowable revenue less allowable expenses) or the total of the allowable expenses. Both are calculated using a modified average of the last five years of production, known as the Olympic average.

It may be easiest to illustrate that with a basic example: A cow-calf operation has allowable revenue of $3 million (calf sales) and allowable expenses of $1 million (replacement heifer purchases, feed, vet, etc.). Historically the reference margin for this operation would have been $2 million. With the reference margin limit introduced, the reference margin was now $1 million in total allowable expenses. Additionally, a payout would only be triggered if the current year’s production margin fell below 70 percent of the reference margin, being $700,000 in the example. In short, this cow-calf operation’s margin had to fall 65 percent in order to be in a payout position. Before, it only had to fall 30 percent.

In 2018 the Canadian Agricultural Partnership replaced Growing Forward 2. This program is set to be in place until 2023. The introduction of CAP kept the reference margin limit intact, but there was now a limit. Rather than the reference margin being the lesser of allowable revenues less allowable expenses, or total allowable expenses, now it could no longer be any lower than 70 percent of total allowable revenue less allowable expenses. Complicated, right?

Using the same cow-calf example, 70 percent of total allowable revenue less total allowable expenses is $1.4 million. The payout trigger on this reference margin would now be $980,000. Under the original CAP program, the cow-calf operation’s production margin would need to fall 51 percent to trigger a payout.

The changes announced March 25 have removed the reference margin limit completely, reverting the program to the original Growing Forward and making it much less complicated.

These changes obviously benefit participants who have lower allowable expenses in relation to their production margin, largely being grains-oilseeds and cow-calf operations. These operations typically have lower allowable expenses (fertilizer, seed, replacement heifers, etc.) as compared to non-allowable expenses (borrowing costs, equipment amortization and repairs and maintenance).

Other considerations

The government did not change the compensation rate from the current 70 percent to 80 percent. This rate change discussion is still in the works and could be something we see soon.

Removal of the reference margin limit is retroactive to the 2020 program year.

The enrolment deadline for the 2021 program year has been extended to June 30 from April 30.

The AgriStability program still has its fair share of complexities and frustrations, including turnaround on assessment times and significant verification questions after filing. Participants are advised to file their forms as early as possible and keep the best possible records to support their submissions.

As the owner and operator of your farm, you know the history better than anyone. Understanding the AgriStability program and its application to your business is important and your professional adviser can help. The enrolment deadline is approaching. Have discussions with your adviser to see if 2021 enrolment is right for you.

Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: colinmiller@kpmg.ca. He would like to thank Hayley Hilz of KPMG for her assistance with writing this article.

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