The federal government said the situation has become more challenging for producers due to climate change, when announcing a list of regions eligible for the deferral on June 14.

The LTD allows producers in designated areas, who were forced to sell all or part of their breeding herd, to defer a portion of the income from those sales to a subsequent tax year.

Most of the eligible regions this season are in Alberta and Saskatchewan. A full list is available at the Government of Canada website.

The Canadian Cattle Association welcomed the announcement in a news release, noting that several of the adjustments the government had made this year would make the program work better for producers. In particular they singled out streamlining the process to identify eligible regions an the inclusion of “buffer zones” that means producers wouldn’t find themselves on the fringe of a drought, ineligible for the program.

“CCA has long advocated for changes to the LTD and we are encouraged to see the government take tangible steps to address our concerns and find solutions that work for producers,” said Nathan Phinney, president of CCA. “Today’s announcement including this year’s early designated regions will help impacted producers make real time decisions for their operations.””

Circumstances that may influence producers to sell their breeding herd include drought, flooding and excessive moisture. The income may be at least partially offset by the cost of reacquiring breeding animals, reducing the tax burden associated with the original sale.

Weather, climate and production data from across Canada will be monitored for the rest of the season. Regions will be added to the list as they qualify. Subsequent regions will be added to the list when they meet the eligibility criteria of 50 per cent or more forage capacity loss caused by drought or excess moisture.

After consulting with industry, Agriculture and Agri-food Canada has used preliminary scientific data to produce the initial list of regions earlier in the growing season.

Some regions may recover forage capacity based on conditions later in the growing season. Once a region is eligible, it will remain eligible for the deferral for the taxation year.

To defer income under LTD, the breeding herd must have been reduced by at least 15 per cent.

In the case of consecutive years of drought or excess moisture and flood condition, producers may defer sales income to the first year in which the region is no longer prescribed.

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Agriculture Minister Lawrence MacAulay on Monday announced an initial list of designated regions for the provision for the 2023 tax year, including major chunks of Alberta and British Columbia and much of western Saskatchewan and south-central Manitoba.

The list so far includes 96 municipalities and other jurisdictions in Saskatchewan, 62 in B.C., 56 in Alberta and 19 in Manitoba.

A preliminary list of prescribed drought and flood regions for a given tax year is usually ready in the early fall of that year, the government said, so making these designations earlier “helps provide assurance for producers as they make difficult herd management decisions.”

As usual, the government said it will continue to monitor conditions across the country and will add other regions throughout the year “if they meet the criteria.” The full list for a given tax year is usually set out in December, when forage yield data for the year are finalized.

Criteria for the deferral include forage yields of less than 50 per cent of the long-term average, whether caused by drought or excess moisture. Eligible regions are identified based on weather, climate and production data, in consultation with industry and provinces.

In areas designated for deferral in a given tax year, eligible producers who had to cull breeding herds by at least 15 per cent may defer part of the income from those sales until their next non-designated tax year.

If the herd is cut by at least 15 per cent — but by less than 30 per cent — then 30 per cent of income from net sales can be deferred.

Where a producer reduces a breeding herd by 30 per cent or more, 90 per cent of income from net sales can be deferred.

Thus, in the 2024 tax year — or in the next tax year in which the designation is lifted off a specific municipality — the deferred taxable income from those sales can be at least partially offset by the cost of reacquiring breeding animals, which works out to a reduced tax burden connected to the original sale.

The government said Monday it “recognizes the significant challenges livestock producers in Western Canada are facing due to exceptionally dry conditions. Compounded by subsequent years of drought, pastures and forage production are significantly impacted, leading to low feed supplies for livestock.”

“My heart goes out to farmers and ranchers who are affected by these extreme weather conditions,” MacAulay said in Monday’s release. Along with the deferral provision, he said, “we have also enhanced support available under (business risk management) programs and we will continue to work closely with provinces to get producers the additional support they need as quickly as possible.”

For example, the government said, it’s “worked quickly” with the B.C., Alberta and Saskatchewan governments on joint AgriRecovery assessments and work is “urgently progressing” to finalize the AgriRecovery process, as well as to sort out any additional supports required to cover producers’ “extraordinary costs.”

As for other supports already in place, the federal government said Monday it has already cleared requests from B.C. and Alberta for late participation in AgriStability, as well as requests from B.C. and Saskatchewan to increase the interim payment rate under AgriStability to 75 per cent, up from 50.

MacAulay also noted one-year adjustments to federal-provincial AgriInsurance programs to make more drought-damaged crops available for feed in Alberta, Saskatchewan and B.C. — Glacier FarmMedia Network

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Agriculture Minister Marie-Claude Bibeau announced Thursday in Winnipeg that producers in drought-designated areas of southern Alberta, southeastern British Columbia, northwestern Ontario, parts of Saskatchewan and all of agricultural Manitoba (see map below) will be the initial regions eligible for the deferral.

“At times like this we need to reach out to each other, we need to find a helping hand and a sympathetic ear. We all need to pull together, neighbours helping neighbours, showing the true strength and solidarity of our communities,” she said at a Winnipeg press conference after a tour of drought damage north of the city.

The livestock tax deferral is being set up for the 2021 tax year with earlier-than-usual designations, so as to allow affected beef producers forced to sell a significant amount of their breeding herd to defer income tax from those sales. Other regions are expected to be added later.

The Canadian Cattlemen’s Association and other groups had previously called for the “immediate” implementation of the tax deferral program — as well as an expansion of the program to include other classes of livestock, among other requests.

Asked Thursday about the possibility of expanding the deferral provision beyond just breeding stock for the 2021 tax year, Bibeau said the government has received that request and will evaluate it, but “the first thing is to trigger the program that already exists… Making modifications takes longer.”

Manitoba Beef Producers president Tyler Fulton, who attended the Winnipeg event, added “we know it’s going to take multiple years to recover the breeding herd — and so considerations for different classes of animals, and adding multiple years (of deferral), we think makes a lot of sense.”

Crops for feed

Bibeau also pledged Ottawa’s support for “immediate” bilateral adjustments to affected provinces’ crop insurance programs, so drought-damaged crops can be made available for feed.

Saskatchewan had already announced such an adjustment last week, to give crop producers incentives to make drought-hit crops available for greenfeed, grazing or silage for livestock.

Manitoba on Thursday announced a similar adjustment — as did Alberta, which said Thursday its crop insurance adjustment would help encourage drought-hit crop producers “to act swiftly to salvage crops for livestock feed rather than watch their fields deteriorate further, and risk harvesting nothing.”

In talks with Manitoba and Alberta following Saskatchewan’s adjustment, Bibeau said Thursday, “we thought it was a really good idea and that the (AgriInsurance) program was able to take (the adjustments) and to remain sustainable.”

“What’s critical right now,” MBP’s Fulton added, “is that the message gets out that there is a really good incentive (to salvage crops for feed), so that crop guys can decide — right now — because time is ticking.”

Cattle producers, he said, “have likely less than a week left to make these decisions, and so the quicker that we can make those decisions and start salvaging some of the value of these crops — it’s just a critical time right now.”

‘Verbal commitment’

The four western provinces and Ontario have also requested AgriRecovery programs be put in place to further alleviate drought damage, Bibeau added.

AgriRecovery is designed to offer disaster-specific relief “in situations where producers do not have the capacity to cover the extraordinary costs, even with the assistance available from other programs.”

Supports under the program could include direct assistance to producers for added livestock feed costs, transportation and water infrastructure.

“We are working around the clock to turn those around as quickly as possible to help farmers with the extraordinary cost,” Bibeau said.

Alberta Agriculture Minister Devin Dreeshen, in Thursday’s release on adjustments to crop insurance, reiterated he and his Saskatchewan, Manitoba and Ontario counterparts had received “verbal commitment from the federal government that a joint AgriRecovery program will be initiated to support producers affected by drought conditions prior to a federal election.”

Assessments for AgriRecovery are “currently underway” in those provinces, he said.

Thursday’s trip to Manitoba is arguably the most significant travel Bibeau has undertaken since the pandemic began — outside of a few announcements around her home province of Quebec.

After receiving an invitation from an area farmer, however, she decided to witness the devastation herself.

“I speak for Prime Minister Justin Trudeau and myself when I say to all producers affected by the disaster, we have your back to get through the challenges of today and to position you for a sustainable future in agriculture,” she said. “We will do all we can to help you get back on your feet, and once again producing the best food in the world.”

“Canadian farmers and ranchers are facing one of the most severe, widespread droughts and one of the largest feed supply shortages that they have experienced in decades,” CCA vice-president Reg Schellenberg said in a separate release Thursday after Bibeau’s announcement.

“We appreciate Minister Bibeau and the federal government taking the time to visit one of the hardest-hit areas of the drought and subsequently taking swift action to support farm families.”

Bibeau also continues to hope the climate disaster will prompt provinces to accept her long-standing offer to make changes to AgriStability.

Ottawa has offered to increase the compensation rate offered to producers to 80 per cent, up from the current 70, which would add “$75 million nationally into the pockets of farmers who need it the most every year” according to Bibeau.

During Thursday’s press conference, she once again urged Prairie provinces to accept that offer.

