The heatwave and lack of humidity made it difficult for farmers and ranchers in Western Canada.
Summer temperatures around Canada have been well above average and many records, including Canada’s hottest temperature, were broken in July. As a result, much of western Canada experiences moderate to severe drought conditions and we can only assume that these dry conditions will persist for the remainder of the year.
Herders are finding that water supplies are drying up and pastures are not producing sufficient amounts of grass necessary for sustainable grazing. Likewise, producers are starting to see a sharp increase in the price of hay. Such conditions can negatively affect your bottom line. In many cases, to alleviate declining food and water supply levels, pastoralists are forced to thin their herds.
If you unfortunately have to thin out your herds due to the drought, there is a silver lining in that you may be eligible for a tax deferral.
The Livestock Tax Deferral Provision is a program developed to help ranchers who have to sell part of their herd due to drought to keep more money in their pockets to help rebuild herds after a year of drought.
The qualifications for this program are as follows:
- Your ranch should be located in a designated drought area.
- Your breeding herd must have been reduced by at least 15 percent as a direct result of the drought.
The drought zones are chosen by the ministers of agriculture and finance. Typically, areas are selected as drought areas when forage yields are below 50 percent of the long-term average. Drought areas are normally announced in December once all forage yield and drought data has been collected, but due to the extreme drought conditions this year, drought areas have already been announced.
In circumstances where there is a 15 percent herd reduction, 30 percent of net sales may be deferred.
If the herd is reduced by 30 percent or more, 90 percent of net sales may be deferred.
The percentage of net sales can be carried over to the following year, unless drought conditions persist that year. In this case, the deferred income can be deferred until a year in which your area is no longer designated as a drought area.
By deferring sales to future years, the tax payable for the current year will be reduced. The theory is that reducing the tax payable in the year a herd is reduced will allow farmers to use the tax savings to help rebuild the breeding herd after drought conditions have passed.
The Government of Alberta is providing $ 136 million in assistance to ranchers and farmers affected by drought through the AgriRecovery program. The provincial government has also requested an additional $ 204 million from the federal government.
The AgriRecovery program is designed to provide Alberta cattle ranchers with immediate cash on a per capita basis to help them purchase feed, water and fencing. A second payment will be made, also on a per capita basis, to help cover other extraordinary costs not covered by other risk management programs.
In addition, Alberta Environment and Parks offers other programs for livestock producers. Pastoralists can apply for temporary grazing or haymaking on vacant public lands and may be allowed to extend their stay in the forest reserve, in areas where there is sufficient fodder. Changes were also made to water regulations to allow producers to access an additional water supply.
Saskatchewan has announced it will commit $ 119 million to its AgriRecovery program and has requested an additional $ 178 million from Ottawa. Aid to producers will be available on a per capita basis.
In addition, the maximum funding for the Farm and Ranch Water Infrastructure program has been increased from $ 50,000 to $ 150,000. This program will help producers provide funds for dugouts, wells and water pipes.
Manitoba has announced that it will provide $ 62 million in aid to farmers in the event of a drought. This will be supplemented by federal funds. Additional programs are still ongoing, but are expected to provide a wide range of support to producers.
If you’re wondering what’s available to you, or how cattle tax deferral can help, contact your trusted advisor for help.
Colin Miller is a chartered accountant and partner at KPMG’s tax firm in Lethbridge. Contact: [email protected] He would like to thank Marden Litchfield and Kurtis Krizsan of KPMG for their assistance in writing this article.