10 February 1993 Income Tax Severed Letter 921720C - Farm Support Program

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

T-SLIPS
T-Slips will not be required for farm support payments where
the total amount paid to the recipient in the year in respect
of a specific program is less then $100.00. For example, if
a producer receives in a year farm support payments totalling
$50.00 from program A and $125.00 from program B, T-Slips will
be required in respect of the $125.00 received from Program B,
but T-Slips will not be required in respect of the $50.00
received from program A. This is applicable to all programs
which we will comment upon. If you wish to discus[s] this
further, please contact in our Information Returns Section
either Jerry Pembroke at 957-2040 or Robert Way at 957-9345.
PARAGRAPH 12(1)(x) OF THE INCOME TAX ACT ("THE ACT")

We will be referring in our comments regarding the various programs to inclusion in income of amounts pursuant to paragraph 12(1)(x) of the Act and these comments will apply to all such programs.

Paragraph 12(1)(x) of the Act provides that certain inducements, reimbursements, contributions, allowances, and assistance received by a taxpayer are required to be included in income. However, where such an amount relates to an expense or outlay the taxpayer may choose to reduce the amount of his deduction in respect of such outlay or expense. Where the amount relates to the cost of capital or depreciable property the taxpayer may choose to reduce the capital cost of such property. The amount by which the farmer reduces his deduction of an outlay or expense or reduces his cost or capital cost of property would not be required to be included in income.

Where a taxpayer repays an inducement, assistance, etc., that was included in income under to paragraph 12(1)(x) of the Act, the taxpayer in computing income may pursuant to paragraph 20(1)(hh) of the Act deduct the amount repaid in that year. SUBSECTION 80(1) OF THE ACT These comments will apply to all those programs where a loan, debt or obligation is forgiven, settled or extinguished without a payment or by a payment of less then the amount owing.

Subsection 80(1) of the Act applies when a loan, debt or obligation of a taxpayer is settled or extinguished without any payment having been made or by a payment of an amount less than the principal amount of the debt or obligation. The resulting gain, for income tax purposes, must be applied to reduce certain losses of the taxpayer, or to reduce the capital cost to him of certain depreciable property, or the adjusted cost base to him of certain capital property. The application of subsection 80(1) of the Act is discussed in more detail in Interpretation Bulletin IT-293R and the Special Release thereto.

CASH FLOW ENHANCEMENT PROGRAM ("CFEP")
The objective of the program is for the federal government
to pay interest on the first $50,000 advanced under the
Advance Payments for Crops Act (APCA) and Prairie Grain
Advance Payments Act (PGAPA) to encourage orderly marketing.

TAXATION

The producer receives an interest free $50,000 loan from his producer association. The producer does not incur any interest expense nor does he directly receive any reimbursement. Consequently, there is no income tax consequence to the producer. The producer association (or the Board) borrows money at interest from a lending institution in an amount equal to the amount loaned to the producer. The producer association incurs interest expense on these loans, however, the interest is reimbursed to the producer association by the federal government under the CFEP. The reimbursement is income to the producer association, however, there should be no tax consequences to the producer association because this should be completely offset by interest expense. This would also be the case for any interest expenses incurred and reimbursed in respect of amounts paid to elevator companies on account of interest costs.

T-SLIP INFORMATION

T-Slips should be prepared by Agriculture Canada for each
producer association receiving interest payments from them
under CFEP. PRAIRIE GRAIN ADVANCE PAYMENTS ACT (PGAPA)
ADVANCE PAYMENTS FOR CROPS ACT (APCA)
The objective of the PGAPA is to: advance to a producer of
wheat and barley in the Prairie provinces under agreement
with the Canadian Wheat Board ("CWB") a cash advance which
is an advance on the Initial Payment they will receive upon
delivery to CWB.
The objective of the APCA is to give advances to producers
at harvest so they can sell throughout the remainder of the
market season when prices are normally higher.

Under these programs the government guarantees the advances made to the producers.

TAXATION OF ADVANCE PAYMENTS

It is Revenue Canada's position that advance payments under both PGAPA and APCA are loans and are not considered to be income of the producer at the time of receipt. When a particular crop is subsequently sold, the full amount of the sale price is to be included in the producer's income at the later time. It should be noted that generally advance payments would be considered income as received for cash basis farmers except for payments under the above programs.

The value of the loan guarantee by the government would pursuant to paragraph 12(1)(x) of the Income Tax Act be required to be included in income. The benefit could be the difference in rates charged with and without the corporation's guarantee or what the borrower would have to pay a third party to provide a similar guarantee. However, quantifying such a benefit would be difficult, requiring an analysis of the circumstances of each case. Generally, the Department does not attempt to assess a benefit in such circumstances, unless it is clear from the outset that the borrower is not able to repay the loan.

T-SLIP INFORMATION

These advance amounts and the value of the guarantee are not farm support payments for which T-Slips are required. The advance payments are normal farm income of the farmer in the fiscal year the crops are sold.

TAXATION OF DEFAULTS AND COMPROMISES

Agriculture Canada may be required to honour its guarantees and it would do so with direct payments to the bank. In these instances the producers are still required to try to pay off the advances. The producers are indebted to Agriculture Canada although future repayments are generally made to the producer organization which in turn repays Agriculture Canada. There should be no tax consequences as a result of the honouring of the guarantees.

However, tax consequences will arise where Agriculture Canada makes a compromise settlement with the producer. The compromise occurs where Agriculture Canada, on the advice of a Department of Justice lawyer, accepts a partial payment as fully satisfying a debt thereby releasing the debtor from any obligation to pay the balance. Compromises are normally made in situations where the producer would otherwise go into bankruptcy, however, Agriculture Canada must be treated the same as other creditors in the same secured class. Program officers indicated that about 50 compromise settlements are made each year.

Section 80 should apply to the producer with respect to the settlement of debt without any payment by him or by the payment of an amount less than the principal amount.

T-SLIP INFORMATION

The payment was the honouring of a bank guarantee relating
to advance crop payments. This payment may have been made 5
to 10 years before the compromise settlement is made. At
the time of honouring the guarantee there was no tax
consequences. When the debt is forgiven there is no
payment. In our view, the compromise settlement is not a
farm support payment by definition so there is no T-Slip
reporting required - even though section 80 still applies
and there are tax consequences. AGRICULTURAL PRODUCTS COOPERATIVE MARKETING ACT
("APCMA")
APCMA is a market development program designed to assist and
encourage cooperative marketing of agricultural products.
Agriculture Canada enters into an agreement with an
organization which markets an agricultural product.

TAXATION

The initial payment received by the producer under this program would be normal farming income to be reported as received regardless of the actual wholesale selling price of the product. If Agriculture Canada needs to make a payment to the marketing organization to honour its guarantee, then this payment would be a farm support payment to the marketing organization.

T-SLIP INFORMATION

Agriculture Canada would need to issue a T-Slip to the marketing organization reflecting the amount of the farm support payment made.

FARM IMPROVEMENT AND MARKETING COOPERATIVES
LOANS ACT ("FIMCLA")
FIMCLA applies to loans made as Guaranteed Farm Improvement
Loans ("GFIL") and as Guaranteed Farm Products Marketing
Loans ("GFPML"). FIMCLA was introduced as a replacement for
the Farm Improvement Loans Act. The GFIL program relates to
loans made to producers for purposes in relation to farming
for purchases of and repairs to farm equipment and
machinery, the purchase of livestock, construction of
fencing, purchase of additional land, and the consolidation
of loans for any of the above purposes. The GFPML program
relates to loans made to products marketing cooperatives for
purposes in relation to the processing, distribution or
marketing in Canada of farming products. GFPML loans may be
for the purchase of land, purchase or repair to buildings
and machinery, and the consolidation of loans for any of the
above purposes. Under FIMCLA, Agriculture Canada guarantees
95% of the loans made by financial institutions for these
purposes. The guarantee is for: 1) the unpaid principal; 2)
the accrued interest not paid by the borrower prior to the
due date of the first unpaid instalment; 3) the uncollected
interest earned after the due date of the first unpaid
instalment for up to a period of 365 days; and 4) legal and
other costs incurred by the lender in its endeavour to
collect the defaulted amount.

As a result of the guarantee, the farmers and the farm products cooperatives should be able to obtain lower interest rates on these loans. Agriculture Canada may be required to honour their guarantees. In such a case, all borrower debt would be owed to Agriculture Canada. Compromise settlements may be agreed to in which case the debt will be settled for less than its principal amount.

TAXATION

This is similar to the loans under APCA and PGAPA where the compromise settlements were entered into. The value of the loan guarantee by the government would pursuant to paragraph 12(1)(x) of the Income Tax Act be required to be included in income. The benefit could be the difference in rates charged with and without the corporation's guarantee or what the borrower would have to pay a third party to provide a similar guarantee. However, quantifying such a benefit would be difficult, requiring an analysis of the circumstances of each case. Generally, the Department does not attempt to assess a benefit in such circumstances, unless it is clear from the outset that the borrower is not able to repay the loan.

