Livestock Tax Deferral Plan (Droughts)

Section 80.3 of the Income Tax Act allows farmers who sell part of their breeding herd due to drought conditions in designated regions to defer a portion of sale proceeds to the following year.

Eligibility Criteria

Farmers who sell part of their breeding herd due to drought conditions in designated regions.

Eligible Activities

Sale of breeding livestock due to drought.

Summary

To defer income, the breeding herd must have been reduced by at least 15%.

• 30% of income from net sales can be deferred if the breeding herd has been reduced by at least 15%, but less than 30%.
• 90% of income from net sales can be deferred where the herd has been reduced by 30% or more.

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 designation, producers may defer sales income to the first year in which the area is no longer designated. Details of the tax deferral provisions are provided in the Canada Revenue Agency's Tax Guide T4003 - Farming Income.

Discussions with industry representatives in 1990 led to a decision that tax deferral would only be requested if drought impact was significant. "Significant" was defined as forage yields of less than 50% of the long-term average, and an area that is large enough to have an impact on the industry.

Livestock producers have also indicated a strong preference for designation to take place as early as possible to provide them with the information needed to make fall and winter management decisions.

A preliminary drought designation can usually be done in September if it appears that the criteria will be met. Since forage yield information is not final until later in the year, preliminary designation is made primarily on the basis of spring moisture and summer rainfall, supplemented with estimates of forage yield.

Assessments of areas are reviewed in discussions with federal and provincial staff. Final decisions and any needed adjustments are made when all forage yield information is available, usually in December.

Note: only drought-induced impacts are considered in the designation of eligible areas for tax deferral. Impacts on individual municipalities would not result in a designation.

New Brunswick Contact(s):
See National Contact.

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National Contact(s):
Canada Revenue Agency
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Ottawa, Ontario  K1A 0L9
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