Tax deferral program helps when drought forces herd sale

Farming is frequently exposed to unpredictable acts of nature, which will often affect your financial income in the current year and future ones.

Drought and flooding are two such conditions that might force you to sell part of your breeding herd, sometimes at less-than-ideal prices.

To help mitigate those losses, the federal government offers a tax deferral program, which allows you to delay reporting the sale of breeding stock until next year, when you might be able to offset such income by the cost of purchasing replacement breeding animals.

If the drought or flooding conditions persist in following years, the program is flexible enough to provide for deferral of income to the first year when the adverse conditions no longer exist.

There is a sale threshold, however. Your herd must be depleted by at least 15 percent of your total breeding stock. If your herd has been reduced higher than that amount but less than 30 percent, you can defer income from net sales of animals by 30 percent. Net sales of your breeding herd greater than that — between 30 and 90 percent — will qualify for a 90 percent deferral of net income until the following year.

The program is only applicable to drought or flood regions identified by Agriculture Canada. They determine qualified regions when estimated forage yields drop below 50 percent of the long-term average specifically due to drought or floods. A preliminary list of regions will likely be identified early this fall based on three factors: spring moisture, summer rainfall and estimated forage yields. The final list will be confirmed in December when actual forage yield numbers are available.

Last year, much of southern British Columbia, Alberta and Saskatchewan were prescribed areas that qualified for the program. In Eastern Canada, only parts of the Eastern Townships and a portion of the north shore of the St. Lawrence River in Quebec qualified because of severe flooding.

This year, the southern Prairies are still experiencing drought conditions but central B.C. has had severe dry conditions triggering wildfires. Many areas across the province received less than 10 millimetres of rain throughout May, well below traditional rainfall for that time of year.

Pockets of moderate drought are showing in northern B.C., Alberta and southern Saskatchewan. In Manitoba, severe drought conditions are being reported from Brandon to north of Winnipeg.

The north shore of Lake Superior in Ontario is considered to be in a state of moderate drought.

The impact on agriculture across the Prairies includes lower-than-usual water supplies, below-normal sloughs and decreased feed production.

To verify whether you are in a prescribed livestock tax deferral drought or flood region, beginning this autumn, check the Agriculture Canada website at, under the headline Livestock Tax Deferral Provision.

Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: or 800-265-1002.

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