Vol. 147, No. 25 — December 4, 2013

Registration

SOR/2013-206 November 22, 2013

INCOME TAX ACT

Regulations Amending the Income Tax Regulations (Livestock Deferrals)

P.C. 2013-1253 November 21, 2013

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), makes the annexed Regulations Amending the Income Tax Regulations (Livestock Deferrals).

REGULATIONS AMENDING THE INCOME TAX REGULATIONS (LIVESTOCK DEFERRALS)

AMENDMENTS

1. (1) Section 7305 of the Income Tax Regulations (see footnote 1) is amended by striking out “and” at the end of paragraph (l) and by adding the following after paragraph (m):

• (n) the 2010 calendar year are
  • (i) in British Columbia, the Census Subdivisions Bulkley-Nechako B to F, Cariboo A to F and I to K, Fraser-Fort George A and C to H and Peace River B to E, as these subdivisions were developed by Statistics Canada for the 2006 Census, and
  • (ii) in Alberta, the Counties of Birch Hills, Clear Hills, Grande Prairie, Northern Lights, Northern Sunrise, Saddle Hills, Woodlands and Yellowhead, the Improvement District No. 12 and the Municipal Districts of Big Lakes, Fairview, Greenview, Peace, Smoky River and Spirit River; and
• (o) the 2012 calendar year are
  • (i) in Ontario, the Census Divisions Brant, HaldimandNorfolk, Hamilton and Ottawa, as these divisions were developed by Statistics Canada for the 2011 Census, the Counties of Bruce, Dufferin, Frontenac, Grey, Hastings, Huron, Lanark, Lennox and Addington, Northumberland, Oxford, Perth, Prince Edward, Renfrew and Wellington, the Districts of Parry Sound and Rainy River, as these districts were developed by Statistics Canada for the 2011 Census, the District Municipality of Muskoka, the Regional Municipalities of Halton, Niagara and Waterloo, the Territorial Districts of Algoma and Manitoulin and the United Counties of Prescott and Russell,
  • (ii) in Quebec, the Regional County Municipalities of Les Collines-de-l’Outaouais, Papineau, Pontiac and Temiscamingue and the Town of Gatineau,
  • (iii) in Manitoba, Census Division No. 1, Unorganized, as developed by Statistics Canada for the 2011 Census, and the Rural Municipalities of De Salaberry, Franklin, Hanover, La Broquerie, Montcalm, Morris, Piney, Reynolds, Rhineland, Ritchot, Ste. Anne, Stuartburn, Tache and Whitemouth,
  • (iv) in British Columbia, the Peace River Regional District, and
  • (v) in Alberta, the Counties of Birch Hills, Clear Hills, Grande Prairie, Mackenzie, Northern Lights and Saddle Hills and the Municipal Districts of Fairview, Peace and Spirit River.

(2) Section 7305 of the Regulations, as amended by subsection (1), is renumbered as subsection 7305(1) and is amended by adding the following:

(2) For the purposes of this section, a city, county, district or other municipality is deemed to include any area that is surrounded by the territory of the city, county, district or other municipality.

2. Section 7305.01 of the Regulations is repealed.

3. (1) Subsection 7305.02(1) of the Regulations is amended by striking out “and” at the end of paragraph (a) and by adding the following after paragraph (b):

