Livestock Tax Deferral
Tuesday, September 18, 2018
Livestock Tax Deferral
The Livestock Tax Deferral provision allows farmers to defer income to the following taxation year if they farm in a prescribed drought region and sell part of their breeding herd due to the drought conditions. The breeding herd must have been reduced by at least 15 per cent. Thirty per cent of income from net sales can be deferred if the breeding herd has been reduced by at least 15 per cent and less than 30 per cent. Where the herd has been reduced by 30 per cent or more, 90 per cent of income from net sales can be deferred.
See the attached map for the regions that Canada Revenue Agency has announced that will qualify for 2018.
2018 Initial List of Prescribed Regions
The definition of “breeding animals” means bovine cattle, deer, elk and other similar grazing ungulates, bison, goats, sheep and horses that are over 12 months of age and are kept for breeding.
“Breeding herd” of a taxpayer at any time means the number determined by the formula A - (B - C) where A is the total number of the taxpayer’s breeding animals held in the course of carrying on a farming business at that time, B is the total number of the taxpayer’s breeding animals held in the business at that time that are female bovine cattle that have not given birth to calves, and C is the lesser of the number determined as the value of B and one-half the total number of the taxpayer’s breeding animals held in the business at that time that are female bovine cattle that have given birth to calves.
A= 80 cows +20 heifers over 1 year old, kept for breeding purposes +5 bulls = 105
B= 20 heifers over 1 year old, kept for breeding purposes
C= lessor of B = 20 and 1/2 of 80 = 40.
The lessor is 20
A 105 -20 -20= 65 head are considered breeding herd.
This calculation is done at the beginning and at the end of the fiscal year to determine the % decrease in the breeding herd.
The amount deducted in computing the income of a taxpayer from a farming business for a taxation year shall be deemed to be income of the taxpayer from the business for the taxpayer’s immediately following taxation year unless the farm operation was in a prescribed drought region at any time in that following year. For example if the drought is deemed to have occurred from April to September 2015, and you have a July yearend, then you would be able to defer your income for 2015 and 2016 fiscal years as there was a time period in each fiscal year that you were farming in a prescribed drought region.
There are other rules that may come into the calculation such as if you become a non-resident, cease to carry on business through a fixed place of business or if the taxpayer dies.
Contact us for more information or for a calculation of your deferral amount. Don’t wait until after your yearend to do these calculations as they may affect your marketing decisions!