Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether any portion of the proceeds of disposition of a milk goat herd relates to a goat milk quota.
Position: No.
Reasons: There is no "quota" system for goat's milk. The only limit on a goat milk farmer is the demand for the end products. Restricting supply to match demand is not the equivalent of a "quota" system.
2005-011015
XXXXXXXXXX A. Seidel, CMA
(613) 957-2058
May 9, 2005
Dear XXXXXXXXXX:
Re: Disposition of Livestock
This is in reply to your March 4, 2005, letter in which you requested our comments with respect to the application of subsection 39(1) of the Income Tax Act (the "Act") to the disposition of a herd of milking goats.
Background
A taxpayer (the "Taxpayer") assembled a herd of milking goats and deducted the cost thereof in computing income from a farming business. The Taxpayer has sold the entire herd of goats to another taxpayer and requests our views as to whether a portion of the proceeds of disposition relates to a "goat milk quota".
Each goat milk farmer is issued a license by the Ontario Ministry of Agriculture and Food. Dairies in Ontario cannot accept milk, goat or cows, from any milk producer who does not have a license. If a milk producer does not maintain consistent and acceptable quality results, the license is revoked. Once a milk producer sells all of the milking goats, the license lapses or is revoked by the province. The licenses are not transferable.
At the time that the taxpayer assembled the herd of milking goats, the taxpayer was able to sell all the milk that the taxpayer could produce. However, in the last three years, in an effort to control price and supply, a quasi goat milk marketing board has developed. As a result, a goat milk producer can now only sell milk through a previously established contract with a goat milk processor.
Issue
Is any portion of the proceeds of disposition of a goat herd attributable to the prevailing milk quota/contract with the processor similar to that which exists for Milk Marketing Board Quota for cows milk?
The Ontario Goat Milk Producers' Association ("OGMPA") serves as an information link for goat milk producers. Their website suggests that the two main reasons that a person may become interested in starting up a goat milk operation are firstly, "everyone likes the fact that there is no need to purchase quota when shipping goats milk" and secondly, goats are "easier to buy and to handle than cows". It goes on to say: "As for easy to buy, most people are surprised at what they will have to pay for quality dairy animals". The website goes on to explain that the markets for goat milk are currently very limited and potential producers far outnumber potential processors.
The agreement of purchase and sale entered into by the taxpayer and the purchaser makes no reference to a goat milk quota or to any "goodwill" relating to a goat milk "quota". The agreement of purchase and sale simply provides that the taxpayer "agrees to sell his herd of goats" and that the purchaser "will pay for and arrange trucking".
The goat milk license held by the taxpayer is not transferable to the purchaser of the herd. Therefore, no portion of the proceeds of disposition relates to the license.
From the information provided, and the information available from the OGMPA, it is clear that, under the current market conditions, the supply of goat milk exceeds the demand. However, the fact that the goat milk brokers and processors put restrictions on the amount of goat milk they will purchase, to match the demand for the end products, does not equate to the creation of a quota. Furthermore, it was the two goat milk brokers that agreed to transfer the taxpayer's shipping allowance from one broker to the other. Neither the taxpayer nor the purchaser were in a position to influence this decision of the brokers.
The information provided by the OGMPA indicates that it is both difficult and expensive to buy a quality milk-goat herd. This would be reflected in the price that a purchaser would be willing to pay for a milk-goat herd. Therefore, comparing the price that a farmer could get for a goat if it were to be sold for meat with the price that a farmer could get for a quality goat to be used for milking would not be relevant to the determination of whether any portion of the farmer's proceeds relate to a "milk quota".
Taking into account all of the above factors, it is our view that the entire proceeds of disposition relates to the disposition of the taxpayer's inventory of goats and is, therefore, included in the taxpayer's income from farming in the year of disposition.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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