• (c) in respect of the 2010 calendar year,
  • (i) in Manitoba, Census Divisions No. 18 and 19, Unorganized and No. 20, Unorganized, North and South Parts, as these divisions were developed by Statistics Canada for the 2006 Census, the Rural Municipalities of Albert, Alexander, Alonsa, Armstrong, Arthur, Bifrost, Brenda, Brokenhead, Cameron, Coldwell, Dauphin, East St. Paul, Edward, Eriksdale, Ethelbert, Fisher, Gilbert Plains, Gimli, Glenella, Grahamdale, Grandview, Hillsburg, Kelsey, Lac du Bonnet, Lawrence, McCreary, Minitonas, Mountain, Mossey River, Ochre River, Pipestone, Reynolds, Rockwood, St. Andrews, St. Clements, St. Laurent, Ste. Rose, Shellmouth-Boulton, Shell River, Sifton, Siglunes, Swan River, West St. Paul, Whitemouth, Winchester and Woodlands and the Valley River 63A reserve, and
  • (ii) in Saskatchewan, the Rural Municipalities of Aberdeen, Arborfield, Barrier Valley, Bayne, Big Quill, Birch Hills, Bjorkdale, Blaine Lake, Blucher, Buchanan, Buckland, Calder, Cana, Canwood, Churchbridge, Clayton, Colonsay, Connaught, Corman Park, Cote, Cupar, Duck Lake, Dundurn, Elfros, Emerald, Fish Creek, Flett’s Springs, Foam Lake, Garden River, Garry, Good Lake, Grant, Great Bend, Hazel Dell, Hoodoo, Hudson Bay, Humboldt, Insinger, Invergordon, Invermay, Ituna Bon Accord, Kellross, Kelvington, Keys, Kinistino, Laird, Lakeland, Lake Lenore, Lakeside, Lakeview, Leask, Leroy, Lipton, Livingston, Lost River, McCraney, Moose Range, Morris, Mount Hope, Nipawin, Orkney, Paddockwood, Pleasantdale, Ponass Lake, Porcupine, Prairie Rose, Preeceville, Prince Albert, Redberry, Rosedale, Rosthern, Saltcoats, Sasman, Shellbrook, Sliding Hills, Spalding, St. Louis, St. Peter, St. Philips, Stanley, Star City, Three Lakes, Tisdale, Torch River, Touchwood, Tullymet, Usborne, Vanscoy, Viscount, Wallace, Willow Creek, Wolverine, Wood Creek and Wreford; and
• (d) in respect of the 2011 calendar year,
  • (i) in Manitoba, Census Divisions No. 18 and 19, Unorganized, as these divisions were developed by Statistics Canada for the 2006 Census, and the Rural Municipalities of Albert, Alonsa, Archie, Armstrong, Arthur, Bifrost, Brenda, Cameron, Coldwell, Cornwallis, Dauphin, Edward, Eriksdale, Fisher, Gimli, Glenella, Glenwood, Grahamdale, Kelsey, Lakeview, Lawrence, McCreary, Miniota, Morton, Mossey River, Oakland, Ochre River, Pipestone, Portage la Prairie, St. Laurent, Ste. Rose, Sifton, Siglunes, Wallace, Westbourne, Whitehead, Whitewater, Winchester, Woodlands and Woodworth, and
  • (ii) in Saskatchewan, the Rural Municipalities of Abernethy, Antler, Argyle, Benson, Bratt’s Lake, Brock, Brokenshell, Browning, Calder, Caledonia, Cambria, Cana, Chester, Churchbridge, Coalfields, Cymri, Elcapo, Enniskillen, Estevan, Fertile Belt, Fillmore, Francis, Golden West, Grayson, Griffin, Hazelwood, Indian Head, Kingsley, Lake Alma, Lajord, Langenburg, Laurier, Lomond, Martin, Maryfield, McLeod, Montmartre, Moose Creek, Moose Mountain, Moosomin, Mount Pleasant, Norton, Orkney, Reciprocity, Rocanville, Saltcoats, Scott, Silverwood, Souris Valley, Spy Hill, Stanley, Storthoaks, Tecumseh, Tullymet, Wallace, Walpole, Wawken, Wellington, Weyburn, Willowdale and Wolseley.

(2) Section 7305.02 of the Regulations is amended by adding the following after subsection (2):

(3) For the purposes of this section, a city, county, district or other municipality is deemed to include any area that is surrounded by the territory of the city, county, district or other municipality.

APPLICATION

4. (1) Section 1 and subsection 3(1) are deemed to have come into force on March 3, 2011.

(2) Section 2 applies to areas referred to in section 7305 of the Income Tax Regulations in respect of the 2014 and subsequent calendar years.

(3) Subsection 3(2) is deemed to have come into force on January 1, 2008.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issue

In circumstances where drought or flood/excess moisture conditions significantly affect forage yields, farmers may be forced to sell breeding livestock because of the prohibitive costs of maintaining the herd. Normally, a farmer would replace breeding livestock if there were a forced sale, and the cost of the replacement livestock would offset the income inclusion from the forced sale. However, it is unlikely that farmers would replace livestock while drought or flood/excess moisture conditions persist. Therefore, the Income Tax Act (the “Act”) permits farmers who dispose of breeding livestock because of drought or flood/excess moisture conditions existing in a prescribed 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 years where drought or flood/excess moisture conditions persist, as the case may be. In this way, the proceeds of disposition will be available to fund the acquisition of replacement livestock.