As for the damages she saw on her trip, Bibeau told her audience, including several ranchers, that “I can’t begin to imagine the stress that producers are going through, watching your pastures and crops dry up, wondering how you’re going to get your animals through the winter, and facing the prospect of sending breeding cattle off to auction — animals that are the result of generations of careful genetic selection, hard work and sacrifice.”

Fulton also described the reaction from one ranch family MBP had heard from after having to disperse its entire herd: “They said ‘Can you imagine how it feels to see your years of hard work and love for farming go onto a truck? This is our livelihood, it’s heartbreaking.'”

Manitoba’s Interlake region, he said, is particularly hard hit, noting a livestock auction sale Wednesday at Ashern, Man. involving “more than 1,500” animals whereas typically most Manitoba auction marts are on reduced schedules or summer breaks at this time of year.

— D.C. Fraser reports for Glacier FarmMedia from Ottawa. Includes files from Glacier FarmMedia Network staff in Winnipeg.

Livestock tax deferral: How it works

In regions officially designated for drought (see initial 2021 map below), flood or excess moisture, the federal livestock tax deferral provision allows eligible producers who reduced breeding herds by at least 15 per cent to defer part of their income from sales until their next non-designated tax year.

To defer income, a producer’s breeding herd must have been reduced by at least 15 per cent in the tax year in question. If the herd was cut by at least 15 per cent, but less than 30 per cent, then 30 per cent of income from net sales can be deferred.

Where a producer reduced a breeding herd by 30 per cent or more, 90 per cent of income from net sales can be deferred.

Thus, in the 2022 tax year — or the next tax year in which the designation is lifted for a specific region — the income from those sales can be at least partially offset by the cost of reacquiring breeding animals, the government says.

In the 2020 tax year, designated drought zones for tax deferrals had included New Brunswick, Prince Edward Island and parts of southeastern Quebec and northwestern Nova Scotia.

Unlike Thursday’s relatively early designation announcement, however, the 2020 designation list wasn’t finalized until May 2021 — by which time many producers had already filed their 2020 tax returns and would have needed to seek adjustments. — GFM

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Marie-Claude Bibeau, summarizing discussions from Thursday’s online meeting with provincial and territorial (FPT) agriculture ministers, said the formal requests “are needed to trigger the process,” as both levels of government contribute.

AgriRecovery is the brand name for the FPT disaster relief framework, deployed on an as-needed basis during natural disasters to help farmers with “extraordinary costs.”

AgriRecovery programs, cost-shared by the federal and participating provincial governments, are launched in “situations where producers do not have the capacity to cover the extraordinary costs, even with the assistance available from other programs.”

During their meeting, the government said in a release, ministers “expressed their concern for farmers and workers dealing with the current heat waves, wildfires and drought conditions in Western Canada and other regions of the country.”

Bibeau’s Saskatchewan counterpart David Marit, for one, put his request in writing Thursday for an AgriRecovery assessment for the province, so as to “determine program requirements.” His letter CC’ed his counterparts in the four western provinces and Ontario.

Alberta’s ag minister Devin Dreeshen, in a separate statement Thursday, said the province has “received verbal commitment from Ottawa that a joint AgriRecovery program will be initiated to support Prairie producers affected by drought conditions prior to (a federal) election.”

Bibeau, in her summary tweets on Thursday, said Ottawa “will make sure our programs continue responding to the crisis” in the western provinces.

On that note she also asked that provinces hit by drought move to invoke the “late participation provision” of the AgriStability income stabilization program, “to help more farmers access the support they need.”

Bibeau also reiterated her previous request to the provinces that they match an earlier federal offer that would raise the AgriStability compensation rate to 80 per cent from the current 70.

The ministers’ statements follow requests earlier Thursday from the Canadian Cattlemen’s Association and provincial cattle associations on several drought-related measures, along with other recent requests from farm groups.

Among those requests, they called for drought relief programming under AgriRecovery to help with costs related to feed and water shortages as well as “impacts of wildfires.”

They also called on Ottawa to “immediately” set up the livestock tax deferral provision for this tax year, designating all of the Prairie provinces as well as parts of British Columbia and Ontario, but also to “extend eligibility to include all classes of cattle.”

That provision, if put in effect as it now stands, would allow producers in designated areas to temporarily defer tax owing on drought-induced livestock sales, but only on breeding stock.

Lianne Rood, the federal Conservatives’ ag critic, made the same request in a separate letter to Bibeau Wednesday, but cautioned that “a decision on this must be made quickly and cannot be delayed by the calling of a fall election.”

The cattle groups also called Thursday for governments to “expedite approvals for insured crops to be designated for livestock feed or grazing purposes” and allow parched crops to be grazed or converted to feed without penalty. Saskatchewan announced such a move Wednesday.

