The Livestock Tax Deferral Provision
It is possible for a farmer who sells a portion of their breeding herd because of severe drought or floods in a designated drought or flooding region to postpone a portion of the income of the sale to the following year if the farmer files an application for the Livestock Tax Deferral Provision.
The way the provision works is as follows:
When applying for the deferred income provision, the breeding herd must have been reduced by at least 15% in order to be eligible.
Income from net sales might be postponed for up to 30% of the total income if the breeding herd has been lowered by at least 15% but not more than 30%.
When the breeding herd has been reduced by 30% or more, the money from net sales can be deferred for up to 90 percent of the year’s total income, depending on the circumstances.
Breeding animals comprise the following types of animals:
Horses that are kept for breeding are instances of domesticated animals that are kept for breeding. Domesticated animals such as bovine cattle, bison, goats, sheep, deer, elk, and other similar ungulates that are kept for breeding are other examples of domesticated animals that are kept for breeding.
It is required that all breeding animals are 12 months old or older before they can be utilized for breeding.
How tax deferral works?
The income from livestock sales during a year in which a prescribed region has been established is deferred until the next tax year, when the gain may be partially offset by the expense of reacquiring breeding animals, potentially lowering the total tax burden.
Producers who have undergone multiple years of drought or extreme precipitation and flooding conditions may choose to defer their sales profits until the first year in which the region is no longer mandated.
Which parties are in charge of determining where and how drought and flood disaster zones should be declared?
When there is a drought or flooding in a particular year, the Minister of Agriculture and Agri-Food Canada, on the advise of the Minister of Finance, establishes prescribed districts. It is vital to restrict forage production in areas where forage yields are less than 50% of their long-term average in order to protect the environment.
The designation of a region requires that the region’s geographical boundaries be clearly defined and that it be substantial enough to have an impact on the sector.
In light of the consequences for individual municipalities or regions, no specific municipalities or territories would be designated
Your livestock is in desperate need of resupply.
It is necessary, however, for you to use a portion of your funds to purchase new cattle in order to defer the receipt of your revenue. Purchasing new cattle must be done in the same tax year as declaring the previously untaxed deferred revenue on your income tax returns.
The purpose of the livestock tax deferral program is to relieve you of the burden of dealing with hefty tax bills in the future. When selling cattle, you must record all of the money received in the year of the sale. If you fail to do so, you will be compelled to pay tax on the total amount of the income received.
By delaying reporting your revenue until moisture levels have improved, you will be able to deduct the money you spent on replenishing your herd from the income you record. The net outcome is that your tax liability is reduced significantly.