Vol. 141, No. 21 — October 17, 2007

Registration
SOR/2007-213 September 27, 2007

INCOME TAX ACT

Regulations Amending the Income Tax Regulations (2006 Drought Regions)

P.C. 2007-1444 September 27, 2007

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), hereby makes the annexed Regulations Amending the Income Tax Regulations (2006 Drought Regions).

REGULATIONS AMENDING THE INCOME TAX REGULATIONS (2006 DROUGHT REGIONS)

1. Section 7305 of the Income Tax Regulations (see footnote 1) is amended by striking out the word "and" at the end of paragraph (h), by adding the word "and" at the end of paragraph (i) and by adding the following after paragraph (i):

(j) the 2006 calendar year are

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

Section 80.3 of the Income Tax Act permits farmers who dispose of breeding livestock because of drought conditions existing in a prescribed drought region in a year to exclude a portion of the sale proceeds from their taxable income until the following year, or the year following a consecutive series of drought years, as the case may be. As a result, the full amount of the proceeds eligible for the deferral will be available to replenish their breeding livestock at that time.

Prescribed drought regions are those regions of Canada that are designated, on the advice of the Minister of Agriculture and Agri-Food and on the recommendation of the Minister of Finance as suffering from drought conditions during a year. The Regulations Amending the Income Tax Regulations (2006 Drought Regions), which amend section 7305 of the Income Tax Regulations (the "Regulations"), describe the prescribed regions that are eligible drought regions in 2006. These additions to the list of prescribed drought regions in section 7305 of the Regulations are relieving in nature.

Alternatives

The amendment to the Regulations is necessary to prescribe drought regions for 2006. No other alternatives were considered. The amendment is consequential to the announcement by the Minister of Agriculture and Agri-Food that certain regions of Canada be designated as drought regions for 2006.

Benefits and costs

The amendment will allow farmers in 2006 prescribed drought regions to defer income from the disposition of their breeding livestock in 2006 until a subsequent year. The portion of the proceeds of disposition, which can be deferred by a farmer, increases with the percentage of the farmer's breeding livestock sold. In this manner, the tax deferral program is targeted at those farmers most severely disadvantaged by drought conditions.

Strategic environmental assessment

The policy rationale for designating drought regions is to ensure that income tax does not adversely affect a farmer's ability to replenish breeding livestock after drought conditions cease. This is accomplished by deferring the taxability of income, received from the sale of breeding livestock during the drought year(s), to the year after the drought at which time the income can be offset to the extent that the farmer pays for replacement livestock in that year. As a result, farmers who carry on a farming business in a prescribed drought region do not have to include in their farming income certain portions of their proceeds obtained from the sale of their breeding herd. The amendment ensures that the tax deferral applies to farmers affected by drought conditions in prescribed drought regions in 2006.

The amendment may have a positive impact on the environment in the sense that it indirectly results in better pasture recovery after the drought. To the extent that the disposing of breeding animals during drought conditions helps reduce grazing, the amendment results in better pasture recovery after the drought and thus helps in preserving the longevity of the grazing pasture.

Consultation

The list of prescribed regions was developed through consultations held by the Department of Agriculture and Agri-Food with various parties, including provincial agriculture and municipal affairs departments, municipalities, farm associations, and crop insurers.

Canadians in general were given opportunities to comment on this amendment following two announcements by the Department of Agriculture and Agri-Food regarding the regions to be recommended for prescription for 2006. The first announcement consisted of four news releases, one for each affected province — Ontario, Saskatchewan, Alberta and British Columbia — issued by Agriculture and Agri-Food Canada on December 12, 2006. The second consisted of three news releases, which concerned additional areas in the provinces of Ontario, Saskatchewan and British Columbia, issued by Agriculture and Agri-Food Canada on February 1, 2007. These news releases are available through Agriculture and Agri-Food Canada's Web site at www.agr.gc.ca. In addition, the amendment was prepublished in Part I of the Canada Gazette, on June 9, 2007. No substantial comments were received as a result of that prepublication.

Compliance and enforcement

The Income Tax Act provides the necessary compliance mechanisms. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.

Contact

Gurinder Grewal
Tax Legislation Division
Department of Finance
L'Esplanade Laurier
140 O'Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-1862

Footnote a

S.C. 2000, c. 12, s. 142 (Sch. 2, par. 1(z.34))

Footnote b

R.S., c. 1 (5th Supp.)

Footnote 1

C.R.C., c. 945

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