These loans begin as legitimate loans with a bank with the government providing guarantees. The government may be called upon to honour its guarantees - in which case all lender rights are subrogated to the Crown. There is no forgiveness aspect to them - they are still unconditionally repayable until a compromise settlement is reached. Section 80 should apply upon the entering into of compromise settlements. T-SLIP

There is no T-slip required for the loan guarantees or the
compromise settlements for the loans. COMMODITY BASED LOAN ACT ("CBLA")
Loans under the CBLA were new loans at lower interest rates
extended to existing Farm Credit Corporation ("FCC")
borrowers who were experiencing financial difficulties. The
main purpose was to refinance existing FCC mortgages,
including principal and interest. Loans under the CBLA were
issued between 1986 and 1989 and extend into 1999. Loans
under CBLA were offered for a ten year term with payments
based on a twenty-year amortization. During the ten-year
term, the principal is indexed according to variations in
commodity prices. Under the full-indexing option, the
borrower pays an interest rate of six percent and under the
partial-indexing option, the interest rate is six percent
plus half the difference between six percent and the ten-
year lending rate at the time of approval. The mortgage was
registered at an interest rate of two percent above the rate
of interest in effect for ten-year loans at the time of
approval of the loan under the CBLA and reduced to six
percent under a side agreement. Agriculture Canada was to
pay compensation to the FCC equal to the difference between
what the FCC could earn on a regular ten-year mortgage and
what was earned on a CBLA loan.

TAXATION

There will be no income tax consequences to the borrowers from FCC in respect of the compensation paid by Agriculture Canada to FCC. While we cannot discuss tax consequences to a particular taxpayer, compensation paid by the federal government under a program of this nature would generally be income to the recipient.

The income tax treatment of the transactions under this program between FCC and borrowers from FCC was discussed in detail in our letter to the FCC, dated December 10, 1986.

T-SLIP

The compensation paid to the FCC by Agriculture Canada would not be considered farm support payments and T-Slips will not be required. FARM DEBT REVIEW FUND ("FDRF") The FDRF established the mechanism by which farmers faced with financial difficulty or insolvency may have access to an impartial review of their financial situation. The Fund was established in order to allow Agriculture Canada to make contributions to farmers, by means of payment to the FCC, in amounts equal to concessions granted by the FCC pursuant to the FDR Act. The types of assistance that the FCC may provide for which they will be compensated in equal amounts by Agriculture Canada include: (i) postponement of payments to the end of a mortgage contract; (ii) refinancing with other loans; (iii) re-amortization of loans (including arrears); (iv) loans for debt consolidation; (v) leases of up to five years; (vi) debt set asides - defined as stopping future interest accrual on a portion of debt for a period of time; (vii) forgiving interest in arrears; (viii) sale-back of building sites to farmers; (ix) stopping the accrual of interest to allow for a reasonable period of time to sell assets for exiting farmers and; (x) other methods resulting from FDRB hearings.

The Order in Council relating to Agriculture Canada's involvement indicates that Agriculture Canada "was authorized to make contributions to farmers payable to the FCC in order to assist such farmers who are in financial difficulty, in amounts equal to concessions granted to farmers by the FCC under arrangements made pursuant to the FDR Act." The payments are based on a certified listing provided by the FCC showing the amount of the payment to be credited to the account of the eligible farmers. The payments are made for the account of the eligible farmer.

TAXATION

As the Order in Council authorizes Agriculture Canada to make contributions to farmers payable to FCC and Schedule A provides that the payment is made to the FCC for the account of the eligible farmer, it is our view that such payments made by Agriculture Canada would pursuant to paragraph 12(1)(x) of the Act be required to be included in the farmer's income.

Where payments are in respect of the sale-back of building sites to the farmer, the farmer may elect to reduce his capital cost of the building site by the amount of such payment.

Where the payment relates to a write down of a principal amount of a loan and the proceeds of such loan had been used to purchase capital property the farmer can elect to reduce his capital cost of such property.

Where the payment relates to a forgiveness of interest in arrears or the stopping of the accrual of interest there would generally not be any effect on the net income of the farmer in that any income inclusion would be offset by a corresponding interest expense deduction.

T-SLIP

Payments under this program will be considered farm support payments and T-Slips will be required to be issued.

FARM SUPPORT AND ADJUSTMENT MEASURES ("FSAM II")
FSAM II is a group of ad hoc payments for 1) fur, 2) maple
syrup and 3) honey.

Fur - Agriculture Canada paid $4.40 for every fur pelt submitted by a breeder. This amount was paid to the Mink Breeders and Canadian Fox Breeders Associations who in turn submitted the payments to the individual breeders. Payments were paid to the BC Fox Breeders directly.

These payments are farm support payments made by Agriculture Canada to breeders and Agriculture Canada should report the payments on T-Slips made out to the individual breeders.

