Mr. Speaker, this private member's bill endeavours to extend the current one year tax deferral for income from forced destruction of livestock to other amounts paid to farmers with respect to natural disasters.
The hon. member for Athabasca in proposing this wishes to ease the financial burden on farmers whose property is damaged or lost through a capricious act of nature. I applaud my colleague for his initiative in this regard. It is important as we all witnessed during the recent ice storm that lives and livelihood disrupted by natural emergencies be quickly restored. I also agree that governments have a crucial role to play in the rebuilding process that follows devastation.
I would also like to point out, however, that while I support in principle the spirit of this proposed amendment, it is flawed in two very important respects. The proposal before us today is inconsistent with existing tax deferral provisions for farmers. In addition, the proposal fails from a technical perspective because it fully identifies neither the amounts to be deferred nor the circumstances whereby deferral would take place.
The Income Tax Act allows farmers to defer for tax purposes amounts received with respect to livestock in two important circumstances, forced destruction under statutory authority and in the case of widespread drought.
The proposed amendment attempts to build on the current one year tax deferral for income from the forced destruction of farm animals. The government from time to time orders the destruction of livestock known or suspected to carry various diseases in order to prevent the spread of illness to other animals or humans. Farmers may defer the inclusion in income of amounts paid by the government as compensation for the slaughter of diseased animals and need only report these amounts in the year following the year of animal loss.
This tax treatment is proper because the government recognizes that the disposal of livestock was involuntary on the farmer's part. In addition, depending on the timing of government action, farmers may not have sufficient time to replenish livestock before the end of the year. To maintain tax neutrality affected farmers are allowed to defer the proceeds to the next taxation year and offset it by deducting the cost of animal replacement as it takes place.
The phrase “under statutory authority” in this regard is both clear and necessary. For income deferral to occur the government must be responsible for the timing of animal destruction as well as for the associated compensation. Unless these conditions are satisfied no special tax treatment is allowed.
The proposed amendment, on the other hand, would extend this special tax treatment to amounts paid with respect to a natural disaster under statutory authority. The use of the phrase “under statutory authority” in this context is confusing and inappropriate. Unlike the case of diseased livestock, the government does not order property destroyed through a natural disaster and does not compensate farmers in this regard under statutory authority.
A tax deferral is also provided to farmers for livestock sales associated with a prolonged drought. However, for special treatment to take place affected farmers must carry on business in a prescribed drought region as determined jointly by the Minister of Finance and the Minister of Agriculture and Agri-Food.
In addition, relief is only extended to farmers whose herd is reduced by a specific magnitude throughout a taxation year and only a portion of income from the sale of livestock is eligible for deferral.
These conditions were put in place through consultations with affected farm groups and agriculture Canada to ensure that relief is granted for widespread drought and not for localized cases.
However, the proposed amendment includes no similar threshold even though droughts are also natural disasters. Thus the amendment is inconsistent with the current tax policy in this area.
Moreover, the current income deferral mechanisms are limited to livestock only where the proposed amendment is not. The proposal therefore represents a fundamental departure from previous policy and is not simply an extension of the current provisions.
I am also concerned that the intent of this amendment providing tax relief to farmers hit hard by nature is not fully realized by the proposed language. To begin, the proposal does not make clear which amounts are to benefit from special tax treatment. Amounts with respect to a natural disaster could include payments from numerous sources such as governments, insurance companies and other individuals.
Payments could also be made for a variety of purposes such as replacement of inventory, recovery of capital assets or even protective measures against future catastrophes. Some of these amounts should perhaps qualify for tax relief but others decidedly should not. Under the proposal all such payments could potentially qualify.
In addition, the meaning of natural disaster is not anywhere defined by this amendment. When we say disaster we normally refer to a sudden calamitous event resulting in great damage, loss or destruction. But for the purposes of tax law this does not suffice. In extending special tax treatment we must be very specific to ensure that relief is provided only where warranted.
It should also be noted that farmers already receive favourable tax treatment in Canada. For example, farmers may elect to report income and expenses on a cash basis rather than on an accrual basis as in most other businesses. Farmers are also eligible for the $500,000 lifetime capital gains exemption for farm property. They may be able to defer proceeds from the sale of a farm property through a 10 year capital gains reserve and are in fact exempt from making quarterly tax instalments.
I believe everyone present here today will agree that victims of natural disasters deserve the federal government's and the nation's full support and empathy in reconstructing their homes and businesses.
However, I also believe that all levels of government already play a significant and constructive part in the process of restoration. The proposed amendment despite its good intentions is not consistent with current tax policy and does not effectively address the difficulties faced by affected farmers.
I thank the hon. member for bringing this issue forward. As he mentioned in his opening remarks, perhaps the discussion will shed some additional light on how we may find some other type of vehicle to address the concerns that the hon. member has brought forward. I reiterate that the amendment is not consistent with current tax policy and does not effectively address the difficulties that may be faced by affected farmers.
I bring to the attention of the House that although I do once again thank the member for bringing forward this issue, I must suggest that this proposal not be adopted by the House.