Taxation in Agriculture

Chapter 7. Canada

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

7.1. Overview

The Canadian federal government levies income tax and sales tax on corporations, consumption and customs. At the sub-national level, the provinces levy purchase tax, land and property taxes and also income tax. Through agreements with the federal government provincial and territorial governments (with the exception of the province of Quebec1) use federally-defined personal and corporate income tax bases. Municipalities, local school authorities and some special purpose authorities are allowed to levy taxes; however, this is normally limited to property taxes.

In Canada, agriculture and agri-food businesses are subject to a combination of federal and provincial income taxes, federal and provincial sales and excise taxes, and provincial and municipal property taxes. Tax rates, exemptions and deductions on agricultural land vary from province to province.

Special tax treatment, not available for non-farm and fishing businesses, exists for the agriculture sector. Special tax provisions to the agricultural sector include: permitting cash accounting and annual income tax payments (rather than quarterly); providing for certain farm losses to be claimed against all income and carried forward over 20 years; averaging taxable income by adding the value of inventory to income; allowing the deduction of certain capital expenditures or shares of a qualifying farm corporation; exempting capital gains taxes on a portion of the income generated from selling a farm to descendants; deferring any remaining capital gains tax where such farm or shares are transferred to a child; and averaging capital gains income from the farm transfer over a number of years. Property taxes applied by the provinces to farmland and farm buildings are reduced, as are the provincial fuel taxes and carbon taxes levied on farmers.

The income of indigenous people earned on a reserve is in some cases exempt from tax, this includes farming income. Eligibility for this tax exemption is set out in the Indian Act.

7.2. Income taxation

Income tax rates for farms and agri-food businesses vary depending on how the business is organised. Farms and agri-businesses can be either unincorporated or incorporated businesses. There are no differences in the federal income tax rate for income from farm businesses and non-farm businesses. However, there are special federal provisions for calculating farm business income that are not available for non-farm businesses.

Taxation of farming businesses

Income tax rates

Income earned in Canada by individuals from every type of unincorporated business (such as sole proprietorships, joint ventures and partnerships) is subject to the progressive federal as well as provincial and/or territorial personal income tax rates that apply to all types of income earned directly by individuals (such as salary and interest income). The federal personal income tax rates that apply to income from unincorporated businesses in 2019 increase progressively from 15% to 33% of the income within each income bracket. A progressive provincial/territorial income tax also applies to income from unincorporated businesses, with 2019 rates ranging across provinces from 4% for the lowest tax bracket to 21% for the highest tax bracket. The combined federal and provincial marginal personal income tax rates range from 19% to 54%.

Incorporated farm businesses pay corporate income taxes at a lower tax rate on their active business income. The federal general corporate income tax rate on business income is 15%.2 Up to CAD 500 0003 of annual qualifying active business income earned by a Canadian-controlled private corporation (CCPC) is subject to a lower 9% small business tax rate in 2019 (from 10% in 2018). Provinces and territories also have a general and a small business corporate income tax rate – their general 2019 rate ranges from 11.5% to 16% applicable to all sources of corporate income, and their 2019 small business rate ranges from 0% to 6% up to the same federal small business limit for most provinces and territories.4

Business income computational rules

Cash accounting: Farmers (and fishers) have the option to use cash accounting for income tax reporting whereas other businesses are generally required to use the accrual method of accounting for tax reporting (i.e. revenues are declared when earned, and expenses claimed when incurred). Cash accounting recognises revenues and expenses at the time cash is actually received or paid which gives farmers flexibility on when to report revenues and expenses for tax purposes.

Mandatory Inventory Adjustments and Optional Inventory Adjustment (also called Flexible Inventory Provision) are income smoothing mechanisms which allow cash basis accounting farmers to add their inventory to the income they report for tax purposes. Mandatory inventory adjustments are required when a year results in a net loss through the purchase of inventory. If this occurs, farmers are required to add the lesser of the value of purchased inventory or the amount of the loss to income. Optional inventory adjustments can be used to increase the net income in a low-income year to take advantage of non-refundable tax credits, thereby averaging income between years and lowering overall tax liability in future years due to the progressivity in the tax structure. It also allows farmers to avoid creating losses that would be subject to time limitations if carried forward. The value of inventory (based on fair market value) added to income in one year must be deducted in the following year.

