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    Tax Deferral

    For those who are in drought affected areas this may be of interest. There has been a lot of press about tax deferrals on the sale of breeding stock. Here are the actual Revenue Canada rules.

    The Livestock Tax Deferral provision allows farmers who sell part of their breeding herd due to drought or excess moisture and flood conditions in designated regions to defer a portion of sale proceeds to the following year (see definition of breeding herd). Each year, a list of designated regions prescribed as drought and/or excess moisture and flood regions is announced.

    “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.

    “breeding animals” means deer, elk and other similar grazing ungulates, bovine cattle, bison, goats, sheep and horses that are over 12 months of age and are kept for breeding

    How the Provision Works
    To defer income, 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, but 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.

    Proceeds from deferred sales are included as income in the next tax year, when they may be at least partially offset by the cost of reacquiring breeding animals. In the case of consecutive years of drought or excess moisture and flood designation, producers may defer sales income to the first year in which the area is no longer designated.
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