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Government expands applicability of Livestock Tax Deferral

TAX ALERT  | 

Authored by RSM Canada

Farmers and ranchers across Western Canada are grappling with especially brutal drought conditions this year, due to low precipitation and scorching temperatures throughout much of the spring and summer. With crop and feed yields a fraction of what an average year would bring, as well as skyrocketing hay prices, livestock producers are facing significant uncertainty about how they will manage to feed their herds in the months to come. For some, selling a significant percentage of their herd may be the only way forward. 

The Livestock Tax Deferral (LTD) provision allows eligible livestock producers some reprieve from the tax burden arising from income earned on the sale of their herd. This provision permits those in prescribed drought and flood regions who sell part of their breeding herd due to drought, flooding or excessive moisture to defer a portion of the income arising from a sale of their breeding herd. Income can be deferred if the breeding herd has been reduced by at least 15%. Where the reduction in the breeding herd is at least 15% but less than 30%, 30% of the income from net sales can be deferred. Similarly, where the reduction in the breeding herd is 30% or more, 90% of income from net sales can be deferred. The income from net sales can be deferred to the earliest of: 

  • The first taxation year in which the region is no longer prescribed by the government; 
  • The first taxation year at the end of which the taxpayer is a non-resident and not carrying on business through a fixed place of business; and 
  • The taxation year in which the taxpayer dies. 

While the LTD provision is not new, the list of prescribed drought and flood regions is updated annually. Given the unfavourable conditions across much of the country, the 2021 list of prescribed regions has been extended to include additional impacted regions. 

 

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This article was written by Clara Pham, Danielle Wallace, Chetna Thapar and originally appeared on 2021-09-15 RSM Canada, and is available online at https://rsmcanada.com/our-insights/tax-alerts/government-expands-applicability-of-livestock-tax-deferral.html.

The information contained herein is general in nature and based on authorities that are subject to change. RSM Canada guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM Canada assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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