Canada Gazette

Section 80.3 of the Income Tax Act permits farmers who dispose of breeding livestock because of drought conditions existing in a prescribed drought region in a year to exclude a portion of the sale proceeds from their taxable income until the following year, or the year following a consecutive series of drought years, as the case may be. As a result, the full amount of the proceeds eligible for the deferral will be available to replenish their breeding livestock at that time.

Prescribed drought regions are those regions of Canada that are designated, on the advice of the Minister of Agriculture and Agri-Food, as suffering from drought conditions during a year. The Regulations Amending the Income Tax Regulations (2004 Drought Regions) [the Regulations], which amend section 7305 of the Income Tax Regulations, read together with section 7305.01 of the Income Tax Regulations, describe the prescribed regions that are eligible drought regions in 2004. These additions to the list of prescribed drought regions in section 7305 of the Income Tax Regulations are relieving in nature. The Regulations also correct an error in the English version of the 2003 drought regions designation for Manitoba, by replacing a reference to "regional" municipalities with a reference to "rural" municipalities.

These Regulations are necessary to prescribe drought regions for 2004. These regions were determined by the Minister of Agriculture and Agri-Food to have suffered from drought conditions in that year.

These Regulations will allow farmers in the prescribed drought regions to defer income from sales of breeding livestock in 2004 until a subsequent year. The portion of the sale proceeds, which can be deferred by a farmer, increases with the percentage of the farmer's breeding livestock sold. In this manner, the tax deferral program is targeted at those farmers most severely disadvantaged by drought conditions.

The policy rationale for designating drought regions is to mitigate the financial impact of drought conditions on farmer's income. As a result, farmers who live in drought regions do not have to include certain portions of their proceeds obtained from sale of their breeding herd. These amendments remove the disincentive the farmers may otherwise have, for not selling their breeding herd for fear of having to pay tax on the sale of that herd.

These amendments may have a minimal impact on the environment in the sense that they indirectly result in better recovery of the pastureland during post drought conditions. To the extent that the selling of breeding herd during drought conditions help reduce grazing activity, these amendments help in preserving the longevity of the grazing pasture.

The list of prescribed regions was developed through consultations held by Agriculture and Agri-Food Canada with various parties, including provincial agriculture and municipal affairs departments, municipalities, farmers' associations, and crop insurers.

In addition, Canadians were given an opportunity to comment on the regions to be prescribed for 2004 following the publication, by Agriculture and Agri-Food Canada, of related news releases on November 25, 2004, and February 18, 2005. These releases are available through the Department of Agriculture and Agri-Food's Web site at www.agr.gc.ca.

The technical deficiency in the English version of subparagraph 7305(h)(i) of the regulations relating to the 2003 drought regions in the province of Manitoba was brought to the attention of the Department of Finance by the Standing Joint Committee for the Scrutiny of Regulations.

The Income Tax Act provides the necessary compliance mechanisms. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, to conduct audits and to seize relevant records and documents.

Gurinder Grewal, Tax Legislation Division, Department of Finance, L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario K1A 0G5, (613) 992-1862.

Notice is hereby given that the Governor in Council, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), proposes to make the annexed Regulations Amending the Income Tax Regulations (2004 Drought Regions).

Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Gurinder Grewal, Tax Legislation Division, Department of Finance, L'Esplanade Laurier Building, 17th Floor, East Tower, 140 O'Connor Street, Ottawa, Ontario K1A 0G5.

1. (1) Subparagraph 7305(h)(i) of the English version of the Income Tax Regulations (see footnote 1) is replaced by the following:

(i) in Manitoba, the Rural Municipalities of Albert, Alonsa, Archie, Argyle, Armstrong, Arthur, Bifrost, Birtle, Blanshard, Brenda, Cameron, Clanwilliam, Coldwell, Cornwallis, Daly, Dauphin, Edward, Ellice, Elton, Eriksdale, Ethelbert, Fisher, Gilbert Plains, Gimli, Glenella, Glenwood, Grahamdale, Grandview, Hamiota, Harrison, Hillsburg, Kelsey, Lakeview, Langford, Lansdowne, Lawrence, Louise, McCreary, Miniota, Minitonas, Minto, Morton, Mossey River, Mountain, North Cypress, Oakland, Ochre River, Odanah, Park, Pipestone, Riverside, Roblin, Rockwood, Rosedale, Rossburn, Russell, Saskatchewan, Shell River, Shellmouth-Boulton, Shoal Lake, Sifton, Siglunes, Silver Creek, South Cypress, St. Laurent, Ste. Rose, Strathclair, Strathcona, Swan River, Turtle Mountain, Wallace, Westbourne, Whitehead, Whitewater, Winchester, Woodlands and Woodworth, the town of Grand Rapids and the Manitoba Census Consolidated Subdivision no. 19 (unorganized), as that subdivision was developed by Statistics Canada for the 2001 Census,

(2) Section 7305 of the Regulations is amended by striking out the word "and" at the end of paragraph (g), by adding the word "and" at the end of paragraph (h) and by adding the following after paragraph (h):

(i) in British Columbia, the Regional District of Fort Nelson-Liard, and

(ii) in Alberta, the Counties of Beaver, Camrose, Flagstaff, Paintearth, Starland and Stettler, the Municipal Districts of Acadia, Clear Hills, Fairview, Mackenzie and Northern Lights, and Special Areas 2, 3 and 4.