Income deductions: Capital Cost Allowance (CCA) is the tax term for the accounting concept of depreciation. It is available in respect of depreciable capital assets of all businesses (including farming). When a farmer buys fixed assets such as machinery, equipment or buildings (excluding land), a portion of the capital cost is deductible as CCA each year. The CCA rates for asset classes are set out in the Income Tax Regulations. The maximum amount of CCA for a given year is not required to be claimed. Instead any amount, from zero to the maximum, can be claimed.

A temporary accelerated capital cost allowance measure was introduced by the federal government in 2018 for businesses of all sizes, across all sectors of the economy. This general measure allows up to three times the usual first-year allowance for most types of capital assets acquired after 20 November 2018 and before 2028. An even greater allowance is available for machinery and equipment used primarily in Canada for the manufacturing or processing of goods for sale (e.g. food processing) and for specified clean energy equipment. These assets are eligible for a full write-off in the year of acquisition. Both the general measure and the more specific measures are subject to a phase-out beginning in 2024. By allowing a substantially faster write-off of eligible investments than the usual declining-balance rate as set by the CCA regulations, these measures defer taxes and allow businesses to recover the cost of capital assets more quickly.

Businesses, including farms, can deduct an allowance of up to 5% of their expenditures on intangible assets such as goodwill and franchises. Until 2017, 75% of such expenditures were added to a corporation’s eligible capital property. Since 2017, such expenditures are added to class 14.1 of depreciable capital property. In Canada, quota qualifies as expenditure for class 14.1 depreciable properties and as such an annual allowance can be deducted based on its cost.

Deduction of Certain Capital Expenditures — the costs of capital expenditures for improvements (clearing and levelling land, laying tile drainage, etc.) can be distributed over a number of years because the resulting benefits are realised over an extended period of time. Farmers can also deduct some pre‑production expenses associated with vineyards and orchards.

Restricted Farm Losses (RFLs) — if farming is not the main source of income and the farm generates a loss, only a portion of this farm loss can be claimed each year against non-farming income and the remaining loss is the “restricted farm loss”. The restricted farm loss can be carried forward 20 years and back three years and can be deducted against any farm income in those years. If farm losses exceed CAD 32 500, farmers can apply a farm loss deduction of up to CAD 17 500 against other income and carry forward the restricted farm losses. Part of the RFLs could be applied against any capital gain farmers have when they sell their farmland if these RFLs were incurred in farming and could not be deducted in previous years. In the case of reducing capital gains, farmers may use RFLs to reduce capital gain to zero from selling farmland. An RFL cannot be used to create or increase a capital loss from selling farmland. The amount of RFLs that farmers can apply cannot be more than the property taxes and the interest on money they borrowed to buy the farmland that were included in the calculation of the RFLs for each year.

Income tax instalments

Unlike other self-employed individuals, self-employed farmers and fishers (including individual farmers and fishers operating through a partnership) are exempt from making quarterly federal and provincial income tax instalments. In general terms, if the chief source of self-employment income is from farming or fishing, the individual has to make only one instalment payment per year by 31 December of the current year of two‑thirds of the estimated amount of tax payable for the year, with the remainder having to be paid by April of the following year.

In general terms, incorporated farmers and fishers have to pay monthly income tax instalments, but eligible small Canadian-controlled private corporations (CCPCs) may qualify for quarterly instalments.

Selected issues

Tax on dividend distributions from incorporated farming businesses

Dividends received by an individual from an incorporated farming business are subject to the same treatment as other types of corporate dividends. In general terms, the individual must include in income a proxy for the pre-tax profits of the corporation and then claim a tax credit in recognition of the corporate-level tax. This so-called “integration” mechanism aims to tax the individual in a manner similar to the way he or she would be taxed if the corporate income had been earned directly by the individual.

Tax on split income

The tax on split income (TOSI) rules are designed to prevent high-earning individuals from splitting their income with their children and family members to reduce their personal income tax otherwise payable.5 Under the long-standing TOSI rules, an individual under 18 years is subject to the highest marginal tax rate (currently 33%) on split income, which includes certain taxable dividends, taxable capital gains and income from partnerships or trusts. The TOSI rules have been expanded, effective in 2018, to in general apply where an individual over 17 years receives dividend or interest income from a corporation, or realises a capital gain (other than from a qualified farm or fishing property), and a related individual is either actively engaged in the business of the corporation or holds a significant amount of equity (with at least 10% of the value) in the corporation.

Capital gains exemption for farmers and fishers

A Lifetime Capital Gains Deduction (LCGD)6 is available to farmers, fishers and owners of small business corporations. The LCGD provides an exemption from tax on a portion of any capital gains realised on the disposition of eligible property, including farm property and shares of a farm corporation. The purpose is, in part, to help farmers and small business owners save for their retirement. A small business owner qualifies for an LCGD of CAD 866 912 in 2019, whereas farmers disposing of their farm property (e.g. agricultural land, buildings, equipment, quota or shares in a family farm corporation) can claim an LCGD of up to CAD 1 million. The LCGD is applied on an individual basis so that each farmer is allowed an exemption up to the limit of CAD 1 million.

Capital gains deferral on intergenerational transfers of farming business

Farmers are entitled to a tax deferral on the transfer of their farming business to a child thereby avoiding the immediate tax on capital gains.7 This rule permits the farmer to elect to transfer the property at any amount between its cost base (the cost of the property plus any expenses to acquire it, such as commissions and legal fees) and its fair market value at the time of the transfer.

Capital gains reserve

Farmers are entitled to claim a capital gains reserve over a ten-year period where the proceeds of disposition, such as a transfer of farm property, shares of a farm corporation, or small business corporation shares, have not been fully received and the property has been transferred to the farmer’s child.8 The ten-year reserve allows farmers to average capital gains income from the farm transfer over a number of years and allows the child an extended time to pay for the farm. A minimum of 10% of the taxable portion of the gain must be brought into income each year. Should there be transfers of a family farm business to persons other than a child (e.g. a nephew, niece, or unrelated person) the farmer may claim a capital gain reserve over a five-year period if the proceeds of disposition are not all receivable in the year of the sale. Under the five-year capital gains reserve, a minimum of 20% of the taxable portion of the gain must be brought into income each year.

7.3. Property taxation

No inheritance tax is levied on the beneficiaries. The estate pays any tax that is owed to the government. When a person die, his/her legal representative needs to file the final tax return to the Canada Revenue Agency (CRA) and pay any tax owed up until the point of death. This includes taxes on some of the assets the person owes, such as car, cottage and certain types of investments.

Annual property (land and buildings) taxes are levied only by local authorities and municipalities (and provinces in some cases) and are used to fund services (water, sewage, solid waste, transit, roads, police, fire protection, etc.) provided to residents. Property taxes are also used to fund primary and secondary education in most provinces. The characteristics of these taxes vary widely. Property taxes are a benefit-based tax and are set to capture, as closely as possible, the cost of services consumed. As farms generally consume less of these services than other properties, such as residential or commercial properties, this provides a rationale for treating agricultural properties differently from other properties types.

There are a number of property tax programmes provided to the agriculture sector by each province as described in Table 7.1. These include:

• Exemptions of some properties, such as farm dwellings and farmland.

• Assessments of farm properties that are less than the fair market/actual value.

• Rebates by provincial governments on some of the taxes paid by farmers.

• Deferral (and forgiveness) of taxes due unless the use of the farmland changes to non-farm use.

• Lower maximum tax rates that can be paid by the agriculture sector.