Each year, Agriculture and Agri-Food Canada recommends that certain regions qualify as prescribed regions on the basis that they have experienced drought or flood/excess moisture conditions. Qualifying regions are then prescribed under the Income Tax Regulations (the “Regulations”).

An administrative issue has been identified in respect of the prescription of flood/excess moisture regions. Currently, with respect to drought regions, the Regulations automatically prescribe an area if it is surrounded by a region, or regions, that are specifically listed as prescribed regions. At the time the livestock tax deferral measure was extended to flood/excess moisture regions, this automatic prescription was not provided as it was not clear that a region surrounded by flood/excess moisture regions would necessarily be experiencing the same environmental impacts.

The inability, however, to rely on the automatic prescription available for drought regions for the purposes of the flood/excess moisture regions makes the process for identifying and prescribing these regions administratively more burdensome, particularly with respect to identifying each municipality that is contained within a larger prescribed municipality.

Objectives

• Act on the advice of Agriculture and Agri-Food Canada as to which regions should be prescribed regions on the basis that they have experienced drought or flood/excess moisture conditions.
• Improve administrative efficiency of the prescription process.

Description

The Regulations Amending the Income Tax Regulations (Livestock Deferrals) prescribe regions that are eligible drought or flood/excess moisture regions in 2010, 2011 and 2012.

In addition, amendments to the Regulations automatically prescribe a region that is surrounded by a region that is prescribed in respect of flood/excess moisture. This amendment applies retroactively to the date of the extension of the livestock tax deferral to flood/excess moisture regions, applicable to the 2008 and subsequent taxation years.

Finally, the amendments to the Regulations ensure that a region is automatically prescribed as a drought region only if it is surrounded by a single prescribed drought region. This amendment applies on a prospective basis (i.e. to the 2014 and subsequent taxation years).

Consultation

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 the regions recommended to be prescribed following announcements by the Department of Agriculture and Agri-Food regarding the regions to be recommended for prescription for 2010, 2011 and 2012. Information on these announcements is available through Agriculture and Agri-Food Canada’s Web site at www.agr.gc.ca.

“One-for-One” Rule

These amendments to the Regulations are not expected to impose new administrative costs on business. Therefore, the “One-for-One” Rule does not apply.

Small business lens

These amendments to the Regulationsare not expected to impose new administrative costs on business. Therefore,the small business lens does not apply.

Rationale

Most of the amendments are consequential to announcements by the Minister of Agriculture and Agri-Food, concerning his advice to the Minister of Finance, the Honourable Jim Flaherty, that certain regions of Canada be prescribed as drought or flood/excess moisture regions for 2010, 2011 and 2012.

The amendments also ensure administrative efficiency and consistency with respect to the prescription of drought and flood/excess moisture regions. In particular, the surrounded regions rule that will apply for both drought and flood/excess moisture regions for 2014 and subsequent years provides for consistency in treatment between the two types of regions.

The exact amounts of income deferred by farmers living in drought or flood/excess moisture regions is difficult to quantify as the amount deferred is not reported in a separate field in the farmers’ income tax return which can be tracked for costing purposes. The cost for the federal government represents the foregone tax revenues related to a one-year deferral of the tax liability associated with the unreported taxable income. While these benefits may vary from year to year depending on the severity of the drought or flood/excess moisture conditions and the number of affected regions, it is estimated that they are unlikely to reach or exceed $1 million annually.

This measure has a positive impact on the economy because it provides stability to the livestock farming industry when it is affected by adverse, unpredictable weather conditions. This measure will not increase the administrative burden of any stakeholders as the administrative requirements already exist. A strategic environmental assessment concluded that these amendments would have minimal environmental effects.

Implementation, enforcement and service standards

Farmers claim the drought and flood/excess moisture regions deferral in reporting their income in their income tax return. Therefore, farmers claiming the deferral will be subject to the compliance mechanisms available to the Minister of National Revenue. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.

Contact

Tobias Witteveen
Tax Legislation Division
Department of Finance
L’Esplanade Laurier
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-4859

• Footnote a
  S.C. 2007, c. 35, s. 62
• Footnote b
  R.S., c. 1 (5th Supp.)
• Footnote 1
  C.R.C., c. 945