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 and on the recommendation of the Minister of Finance, as suffering from drought conditions during a year. The Regulations Amending the Income Tax Regulations (2006 Drought Regions), which amend section 7305 of the Income Tax Regulations (the "Regulations"), describe the prescribed regions that are eligible drought regions in 2006. These additions to the list of prescribed drought regions in section 7305 of the Regulations are relieving in nature.

The proposed amendment to the Regulations is necessary to prescribe drought regions for 2006. No other alternatives were considered. The amendment is consequential to the announcement by the Minister of Agriculture and Agri-Food that certain regions of Canada be designated as drought regions for 2006.

The amendment will allow farmers in 2006 prescribed drought regions to defer income from the disposition of their breeding livestock in 2006 until a subsequent year. The portion of the proceeds of disposition, 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 ensure that income tax does not adversely affect a farmer's ability to replenish breeding livestock after drought conditions cease. This is accomplished by deferring the taxability of income, received from the sale of breeding livestock during the drought year(s), to the year after the drought at which time the income can be offset to the extent that the farmer pays for replacement livestock in that year. As a result, farmers who live in drought regions do not have to include in their farming income certain portions of their proceeds obtained from the sale of their breeding herd. The amendment ensures that the tax deferral applies to farmers affected by drought conditions in prescribed drought regions in 2006.

The amendment may have a positive impact on the environment in the sense that it indirectly results in better pasture recovery after the drought. To the extent that the disposing of breeding animals during drought conditions helps reduce grazing, the amendment results in better pasture recovery after the drought and thus helps in preserving the longevity of the grazing pasture.

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

Canadians in general were given opportunities to comment on this amendment following two announcements by the Department of Agriculture and Agri-Food regarding the regions to be recommended for prescription for 2006. The first announcement consisted of four news releases, one for each affected province—Ontario, Saskatchewan, Alberta and British Columbia—issued by Agriculture and Agri-Food Canada on December 12, 2006. The second consisted of three news releases, which concerned additional areas in the provinces of Ontario, Saskatchewan and British Columbia, issued by Agriculture and Agri-Food Canada on February 1, 2007. These news releases are available through Agriculture and Agri-Food Canada's Web site at www.agr.gc.ca.

The Income Tax Act provides the necessary compliance mechanisms. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and 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 (2006 Drought Regions).

Interested persons may make representations concerning the proposed Regulations within thirty 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, 17th Floor, East Tower, 140 O'Connor Street, Ottawa, Canada K1A 0G5.

1. Section 7305 of the Income Tax Regulations (see footnote 1) is amended by striking out the word "and" at the end of paragraph (h), by adding the word "and" at the end of paragraph (i) and by adding the following after paragraph (i):

(i) in Ontario, the Territorial Districts of Algoma, Kenora, Manitoulin, Rainy River and Thunder Bay,

(ii) in British Columbia, the Regional Districts of Bulkley-Nechako, Cariboo, Fraser-Fort George, Kitimat-Stikine and Peace River,

(iii) in Saskatchewan, the Rural Municipalities of Arlington, Auvergne, Bengough, Big Stick, Bone Creek, Carmichael, Clinworth, Frontier, Glen McPherson, Grassy Creek, Gull Lake, Happy Valley, Hart Butte, Lac Pelletier, Lake Alma, Laurier, Lone Tree, Mankota, Maple Creek, Miry Creek, Old Post, Piapot, Pittville, Poplar Valley, Reno, Surprise Valley, The Gap, Val Marie, Waverley, Webb, Whiska Creek, White Valley, Willow Bunch and Wise Creek, and

(iv) in Alberta, the Counties of Clear Hills, Grande Prairie and Saddle Hills and the Municipal Districts of Greenview and Northern Lights.