Table 7.1. Agricultural property tax programmes in the provinces

Province	Agricultural Property Tax Programme
British Columbia	BC’s agricultural land and reserve land is eligible for a 50% School Tax exemption. A wide variety of Provincial Sales Tax (PST) exemptions apply for bona fide farmers. Low assessed values given to farmland for property tax purposes. Land classified as farmland, including land associated with farm dwellings, is valued for property taxation based on schedules that prescribe values that are often significantly lower than market values. For the provincial school tax, municipal taxes and the other taxing jurisdictions that refer to the School Act, farm homes are taxable but farm buildings are 87.5% exempted. For the purpose of the provincial rural area tax, farm homes and general farm outbuildings are fully exempt. All Class 9 (Farm) properties are eligible for a 50% School Tax credit on the land value in addition to the 50% exemption that applies on taxes other than municipal and rural tax (e.g. property taxes).
Alberta	Farm land in Alberta is based on the assessed productive value of the farmland (i.e. based on the land’s ability to produce income from the growing of crops and/or the raising of livestock). The municipality sets property tax rates, which differ for different assessment classes of farmland. The municipality sets property tax rates, which differ for different assessment classes of farmland. Farm buildings in rural municipalities are 100% exempt (in urban municipalities farmland is 50% exempt and over the next five years will be transitioned up to 100%) from property taxes. Farm residences are partially exempt. This exemption is based on the assessed productive value of the fam land. For example, if the farmland is assessed at CAD 15 000 then this amount is removed from the farm residence assessment to a maximum of CAD 61 540 for the first residence and CAD 30 770 for each additional residence.
Saskatchewan	Farm residences and buildings are exempt from property taxation. The assessment value for farmland is 45% (for rangeland) and 55% (for cultivated agricultural properties) of the fair market value.
Manitoba	Property taxes for farm properties are calculated on 26% of their fair market value (45% for residential property). The Farmland School Tax Rebate (FSTR) provides Manitoba farmlandowners with an 80% rebate in 2018 (up from 33% in 2004) on school taxes. Landowner cannot receive rebates of more than CAD 5 000.
Ontario	Eligible farm property (including farmland and associated outbuildings placed in the farm property class) are taxed at 25% of the municipal residential tax rate. Farm property is assessed at market value.
Quebec	Refunds of about on average 78% for municipal property and school property taxes are granted in Quebec. Under the Quebec Municipal Taxation Act, agricultural land is valued according to its market value and farm buildings are valued at their true value, generally using the cost method. For the purpose of school taxes, the taxable value of registered land situated in an agricultural zone is limited to CAD 375 per hectare. The refunds are available for registered farm properties (farmland and/or outbuildings) that meet the environmental performance and income criteria (gross sales are greater than CAD 5 000 and minimum income of CAD 8 per CAD 100 of property assessment).
New Brunswick	Deferral of the provincial property tax of CAD 12 173 per CAD 100 of the assessed value as well as the portion of the local/municipal tax rate that is above the average Local Service District (LSD) tax rate for the province. This deferral is available for registered farm property (farmland and/or outbuildings) under the Farm Land Identification Program. If the property use changes from farming to other uses (i.e. property is deregistered or withdrawn from the programme), deferred taxes for the previous 15 years together with associated interest becomes due and payable. All residences that are owner-occupied are not subject to provincial property taxes.
Nova Scotia	Farm land is exempted from taxes. Farm buildings are assessed based on market value and taxed at a ‘resource rate’, while farm residences are assessed on the basis of market value and taxed at a ‘residential rate’.
Prince Edward Island	Farm land is assessed on the basis of its productive value and not at market value (the assessment is often less than 50% of the agricultural market value).
Newfoundland and Labrador	Exemptions from property taxes for productive farmland and farm building under the Real Property Tax Exemption Program for Agricultural Land in accordance with the Municipalities Act. It may apply to individuals who are productively using agricultural land, whether it is owned, leased or rented.

7.4. Tax on goods and services

In Canada, a sales tax is applied to the retail price of the purchased good at both the federal (the Goods and Services Tax (GST)) and the provincial levels (the Provincial Sale Tax (PST)). The federal GST is 5%, while each province (except Alberta) applies their own PST.

Five of the ten Canadian provinces (Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick and Ontario) have entered into agreements with the federal government and implemented a Harmonised Sales Tax (HST). The HST is composed of the federal GST of 5% and the provincial component. The HST is applied to the same base of goods and services as the federal GST base, with some exceptions, which differ across provinces. The HST is administered by the federal government, and as a result, businesses collect one tax and remit and report to one government agency.

Zero GST is applied to most agricultural commodities. This means that the farm business does not collect GST on those sales but can still recover the GST they paid on the inputs to those sales. However, for many inputs purchased exclusively by farmers (farm machinery and equipment, fertiliser, pesticides, etc.) there is no GST. No GST is payable either when they are purchased (inputs) or when they are sold (outputs). There are varying exemptions for production goods among the provinces.

Fuel tax – Both federal and provincial taxes apply to fuel. The federal excise tax rate is CAD 0.10 per litre on gasoline and CAD 0.04 per litre on diesel for all users, including farmers. However, each province levies its own taxes on gasoline, diesel, and propane, but farmers generally do not pay the provincial taxes on these fuels (Table 8.2). The methods of exemption and rebates vary from province to province.9 Typically, diesel fuel is dyed and farmers are exempt from the tax at the time of purchase, while gasoline is kept clear and farmers apply for a tax rebate after purchase. Farmers can only use coloured fuel in off-road situations, and usage is not lawfully permitted for use in road licensed vehicles. Farmers are exempted from the provincial tax on propane; in some provinces it must be paid if it is used for automotive purposes. In each province, the farmer must apply to the provincial government for a tax exemption card or permit, which enables the farmer to purchase coloured fuel tax-free, and apply for a tax rebate on gasoline. Indigenous individuals who are registered under the Indian Act and Indigenous communities may use coloured fuel in licensed vehicles where the fuel is acquired on a reserve.

Carbon Levy – in June 2018 Canada enacted its Greenhouse Gas Polluting Pricing Act (GGGPA) to meet its greenhouse gas (GHG) emissions reduction targets. Provinces are able to choose to continue with their own carbon pollution pricing system, or from 1 April or 1 July 2019, the federal pricing system will apply in provinces without a provincial carbon levy involving charges on fossil fuels. The federal pricing will start at CAD 20 per tonne of carbon dioxide equivalent (CO₂e) emissions in 2019 increasing to CAD 50 per tonne of CO₂e by 2022 and beyond unless specified. Under the GGGPA farmers will be exempt from the fuel charges for fuels used in tractors, trucks and other farm machinery via an exemption certificate when certain conditions are met.

Table 7.2 provides a summary of the federal and provincial fuel excise taxes and includes the carbon levy for each province.

Table 7.2. Federal and provincial fuel excise taxes, including carbon tax, as of 1 July 2019

CAD cents per litre

Province	Carbon pricing scheme	Unleaded gasoline	Carbon tax on unleaded gasoline	Diesel	Carbon tax on diesel	Propane	Carbon tax on propane
Newfoundland and Labrador1	Carbon levy CAD 20 per tonne of CO2e (2019)	16.5	4.42	16.5	5.37	7
Prince Edward Island	Carbon levy	13.1	4.42 (2019) 6.63 (2020)	20.2	5.37 (2019) 8.05 (2020)	0	Exempt
Nova Scotia	Cap and trade in place since 2019	15.5		15.4		7
New Brunswick2	Carbon levy in place since 2019	15.5	4.42 (2019) 11.05 (2022)	21.5	5.37 (2019) 13.41 (2022)	6.7	3.10 (2019) 7.74 (2022)
Quebec	Cap and trade in place since (2013)	19.2		20.2		0
Ontario2	Carbon levy (disputing at the court of appeal)	14.7	4.42 (2019) 11.05 (2022)	14.3	5.37 (2019) 13.41 (2022)	4.3	3.10 (2019) 7.74 (2022)
Manitoba2	Carbon levy in place since 2019	14	4.42 (2019) 11.05 (2022)	14	5.37 (2019) 13.41 (2022)	3	3.10 (2019) 7.74 (2022)
Saskatchewan2	Carbon levy (disputing at the court of appeal)	15	4.42 (2019) 11.05 (2022)	15	5.37 (2019) 13.41 (2022)	9	3.10 (2019) 7.74 (2022)
Alberta	Carbon levy in place since 2007 CAD 30 per tonne of CO2e (2018)	13	6.73 (2019)	13	8.03 (2019)	9.4	4.62 (2019)
British Columbia3	Carbon levy in place since 2008 CAD 40 per tonne of CO2e (2019) increasing to CAD 50 (2021)	14.5	7.784	15.0	8.95	2.7	5.39
Yukon5	Carbon levy in place since 2019	6.2	4.42 (2019) 11.05 (2022)	7.2	5.37 (2019) 13.41 (2022)	0	3.10 (2019) 7.74 (2022)
North West Territories6	Carbon levy in place since 2019	10.7/ 6.4	4.42 (2019) 11.05 (2022)	9.1	5.37 (2019) 13.41 (2022)	0	3.10 (2019) 7.74 (2022)
Nunavut5	Carbon levy in place since 2019	6.4	4.42 (2019) 11.05 (2022)	9.1	5.37 (2019) 13.41 (2022)	0	3.10 (2019) 7.74 (2022)
Canada’s Federal tax		10		4		0

1. Source: www.releases.gov.nl.ca/releases/2018/mae/1023n01.aspx

2. Implemented on 1 April 2019 Source: https://www.fin.gc.ca/n18/data/18-097_1-eng.asp

3. Fuel tax rates and carbon levy rates in British Columbia vary by region. The values in the table are the rates for regions except Vancouver Area and Victoria Area, which apply rates that are significantly higher.

4. In British Columbia, eligible commercial greenhouse growers can apply for a grant equal to 80% of the carbon levy paid on their purchases of natural gas and propane consumed for heating and producing CO₂ for greenhouses. Source : www2.gov.bc.ca/gov/content/industry/agriculture-seafood/programs/greenhouse-carbon-tax-relief-grant

5. Implemented on 1 July 2019. Source: www.fin.gc.ca/n18/data/18-097_1-eng.asp; www.fin.gc.ca/n18/data/18-097_1-eng.asp 6.

6. In the Northwest Territories, gasoline is taxed at CAD 6.4 cents per litre in communities not served by a highway system.

7.5. Environmental taxes

There are tax provisions used to improve the environmental impact of agriculture-related activities at the federal level but a number of provinces also have tax provisions. For instance in Quebec the agricultural property tax credit programmes includes a cross-compliance measure to address phosphorus balance.

Farmland Easement Agreement (FEA) are private, legal contracts that are negotiated between willing property owners and a qualified easement-holding organisation (e.g. Land Trust) to ensure their farmland will never be converted to urban development or some other non-agricultural use in the future.10 FEAs can impact property values. An appraisal is conducted as part of the easement process to measure any potential reduction in market value that may be caused by the FEA. If there is negative impact, farm owners are compensated, in part, with a charitable tax receipt from the easement holder for the difference in value. Additional benefits such as capital gains tax reduction may also apply.

Ecological Gifts Programme (Eco-Gifts), implemented by Environment Canada, can provide significant additional tax benefits to a farm owner that protects their property with an easement agreement. The Eco-Gift Programme is geared toward the preservation of natural features like forests, wetlands and grasslands.11

Farmers in Ontario with natural heritage features or forested land can apply for the following tax programmes:

• Conservation Land Tax Incentive Programme (CLTIP) whereby portions of the property that have eligible natural heritage features may qualify for a 100% property tax exemption.

• Managed Forest Tax Incentive Programme (MFTIP) provides tax relief to property owners who agree to prepare and follow a Managed Forest Plan for their properties. Properties classified as Managed Forest pay 25% of the municipal tax rate set for residential properties.

7.6. Tax incentives for R&D and innovation

Both federal and provincial governments use tax incentives to support private investments in R&D by all Canadian businesses including agricultural corporations and agri-food business. The Scientific Research and Experimental Development (SR&ED) Tax Incentive Programme is the single largest federal tax assistance programme supporting business R&D in Canada12 and is supplemented by related provincial credits for R&D. Activities eligible for the SR&ED tax incentives are: basic research, applied research, and experimental development. The tax incentives come in three forms:

• an income deduction (allowing immediate deduction of all allowable expenditures)

• an investment tax credit (which is applied to income taxes otherwise payable and are partially or fully refundable for smaller businesses)

• in certain circumstances, a refund.

Generally, a Canadian-controlled private corporation can earn an enhanced investment tax credit (ITC) of 35% for the first CAD 3 million of SR&ED expenditures carried out in Canada, and 15% on further expenditure. Other Canadian corporations, proprietorships, partnerships, and trusts can earn a basic ITC of 15% of qualified expenditures for SR&ED carried out in Canada. The provincial tax credit rates range from 3.5% in Ontario to 10% in Saskatchewan, Alberta and British Columbia and to 15% in the Atlantic Provinces, Manitoba, Yukon Territories. Quebec has differentiated their SR&ED programme into four sub-programmes that can provide tax credits of between 30% to 35.7% for large Canadian-controlled corporations. Some provinces include limitations and the carryback/carryforward provisions for tax credits.

Mandatory check-offs or levies administered by producer organisations are used to fund research and development. Producer organisations act as agents through which member farmers can finance eligible research investments. The SR&ED tax credit is then distributed back to individual farmers. While the Canadian Beef Cattle Check-Off has a mandatory levy it has no implications for tax credits.13 However, the Western Wheat & Barley Check-off is eligible for a tax credit through the SR&ED programme, provided that no refund is requested. The maximum for these ITC, federally, depends on the farm’s legal status and the amount of qualified expenditures for SR&ED carried out in Canada.

The eligibility of a producer organisation to receive the SR&ED tax credit is a good fit for the agricultural sector, since very few farm operations are in a position to initiate or fund their own research projects. Also, advances in agricultural research are likely to have spill-over benefits for other farmers (especially those belonging to same commodity sector). Tax incentives are not widely used by farms and agri-food companies and the SR&ED programme is more attractive to larger firms.

7.7. Other taxes

Taxes and Social Contributions on Labour Employees - Businesses are required to deduct employee’ income taxes and social contributions from employees’ pay cheques and remit those, to the Canadian Revenue Agency. Other mandatory deductions include Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and other provincial specific taxes or contributions. Both employment income and income from self-employment are taxed the same. However, self-employed individuals are exempt from EI contributions.

There are no specific income or tax provisions for agriculture labour in Canada.

Notes

← 1.  Quebec represents a special case allowing the local authorities to levy an independent income tax.

← 2.  The base federal corporate income tax rate is 38%. This rate is reduced by a 10% provincial abatement regarding provincial income (provinces may provide a corporate rate that is higher or lower than 10%), and by a 13% general tax rate reduction on qualifying income). As a result, the net federal tax rate for corporations is 15%. A special tax rate regime applies to investment income earned by Canadian-controlled private corporations: such income is subject to a partly refundable federal corporate tax which, combined with the provincial corporate income tax, seeks to prevent individuals from deferring personal income tax on such income.

← 3.  This limit can be reduced where the corporation and its associated group members have total capital or certain types of investment income that exceed certain limits. The investment income factor is a new constraint that applies as of 2019.

← 4.  The business limit in Saskatchewan is CAD 600 000.

← 5.  Source: www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling/frequently-asked-questions-income-sprinkling.html.

← 6.  Source: www.canada.ca/en/department-finance/news/2017/10/backgrounder_supportforfarmingandfarmfamilies.html.

← 7. For these purposes a child is defined to include the taxpayer’s child, grandchild, great grandchild, and minors within the taxpayer’s custody who rely on the taxpayer for support.

← 8.  The same broad definition of child noted above applies for these purposes.

← 9. For example: in Quebec, the provincial tax is 100% refunded for farmers. In Alberta eligible farmers receive a partial exemption from the fuel tax of CAD 0.09 per litre on both marked diesel and marked gasoline and therefore paying effectively CAD 0.04 per litre. Eligible farmers are fully exempt from the provincial tax on propane and aviation fuel used for farming purposes.

← 10.  Source: https://farmlandagreements.ca/farmland-agreements/protecting-your-farm/tax-benefits-and-implications/

← 11.  Source: https://www.ec.gc.ca/pde-egp/default.asp?lang=En&n=52A624CF.

← 12.  Source: https://www.canada.ca/en/revenue-agency/services/scientific-research-experimental-development-tax-incentive-program.html.

← 13.  However, this may change in the future as the Saskatchewan Cattlemen’s Association is investigating the feasibility of claiming the Scientific Research and Experimental Development tax incentive. See the SCA Producer Handbook at: www.saskbeef.com.