“Without timely and targeted assistance from federal and provincial governments, beef producers will be forced to make difficult management decisions including culling of their herds,” CCA president Bob Lowe said in a release Thursday.

“It is of critical importance that Canada’s beef cow herd be maintained throughout this disaster event.” — Glacier FarmMedia Network

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The livestock tax deferral provision allows livestock producers in prescribed drought, flood or excess moisture regions to defer a portion of their 2019 sale proceeds of breeding livestock until 2020 to help replenish the herd. The cost of replacing the animals in 2020 will offset the deferred income, thereby reducing the tax burden associated with the original sale.

“Canadian producers have had to face numerous challenges due to extreme weather conditions. It is a priority for our government to quickly determine how the livestock tax deferral will be authorized to ensure that our producers have the support necessary to make informed herd management decisions and to help them keep their businesses strong,” said Marie-Claude Bibeau, minister of Agriculture and Agri-Food, in a release.

The criteria for identifying regions for livestock tax deferral is forage shortfalls of 50 per cent or more caused by drought or excess moisture. Eligible regions are identified based on weather, climate, and production data, in consultation with industry and provinces.

Eligibility for the tax deferral is limited to producers located inside the designated areas. Producers in those regions can request the tax deferral when filing their 2019 income tax returns.

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When listed grains (wheat, oats, barley, rye, flax, canola, rapeseed) are delivered for payment at a licensed elevator, an elevator operator can issue either a cash purchase ticket or a deferred cash purchase ticket, payable in the year following the year in which the grain is delivered.

Under current tax law, a farmer who opts for a deferred cash purchase ticket is then able to include the amount of the ticket in taxable income in that following year.

The tax treatment of deferred cash purchase tickets “is a departure from the general rule with respect to taxpayers (including other farmers),” the government said after unexpectedly announcing in the March 2017 budget that the measure was under review.

The talk of eliminating the option alarmed many in the grain industry, including KAP members who debated the policy a month later at an advisory council meeting April 20.

“It’s not avoiding taxes (by being able to defer grain sale payments into the next tax year),” said Foxwarren farmer George Graham at the time, who moved the resolution. “It’s just a way to balance out taxes.”

“We all know how tough marketing is and… if you’re going to start timing grain sales because of when you need the income, it’s just going to cause problems,” Starbuck farmer Reg Dyck said while debating the resolution.

Others in the grain industry added their voices to the chorus calling for retaining the system.

Deferred cash purchase tickets help farmers and grain companies, Western Grain Elevator Association executive director Wade Sobkowich, said April 11 on the sidelines of the Canadian Global Crops Symposium in Calgary.

“We’ll be required to pay farmers (who can’t defer payment) sooner than we do today, all things being equal, and therefore the cost of financing will go up (for grain buyers),” Sobkowich said.

“Farmers who defer delivery until the next tax year means we are altering delivery patterns and we may not be taking advantage of peak price periods. Grain companies will have less control as to when they call the grain forward and that can impact their ability to extract revenue from the marketplace. So it can complicate delivery patterns and it can increase the cost of financing to grain companies and all of those costs get shared by the industry.”

Given ups and downs in grain production and grain prices, farmers need tools to even out their income, he added.

The government quietly made the announcement yesterday as part of a larger announcement titled “Additional Tax Support for Canadian Farmers.”

In that document the government also committed to “providing tax relief” for livestock producers who received compensation for having to destroy their herds in the 2016-2017 bovine tuberculosis outbreak in Saskatchewan and Alberta.

Livestock producers in areas where farmers qualified for a livestock tax deferral to rebuild their herds following flood or drought will now also be able to defer a portion of their 2017 proceeds from the sale of breeding stock into 2018.

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The federal government also released its 2017 list of designated regions for livestock tax deferral in British Columbia, Alberta, Saskatchewan and Quebec affected by drought, flood or excess moisture.

These livestock tax deferral provisions allow livestock producers in prescribed drought, flood or excess moisture regions to defer a portion of their 2017 sale proceeds of breeding livestock until 2018 to help replenish the herd. The cost of replacing the animals in 2018 will offset the deferred income, thereby reducing the tax burden associated with the original sale.

Eligibility for the tax deferral is limited to those producers located inside the designated prescribed areas. Producers can request the tax deferral when filing their 2017 income tax returns.

Current tax treatment maintained for deferred cash purchase tickets

Todays also indicated the path the federal government plans to take on deferred cash purchase tickets.

As part of Budget 2017,  the federal government stated it has carefully considered submissions received during its consultation process, and will maintain the current tax treatment of deferred cash purchase tickets, “if a cash purchase ticket in respect of a delivery of a listed grain is payable in the year following the year in which the grain is delivered, the taxpayer will continue to include the amount of the ticket in income for that following year.”

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