The heat wave and lack of moisture have complicated things for farmers and ranchers in Western Canada.
Summer temperatures around Canada have been well above average and many records, including hottest recorded temperature in Canada, was broken in July. As a result, much of Western Canada is experiencing moderate to severe drought conditions and we can only assume that these dry conditions will persist throughout the remainder of the year.
Livestock producers are seeing water supplies drying up and grazing land not produce sufficient amounts of grass needed for sustainable grazing. Similarly, producers are beginning to recognize a sharp increase in the price of hay. Such conditions can negatively affect your bottom line. In many cases, to remedy the lower levels of water and food supply, livestock producers are forced to thin their herds.
If you unfortunately find yourself having to thin your herds due to drought conditions, there is a silver lining in that you may be eligible for a tax deferral.
The livestock tax deferral provision is a program developed to help livestock producers who have to sell part of their herd due to drought keep more money in their pockets to assist in replenishing herds after a drought year.
Qualifications for this program consist of the following:
- Your ranch must be located in a designated drought zone.
- Your breeding herd must have been reduced by at least 15 percent as a direct result of drought.
Drought zones are chosen by the agriculture and finance ministers. Typically, regions are selected as drought zones when forage yields are less than 50 percent of the long-term average. Drought zones are normally announced in December once all of the forage yield and drought data has been gathered, but due to this year’s extreme dry conditions, the drought zones have already been announced.
In circumstances where there is a 15 percent herd reduction, 30 percent of the net sales can be deferred.
If the herd is reduced by 30 percent or more, 90 percent of net sales can be deferred.
The percentage of net sales can be deferred to the year immediately following unless the drought conditions persist into that year. In that case, the deferred income can be deferred until a year in which your region is no longer designated as a drought zone.
By deferring sales to future years, the current year tax liability will be reduced. The theory is that by reducing the tax liability in the year a herd is reduced, it will allow farmers to use the tax savings to assist in replenishing the breeding herd once the drought conditions have passed.
The Alberta government is providing, under the AgriRecovery program, $136 million in relief for drought-stricken ranchers and farmers. The provincial government has also requested an additional $204 million from the federal government.
The AgriRecovery program is designed to provide Alberta’s livestock producers with immediate cash, on a per-head basis, to aid in buying feed, water and fencing. A second payment will be made, also on a per-head approach, to help cover other extraordinary costs not covered by other risk management programs.
Additionally, Alberta Environment and Parks has other programs available for livestock producers. Ranchers can apply for temporary grazing or haying on vacant public lands and may be allowed to extend time in the forest reserve, in areas where there is sufficient forage. Changes have also been made to water regulations to give producers access to additional water supply.
Saskatchewan has announced that it will commit $119 million as part of its AgriRecovery program and has requested an additional $178 million from Ottawa. The assistance to producers will be available on a per-head basis.
Additionally, the maximum funding from the Farm and Ranch Water Infrastructure program has been increased from $50,000 to $150,000. This program will assist producers in providing funds for dugouts, wells and water pipelines.
Manitoba has announced it will provide $62 million in drought relief for farmers. This will be supplemented by federal funds. Additional programs remain in the works but are expected to provide a breadth of supports for producers.
If you find yourself wondering what is available to you, or how the livestock tax deferral can assist you, reach out to your trusted adviser for help.
Colin Miller is a chartered accountant and partner with KPMG’s tax practice in Lethbridge. Contact: email@example.com. He would like to thank Marden Litchfield and Kurtis Krizsan of KPMG for their assistance with writing this article.