New tax reporting rules for farmers and fishers

On May 5, the Finance Department issued a Notice of Ways and Means Motion to change income reporting rules specifically for farmers and fishers who sell to agricultural and fisheries cooperatives, in response to restrictions in the March 2016 budget that impact the claiming of the small business deduction.

Proposals to amend the Income Tax Act (ITA) would now ensure, for tax years that begin after March 21, 2016, that corporations owned by farmers and fishers selling to arm’s length agricultural or fisheries cooperatives would not be “inappropriately denied” their small business deduction as a result of income from those sales.

The Ways and Means Motion goes on to describe “specified cooperative income” and “specified corporate income” for those purposes. These new definitions and the consequences resulting from such income are briefly described below and will be discussed in detail later this month through early June at the Distinguished Advisor Workshops (DAW) being held in six cities across Canada: Vancouver, May 29; Edmonton, May 30; Calgary, May 31; Winnipeg, June 1; Toronto, June 5; and Ottawa, June 6.

Under the rules introduced in the March 2016 budget, the $500,000 small business deduction must be shared by an associated group of corporations. The income of this group of associated corporations is called “specified corporate income.” The proposals in this Ways and Means Motion ensure that the sale of farm or fishing products to a farm or fishing cooperative (called “specified cooperative income”) is excluded from the definition of “specified corporate income.”

Because of the sale to the cooperative, the farmer/fisher corporations are associated with the cooperative and, were it not for this amendment, the income of the cooperative would be added to their specified corporate income and would not be eligible for the small business deduction unless the cooperative explicitly shared a portion of its small business deduction.

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