Principal Issues: 1. Should amounts paid by the Alberta Agriculture Financial Services Corporation (AFSC) in administering the Canadian Agricultural Income Stabilization (CAIS) Program be reported on an AGR-1 slip? 2. Should these amounts be included in income for the year they were received?
Position: Yes to both questions.
Reasons: Pursuant to subsection 234(1) of the Income Tax Regulations (the "Regulations"), every government, municipality or municipal or other public body or producer organization or association that makes a payment of an amount that is a "farm support payment" to a person or partnership is required to make an information return in prescribed form in respect of the amount (AGR-1). An amount received under the CAIS Program by a person carrying on a farming business would generally be required to be included in computing that person's income from farming pursuant to section 9, or section 28 if applicable, and for greater clarity under the provisions of paragraph 12(1)(x) of the Act.
2005-015585 XXXXXXXXXX Charles Rafuse 613-957-8967 October 23, 2006
Dear XXXXXXXXXX:
Re: Canadian Agriculture Income Stabilization Program Interim Advances
This is in reply to your letter dated October 24, 2005, requesting our opinion on whether AGR-1 information slips are required in respect of interim payments paid to farmers by the Alberta Agriculture Financial Services Corporation (AFSC) in administering the Canadian Agricultural Income Stabilization (CAIS) Program. You have questioned why these payments should be reported as income for the year in which they are received, as they appear to have the characteristics of loans until the correct entitlement is established which may not be until a subsequent taxation year.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments.
Pursuant to subsection 234(1) of the Income Tax Regulations (the "Regulations"), every government, municipality or municipal or other public body or producer organization or association that makes a payment of an amount that is a "farm support payment" to a person or partnership is required to make an information return in prescribed form in respect of the amount (AGR-1). A farm support payment is defined in subsection 234(2) of the Regulations to include a payment that is computed with respect to an area of farm land; a payment that is made in respect of a unit of farm commodity grown or disposed of or a farm animal raised or disposed of; and a rebate of, or compensation for, all or a portion of
- a cost or capital cost incurred in respect of farming, or
- unsowed or unplanted land or crops, or destroyed crops, farm animals or other farm output.
The CAIS is a joint federal/provincial/territorial Business Risk Management program that protects farmers against large and small drops in farm income in a given year by making payments triggered when a producer's income falls below the producer's average income from previous years. The amount of the payment is based on reference and program year margins calculated based on a production margin, which is the difference between allowable income and allowable expenses directly related to the production of commodities.
As explained in RC4060, Farming Income and the CAIS Program, a farmer participating in the program deposits money into the CAIS program account to secure protection under the program. The amount deposited is not deductible in computing the taxpayer's income and is not included in income when it is withdrawn from the CAIS program account. When funds are withdrawn from the CAIS program account as a result of a drop in farming income, government contributions ("assistance") are triggered and these are paid to the taxpayer.
It is our view that the assistance payments by the AFSC to farmers in respect of the CAIS program are farm support payments under subsection 234(2) of the Regulations and should be reported on AGR-1 slips.
The government assistance payments are treated as farming income in the hands of the farmer. The assistance will be included in the calculation of the profit or loss from a business under section 9 of the Income Tax Act (the "Act") in accordance with ordinary commercial accounting and business practices and, if the taxpayer so elects, section 28 of the Act. In any event, to the extent such assistance was for any reason not otherwise included in computing a taxpayer's income, the provisions of paragraph 12(1)(x) of the Act will apply to include, in this computation, such amounts received by the taxpayer in the course of earning income from a business.
The provisions of paragraph 12(1)(x) of the Act are broad in nature and require a taxpayer to include in computing income certain amounts received as inducement or assistance from a government or other public authority, in the course of earning income from a business or property. As described in paragraph 12(1)(x), these amounts include those that "... can reasonably be considered to have been received (iii) as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of inducement, or (iv) as a refund, reimbursement, contribution or allowance or as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of (A) an amount included in, or deducted as, the cost of property, or (B) of an outlay or expense".
It should be noted that the provisions of paragraph 20(1)(hh) of the Act would provide a deduction with respect to any amounts included in computing the income of a farmer pursuant to the provisions of paragraph 12(1)(x) of the Act that are subsequently repaid by that farmer pursuant to a legal obligation to repay such amounts.
We trust this information is helpful.
Yours truly,
S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch