Dear Sirs:
Re: Income Deferral from the Destruction of Livestock
We are writing in reply to your letter of November 19, 1991 regarding the income deferral of amounts received in respect of the forced destruction of livestock under statutory authority as provided by subsection 80.3(2) of the Income Tax Act (the "Act).
You have described the following scenario:
1. Animals are ordered destroyed by Agriculture Canada (AC) under the Animal Health Act for purposes of controlling the spread of disease
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2. The producer may destroy them in a variety of ways but is guaranteed compensation by AC to a certain level per animal, say $X.
3. Should the animals be slaughtered the producer may obtain income from the slaughter house, $Y, and from AC - the total equal to $X.
4. It is possible that the amount from the slaughter house, $Y, may exceed the AC guaranteed amount of $X. Some producers may wish to utilize the provisions of subsection 80.3(2) to defer the total amount of $Y equal to or greater than $X, in whole or in part, to the next year.
Our Comments
It is evident from the scenario provided and from telephone conversations that this relates to an actual situation to which binding confirmation can only be provided by way of an advance income tax ruling. However, we are prepared to provide the following comments:
1. The deferral provision of subsection 80.3(2) is such that "where a particular amount in respect of the forced destruction of livestock under statutory authority in a taxation year of a taxpayer is included in computing the income of the taxpayer for the year from a farming business, there may be deducted in computing that income such amount as the taxpayer claims not exceeding the particular amount."
2. Subsection 80.3(3) provides that "the amount deducted under subsection (2) in computing the income of a taxpayer from a farming business for a taxation year shall be deemed to be income of the taxpayer from the business for the taxpayer's immediately following taxation year".
3. In our view, "a particular amount in respect of the forced destruction of livestock under statutory authority" would include amounts received by the taxpayer under the statutory authority for compensation, if any, as well as any other amounts received in respect of the forced destruction including amounts received from a slaughter house.
We trust that these comments will be of assistance.
Yours truly
E. Wheeler for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch