Drought Watch

Federal Programs

Tax Deferral Designation

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.

On March 5th, 2009 the Federal Minister of Agriculture and Agri-Food announced that an amendment will be made to Section 80.3 of the income tax act. These income tax amendments will extend the existing rules that apply to producers in prescribed drought regions to include excess moisture and flood-induced sales of breeding livestock. This new measure will apply to the 2008 and subsequent taxation years. It will permit producers, who dispose of such breeding livestock in a taxation year because of flood or excessive moisture, to exclude a portion of the sale proceeds from their incomes until the following taxation year. As a result, the full amount of the proceeds eligible for the deferral will be available to replenish their herds in the following taxation year.

To defer income, the breeding herd must have been reduced by at least 15 per cent. Thirty per cent of income from net sales can be deferred if the breeding herd has been reduced by at least 15 per cent, but less than 30 per cent. Where the herd has been reduced by 30 per cent or more, 90 per cent of income from net sales can be deferred.

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 or excess moisture and flood 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 Canada Revenue Agency's Tax Guide on Farming Income.

Drought or excessive moisture and flood regions are designated on the advice of the Federal Minister of Agriculture and Agri-Food to the Minister of Finance. Canada Revenue Agency requires that designated areas have recognized geo-political boundaries (e.g. municipalities or counties) for administrative purposes.

Discussions with industry representatives in 1990 led to a decision that tax deferral would only be requested if impact was significant. "Significant" was defined as forage yields of less than 50 per cent of the long-term average, and an area that is large enough to have an impact on the industry. Impacts on individual municipalities would not result in a designation.

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 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.

Only drought or excessive moisture and flood-induced impacts are considered in the designation of eligible areas for tax deferral.

2009 Prescribed Drought and Excess Moisture/Flood Regions
Previous Years

For more information, contact a local Canada Revenue Agency (CRA) office.