Canadian farmers continue to face a considerable disadvantage when it comes to income tax calculation. That’s because farms are the only businesses in Canada severely restricted to offset losses from one business or income source against profits from another. It’s an important issue for farmers because many have off-farm employment to help earn extra income and finance large capital expenses such as farm equipment and land.
Young farmers and new entrants are particularly hard hit with significant out-of-pocket expenses needed to start farms. Many farmers – including those who are new to the sector – work jobs off the farm to help offset hefty farm business costs. They may also need to support the farm during low income or low price years. No other business owner in Canada faces this tax implication.
At issue for the Ontario Federation of Agriculture (OFA) is the federal government’s interpretation of The Income Tax Act as stated in the 2013 budget-implementation bill (Bill C4). Section 31 of the act is unique to agriculture and in the past has controversially been interpreted to require that where a taxpayer has both farming and some other source of income, the non-farm income must be less than the farming income in order for the taxpayer to be eligible to claim all farm losses.
Section 31 is an unfair representation of a farmer’s income level, and the OFA believes it’s a hindrance that could keep young people from the farm. With more than 25% of farmers expected to retire in the next 10 years, this tax issue is counterproductive to attracting the next generation of Canadian farmers and investment in primary agriculture.
What’s most disconcerting is that this issue has already been addressed. In 2012, the Supreme Court of Canada, in the Craig v. The Queen, the court said that “if an examination of time, investment, industry engagement and proportion of daily routine determined that farming was the chief source of income or a component of that chief source, the loss deductions should not be limited.”
The federal government’s 2013 budget-implementation bill (Bill C4) is regressive in its interpretation as outlined in the 2013 federal budget. The OFA is joining with Canadian Federation of Agriculture members to call for Members of Parliament to support the Craig interpretation of Section 31 of the Income Tax Act.
In Ontario, OFA members are encouraged to visit OFA’s lobby website actnow.ofa.on.ca to enter their postal code and email a letter on this important issue directly to their Member of Parliament.
Farmers should not be penalized for working more than one job to offset initial capital costs. And Canada’s federal government should respect the ruling of the Supreme Court of Canada by maintaining the Craig interpretation of the act. It’s an investment in the long-term stability of Canadian farm businesses, and the continued talent, investment and innovation for Canadian agriculture.
By Debra Pretty-Straathof, Executive Member, Ontario Federation of Agriculture