Tax treatment of deferred grain cash tickets under review

Grain growers in Canada who take deferred cash purchase tickets for crops are being asked whether it’s time to get rid of the rule that allows income from those tickets to be put off to the following tax year.

Tucked into federal Finance Minister Bill Morneau’s budget on Wednesday was an announcement of public consultation, running until May 24, on the income tax deferral available to farmers holding deferred cash purchase tickets.

When listed grains (wheat, oats, barley, rye, flax, canola, rapeseed) are delivered for payment at a licensed elevator, an elevator operator can issue either a cash purchase ticket or a deferred cash purchase ticket, payable in the year following the year in which the grain is delivered.

Under current tax law, a farmer who opts for a deferred cash purchase ticket is then able to include the amount of the ticket in taxable income in that following year.

In its consultation announcement Wednesday, the government noted the tax treatment of deferred cash purchase tickets “is a departure from the general rule with respect to taxpayers (including other farmers).”

Non-grain-growing taxpayers, the government said, are instead required to include the amount of a “security or other evidence of indebtedness received as payment of a currently-payable debt” as income in the tax year in which it’s received.

The “historical rationale” for the tax treatment of deferred cash purchase tickets “relates to international grain shipment agreements and the Canadian Wheat Board’s former position as the sole purchaser of listed grain in Manitoba, Saskatchewan and Alberta,” the government said Wednesday.

With the CWB’s assets now sold and the single-desk Prairie grain marketing regime deregulated, the government said, delivery of listed grains “is now the responsibility of private business rather than the federal government.”

Thus, the government said Wednesday, “there is arguably no longer a clear policy rationale for maintaining the tax deferral accorded to deferred cash purchase tickets received as payment for listed grains.”

The consultation announced in Wednesday’s budget calls for comments from farmers and other stakeholders on “the ongoing utility, and potential elimination” of the tax deferral rule.

Comment is also sought on “any appropriate transitional period or rules” that would be required if the tax rule were to be eliminated.

Holding a deferred payment to the following tax year offers both benefits and risks for farmers. For example, a farmer who defers payment of a ticket for longer than 30 days no longer has access to Canadian Grain Commission protection if a licensed elevator operator or grain dealer goes bankrupt in the meantime.

On the other hand, the tax rules on deferred cash purchase tickets have allowed farmers to use the tickets to pay for expenses in one tax year, by transferring the tickets to their suppliers, and still defer the taxable income from the ticket to the following year while claiming the tax-deductible expenses in the current year.

According to Alberta Agriculture, citing a Canada Revenue Agency interpretation, the tax reporting deferral also still applies to the full amount of the deferred ticket in cases where grain is delivered and part of the payment immediately applied against an advance under the federal advance payments program (APP). — AGCanada.com Network