Maple Syrup - Payments to the maple syrup industry were in three categories:

• a) The industry has a federation which controls the number of producers, the kinds of production, and the grading of maple syrup. Agriculture Canada reimburses this federation for all expenses which it incurs to maintain this control.
• b) This federation holds the inventory of the producers so that the market price will be maintained. Agriculture Canada reimburses the interest paid by the federation on loans incurred to maintain the inventory.
• c) Certain industry members may undertake some marketing activity relating to maple syrup. Agriculture Canada will directly reimburse the members for their costs.

Honey - Agriculture Canada will pay approximately $5 per hive directly to beekeepers in 1992.

TAXATION

Payments under the above FSAM II programs described above will be required to be included in income by the recipients. In the case of reimbursed interest, there would be an off- setting interest expense.

T-SLIPS

These payments are considered farm support payments and T- Slips will be required to be issued.

AGRICULTURE STABILIZATION ACT ("ASA")
The ASA was repealed by the Farm Income Protection Act
("FIPA") effective April 16, 1991. There will be no
payments beyond the FIPA date, however, this may run for
several years until the plan runs down. ASA resulted in
direct payments to producers by Agriculture Canada and it
was paid by application or certification.

TAXATION

These payments would be required to be included in income.

T-SLIPS
These payments would be farm support payments made by
Agriculture Canada to the producers and Agriculture Canada
should report any payments on a T-Slip. AGRICULTURAL PRODUCTS BOARD ACT ("APBA")
APBA is to be repealed and this program will be covered by
the APCMA. The APBA was very vague and allowed Agriculture
Canada to purchase, store and sell agricultural products.
Under APBA commodity organizations would appeal to
Agriculture Canada to assist them by buying excess inventory
in order to maintain market price. In the past Agriculture
Canada had bought inventories of grapes, maple syrup, fur
and canned vegetables. External Affairs and CIDA have used
APBA to assist third world countries. Purchases under APBA
have to be approved through Treasury Board submissions.

TAXATION

Any purchases under APBA would be farm support payments by Agriculture Canada to the commodity organization if they held the inventory or to producers if direct producer purchases were involved.

T-SLIPS

Agriculture Canada should report any payments on a T-Slip to
whomever the payments were made. NATIONAL TRIPARTITE STABILIZATION PROGRAM ("NTSP")
NTSP results from an agreement between Agriculture Canada
and the Provinces for the establishment of a price
stabilization scheme. In the agreement Agriculture Canada
and the Provinces have agreed to reduce the loss of income
to certain producers due to market risks by stabilizing the
price of their product. The basic principles of NTSP are:
producer participation is voluntary; all producers shall
receive the same level of support per unit of production;
the plans should operate at a level that limits losses but
does not stimulate production; comparable levels of support
will be provided in all commodity plans established under
the NTSP; Agriculture Canada, participating provinces and
participating producers equally share the cost of premiums
required to finance the program; NTSP plans should be self-
financing in that the premiums of governments and producers
plus interest should equal the total payments over time; and
all administration costs will be cost shared by Agriculture
Canada and participating provinces. The agreement defines
`premium' basically as the amount of money a producer,
Agriculture Canada and a province pays to participate in a
price stabilization scheme. NTSP will terminate December
31, 1995 unless a new agreement is entered into for its
continuance.

TAXATION

Any payments out of the plan are to be included in the income of the recipient producer and the premium payments made by the producers are deductible.

T-SLIP

The payments out of the plan are considered farm support payments and a T-Slip would be required to be issued. WATERFOWL CROP DAMAGE COMPENSATION PROGRAM ("WCDCP") WCDCP is cost shared between Agriculture Canada and the Provinces in the three Prairie provinces. The aim is to provide producers with compensation for damage caused by migratory waterfowl (ducks, geese, or sand hill cranes). Compensation is payable upon application of up to 80% of the amount of the loss.

TAXATION

The payment would be required to be included in income by each participant producer.

T-SLIP

These payments would be farm support payments made by Agriculture Canada and the Provinces to be reported on a T- Slip for each recipient producer.

CROP INSURANCE PROGRAM ("CI")
CI is cost shared between producers (50%), Agriculture
Canada (25%) and the Provinces (25%) and the administration
costs are borne 50-50 by Agriculture Canada and the
Provinces. The aim is to provide producers with crop loss
protection in the form of a production guarantee. A
producer may receive both CI and GRIP payments but there is
an interrelation between the two in that GRIP basically
covers items in excess of CI. Provincial Crop Insurance
Corporations administer CI.

TAXATION

Payments from CI received by producers are insurance proceeds which should be reported as income. Any premium payments made by the producers would be deductible when paid. Premium payments made by either Agriculture Canada or by a Province may be ignored, as there would in any case be a an off-setting deduction available to the producer.

T-SLIP

The CI payments are considered farm support payments and a T-Slip will be required. GROSS REVENUE INSURANCE PLAN ("GRIP")

GRIP premiums will be shared between producers (33 1/3%), Agriculture Canada (41 2/3%), and the Provinces (25%). The administration costs are borne 50-50 by Agriculture Canada and the Provinces. A producer may receive both CI and GRIP but there is an interrelation between the two. The aim of GRIP is to provide producers with revenue protection by offering both price support and yield protection. To participate in the plan a producer must agree to repay all overdue monetary amounts under other certain Government programs. Commodities covered by the NTSP are excluded from GRIP unless the NTSP agreement is amended to offer protection similar to that offered under GRIP. The GRIP agreement refers to the producers, Agriculture Canada and the Provinces paying `their share of the premiums'.

TAXATION

Payments from GRIP received by producers are insurance proceeds which pursuant to paragraph 12(1)(p) of the Act are required to be reported as income. Any premium payments made by the producers will pursuant to paragraph 20(1)(ff) of the Act be deductible in computing income. Premium payments made by either Agriculture Canada or by a Province may be ignored, as there would in any case be a an off- setting deduction available to the producer.

T-SLIP

The payments from GRIP are considered farm support payments
and a T-Slip will be required. NET INCOME STABILIZATION ACCOUNT ("NISA") PROGRAM
NISA was established to provide financial assistance to
individual agricultural producers to stabilize their net
income.

Participants in NISA will have individual accounts. Each NISA account will have two components:

Fund No. 1 will contain the participants deposits. It is proposed that the deposits will reside in an eligible financial institution of the participants choosing.

Fund No. 2 will contain federal and provincial government matching contributions and all the interest earned on both producer and government contributions. This component will reside in the Consolidated Revenue Fund of the Government of Canada.

Withdrawals will be taken first from Fund No. 2 of an account and the balance of the entitlement will be drawn from Fund No. 1. TAXATION

New proposed subsection 12(10.2) of the Act provides that withdrawals from Fund No. 2 will be included in computing the taxpayers income from property for a taxation year.

New proposed subsection 12(10.3) of the Act provides that a taxpayer will not be considered to have received an amount of income by reason only of the crediting or adding of an amount (e.g., interest or contribution) to the taxpayers NISA Fund No. 2.

T-SLIPS

New proposed Regulation 201(1)(e) will require the
administrator of Fund No. 2 to issue T-Slips. FARM SUPPORT AND ADJUSTMENT MEASURES ("FSAM II")
ONTARIO AND BRITISH COLUMBIA OIL SEEDS COMPONENT
The purpose of this program is to provide financial
assistance to eligible crop producers in Ontario and British
Colombia where successive years of poor returns have
resulted in financial hardship. To be eligible, a producer
must be a participant in the NISA program and must meet all
eligibility criteria of the program. The payments are based
on net sales of qualifying grains, oilseeds and special
crops. An initial payment will be made to eligible
producers upon receipt of the application form. A second
instalment, subject to availability of funds, may be made
when qualifying sales are known.

TAXATION

The payments received by the producers would be required to be included in income.

T-SLIPS

The payments would be considered farm support payments and T-SLIPS will be required to be issued to the producers. PRAIRIE GRAINS AND OILSEEDS COMPONENT - FSAM II The purpose of this program is to provide financial assistance to eligible producers in Manitoba, Saskatchewan and Alberta where successive years of poor agricultural returns have resulted in financial hardship. To be eligible producers must submit an application form that is subsequently validated by the FSAM II administration and must meet all eligibility criteria of the program. With a few exceptions, crops planted with the intent to harvest as grains or oilseeds are eligible for assistance. In addition, with few exceptions, perennial tame forages and summer fallow are also eligible for assistance, but at a reduced rate. There will be a first and a final instalment payment. TAXATION

The payments received by the producers would be required to be included in income.

T-SLIPS

The payments would be considered to be farm support payments
and T-SLIPS will be required to be issued. ATLANTIC GRAINS AND OILSEEDS COMPONENT - FSAM II
The purpose of this program is to provide financial
assistance to eligible crop producers in New Brunswick, Nova
Scotia and Prince Edward Island where successive years of
poor returns have resulted in financial hardship. To be
eligible, an applicant must be the owner-operator or tenant-
operator who was responsible for their day-to-day farm
operation as of July 31, 1990. The Nova Scotia Grain
Marketing Board to a limited extent may be eligible. Cereal
and oilseeds crops planted with the intent to harvest for
grain in 1990 are eligible for assistance. As well,
miscellaneous crops, as defined in the terms and condition
of the program, that were planted with the intent to harvest
for grain in 1990 are eligible for assistance. There will
be an initial payment on receipt of the application and a
second payment, subject to availability of funds, may be
made when total acreage eligible for assistance can be
estimated. A payment of up to $46,000 may be made to the
Nova Scotia Grain Marketing Board in recognition of an
amount advanced to producers in the 1990-91 crop year.

TAXATION

The payments received by the producers would be required to be included in income.

T-SLIPS

The payments would be considered farm support payments and
T-SLIPS would be required to be issued. CANADIAN DAIRY COMMISSION
A target price is set for industrial milk at a level
intended to provide efficient milk producers with a return
which will cover their labour, investment and cash costs
related to the production of industrial milk. The federal
government supports the target price for industrial milk in
the marketplace through two programs of the Canadian Dairy
Commission:

• • DIRECT PAYMENTS TO MILK PRODUCERS

Producers receive direct payments from the government on deliveries of industrial milk and cream produced to meet domestic requirements. These payments are part of the target price. The direct payment is $1.675 per kilogram of butterfat or $6.03 per hectolitre of milk with a butterfat content of 3.6 kilograms.

• • SUPPORT PRICES FOR BUTTER AND SKIM MILK POWDER

The Commission offers to purchase products at support prices and this provides a mechanism whereby producers can achieve the target price for their milk.

TAXATION

Any purchase by the Commission of any milk products would be included in the producers farming income along with his other sales. Direct payments received by the producers would be required to be included in income.

T-SLIPS

The direct payments would be considered farm support
payments and T-SLIPS would be required to be issued to the
producers. No T-SLIPS would be required in respect of any
purchase by the Commission of milk products. CANADIAN RURAL TRANSITION PLAN
The objective is to assist farm families, who have lost or
are about to lose their farm business because of financial
failure to adjust to alternative employment. This program
is delivered on behalf of Agriculture Canada by Employment &
Immigration Canada ("E&IC") .

TAXATION

Amounts received under this program as a "Wage Reimbursement Contribution" or a "Self-Employment Grant" would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income for the year of the recipient. However, there is no requirement in the Income Tax Act which would require the inclusion in income of amounts received under this program which are "Transition Grants" or "Relocation and Exploratory Assistance Contributions" or "Purchase of Training Contributions and Training Allowances.

T-SLIPS

These are not farm support payments. Any T-Slips that may be
required pursuant to the Income Tax Regulations would be the
responsibility of E&IC. SPECIALIZED COUNSELLING ASSISTANCE GRANT PROGRAM
This program provides assistance to farmers in financial
difficulty, who have applied under the Farm Debt Review Act
and who, in the opinion of the Board, have some prospect of
reaching an alternative financial arrangement with
creditors. Special Counselling can consist of: (a)
financial/tax/legal counselling and, (b) diagnostic and
personal counselling.
TAXATION

Amounts received under this program would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income for the year of the recipient.

T-SLIPS

Payments in respect of counselling are considered farm
support payments and T-SLIPS will be required to be issued. FSAM II - HORTICULTURE COMPONENT
INCOME ASSISTANCE

This program provides financial assistance to producers of eligible horticultural crops in Canada where successive years of poor returns have led to financial hardship.

DEVELOPMENT ASSISTANCE

This program provides financial assistance to initiatives which contribute to the improvement, advancement and competitiveness of the Canadian horticulture industry.

TAXATION

Both the Income and Development Assistance payments will be required to be included in the recipients income for the year.

T-SLIPS

The payments will be considered farm support payments and T-
SLIPS will be required to be issued for both Income and
Development Assistance payments. SOUTHWESTERN ONTARIO SOIL AND WATER QUALITY
ENHANCEMENT PROGRAM
This involves one payment of $175,000 a year to Guelph
University. The program ends this year.

TAXATION

Guelph University would be required to include the payment in computing income for the year.

T-SLIPS

The payment would not be considered a farm support payment
and a T-Slip would not be required. CANADIAN AGRI-FOOD DEVELOPMENT INITIATIVE ("CAFDI")
The purpose of this initiative is to facilitate economic
development in the Canadian agricultural and food products
industry through the provision of financial assistance for
selected production, market and human resource development
activities. The program elements are: (a) market
development, (b) production development, (c) human resource
development, (d) livestock performance data collection and,
(e) fairs and exhibitions program.

Eligible costs may include but are not limited to: (a) costs for contracted goods and services, (b) costs for acquiring materials and supplies, (c) costs for incremental labour or incremental salaried services, and related employment costs, (d) costs for rental or lease of facilities equipment or machinery, (e) administration and other costs, up to a maximum of 25% of total eligible project costs, to include such items as accounting, auditing, travel, maintenance expenses, etc., (f) capital projects as described in the fairs and exhibitions program.

TAXATION

Payments that are reimbursements or offsets for costs and expenses other than capital costs and expenditures are includable in income as business income. Capital project payments would offset or reduce the adjusted cost base of capital assets acquired or constructed.

T-SLIPS

As the description of eligible costs refers to costs and
capital cost the payments would generally be considered to
be farm support payments if made in respect of a farm
business and T-SLIPS would be required. As the documents
provided to us list approximately 110 projects we were
unable to analysis and review them all in detail, however,
it appears that many of these payments are made in respect
of businesses which are farm related rather than in respect
of farming. Where a detailed review of a specific program
indicates a payment is not a farm support payment no T-SLIP
would be required for such payment. ECONOMIC AND REGIONAL DEVELOPMENT AGREEMENTS
The objectives of these programs are to provide financial
assistance to promote economic and regional development in
Quebec, Newfoundland, Prince Edward Island, Nova Scotia and
New Brunswick.

TAXATION

The payments would pursuant to paragraph 12(1)(x) of the Act be required to be included in income by the recipient.

T-SLIPS

The payments will, when made with respect to a farming
business, be considered farm support payments and T-Slips
will be required to be issued. ATLANTIC LIVESTOCK FEED DEVELOPMENT
The objectives of this program are to increase the quality
and quantity of livestock feed produced in the Atlantic
Region so that the Atlantic provinces are self sufficient in
livestock feed.

TAXATION

Payments under this program would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient.

T-SLIPS

The payments will be considered farm support payments and T-
Slips will be required to be issued. NATIONAL SOIL CONSERVATION PROGRAM
The objective of the program is to promote the best use of
the soil resource, within practical economic limits and
according to its capabilities, in order to sustain its
productivity and thereby support the growth, stability and
competitiveness of the agri-food sector, and also promote,
where applicable economic diversification in Western Canada.

TAXATION

Payments under this program could pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient. However, it appears that in most cases, the recipient could elect to reduce the capital cost of land (i.e., a reduction to capital outlays otherwise incurred with respect to land).

T-SLIPS

The payments will be considered farm support payments and T-
Slips will be required to be issued. ADJUSTMENT MEASURES FOR HORTICULTURE ("AMH")
The purpose is to establish criteria for payments to
provinces and industry under the AMH. Assistance will be
targeted to initiatives of provinces and industry for the
restructuring and/or development of the horticultural
sector. The recipients may be provinces and/or organizations
such as the Okanagan Valley Tree Fruit Authority.

TAXATION

Payments under this program would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient. However, Her Majesty in the right of a province is not taxable under the Income Tax Act and other recipients may be non-profit organizations which would also not be taxable.

T-SLIPS

The payments will be considered farm support payments and T-
Slips will be required to be issued. T-Slips need not be
issued to a provincial government. ONTARIO WINE GRAPE PRICE SUPPORT PROGRAM
The objective of this program is to help support the incomes
of growers who sell grapes to wineries while the industry
adjusts towards market prices.

WINE MARKET DEVELOPMENT PROGRAM

The objective is to assist in the expansion of markets for Ontario wine.

GRAPE QUALITY AND PRODUCTIVITY ENHANCEMENT
PROGRAM

The objective is to encourage applied research, testing and data collection that will enhance the productivity and efficiency of Ontario grape producers.

ONTARIO GRAPE SURPLUS PURCHASE PROGRAM

The objective is to provide for the purchase and resale by the Agricultural Products Board of surplus Ontario grapes in crop years 1988, 1989 and 1990.

TAXATION

Payments under the Ontario wine grape price support program and the Ontario grape surplus purchase program are includable in income as business income. Payments received under the other two programs would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient.

T-SLIPS

The payments under the above wine and grape programs will be
considered farm support payments and T-Slips will be
required to be issued. LAND MANAGEMENT ASSISTANCE PROGRAM ("LMAP")
The purpose of LMAP is to promote improved use and
management of land, soil and related water resources, in
order to sustain the productivity of the natural resource
base while protecting the environment, and thereby enhance
the long-term productivity, competitiveness, self-reliance
and environmental sustainability of Canadian agriculture.

LMAP will emphasize provision of financial assistance for on-farm soil and related water conservation projects and land resource use adjustments. Financial assistance will be provided in the form of grants, contributions, low-interest loans or per-acre payments to farmers to encourage adoption of improved production practices and to simulate investments in conservation machinery, equipment, or land improvements (including terraces and diversion embankments but not land clearing).

TAXATION

The grants, contributions and per-acre payments would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient. There will be no tax consequences respecting the low-interest loans.

T-SLIPS

The grants, contributions and per-acre payments would be
considered farm support payments and T-Slips will be
required to be issued. GREEN PLAN - AGRICULTURE COMPONENT ("GPAC")
The purpose of GPAC is to maintain and enhance the natural
resources that the agri-food sector uses or affects while
ensuring environmental economic and social integration
through research, development, technology transfer and
programming. Under the GPAC the agri-food sector will be
encouraged to adopt effective environmentally sustainable
agricultural practices to address problems related to
agricultural soil resources, surface water and ground water
quality, water quantity, wildlife habitat, air and climate,
energy, pollution and waste management and genetic
resources. This will be accomplished through research,
human resource development programs (including awareness and
education) the provision of technical and financial
assistance for demonstration, on-farm projects and land
resource use adjustments.

Individuals, groups of farmers, legally incorporated special interest groups, farm and agri-food organizations, conservation districts, universities, colleges, cooperatives, environmental groups, aboriginal groups, other provincial and municipal governments or agencies of those governments, provincial crown corporations and financial institutions will be eligible for contributions to support activities and administration related to the intent of GPAC.

Costs eligible for financial assistance include all costs that in the opinion of the appropriate management authority, were properly incurred in the carrying out of a project and may include administration costs related to delivery of Green Plan activities by third parties.

TAXATION

In the limited situations where financial contributions are received by the participants in the course of earning income from a business or property such payments would be required to be included in income pursuant to paragraph 12(1)(x) of the Act.

T-SLIPS

Those contributions which relate to all or a portion of the
cost or capital cost incurred in respect of farming would be
considered farm support payments and T-Slips would be
required to be issued in respect of such payments. WORLD FOOD DAY ASSOCIATION OF CANADA -
CONTRIBUTION
One cheque of $16,000 a year is issued to offset the
Association's costs.

TAXATION

To the extent the Association reduces it costs or expenses no amount will be required to by included in its income.

T-SLIPS

This is not a farm support payment and T-Slips will not be
required. ATLANTIC HOG CASH FLOW ASSISTANCE PROGRAM
The objective of the program is: (a) to provide short term
cash flow assistance to Atlantic hog producers to relieve
financial stress caused by low market returns, and (b) to
assist the Atlantic meat industry to enhance its competitive
position.

The assistance is in the form of one repayable contribution of up to $10.00 per eligible hog marketed during the 1991 calendar year, which will be paid to each of four provincial organizations for direct distribution to eligible producers. The maximum amount paid to producers is not to exceed $10.00 per slaughter hog. The amounts paid to the producers are repayable. However, if certain conditions subsequent are met they may be forgiven.

In addition, administration costs to a total of $65,000 will be paid to the marketing boards to cover the administration costs of delivering the Atlantic Hog Cash Flow Assistance Program.

TAXATION

There will be no tax consequences when the payments are made to the producers. However, section 80 will apply when any amount is forgiven. Note, it is the Department's general position that where the conditions for repayment of a government loan are so remote that forgiveness of the debt is the usual result, the amount should pursuant to paragraph 12(1)(x) of the Act be included in income, as a forgivable loan even where the loan is not formally described as a forgivable loan.

T-SLIPS

T-Slips will not be required in respect of these payments. CANADA-ALBERTA AGRI-FOOD PROCESSING AGREEMENT The objectives of this agreement is to encourage capital investment which will be used to process agricultural and food products and lead to diversification in all regions of the Alberta economy, in particular to: (a) encourage production of value-added products and services which build on Albert's natural advantage in agricultural commodity production, and (b) encourage and facilitate strategic partnerships between Alberta based processors and private investors which will lead to improved access to national and international markets and reduce imports of processed agricultural products and services.

There will be two programs:

CAPITAL DEVELOPMENT ADVANCES

These are repayable contributions to eligible recipients for eligible projects, shared equally by Canada and Alberta and designed to encourage new capital investment in the computing-food industry. Repayment will generally be expected to begin after 3 years, with full repayment within 10 years. The repayment period will not normally exceed the expected life of the financed assets. Repayment periods up to fifteen years may be approved in exceptional cases. Capital Development Advances will be provided with an interest-free period of up to ten years at the discretion of a Management Committee.

SUPPORT for STRATEGIC PARTNERSHIPS

Equally cost-shared federal and provincial funds will be available to encourage the development of strategic partnerships between Alberta based processors and equity investors who provide access to national or international markets. Federal funding will take the form of a repayable Development Advance to eligible recipients for eligible projects while provincial funding will take the form of a matching Participating Advance. Participating Advances may take the form of common or preferred shares, or subordinated debt. Terms will be negotiated in each case between all of the investors in the project.

TAXATION

There will be no tax consequences respecting the repayable Development Advance, the Participating Advances or the repayable Capital Development Advances.

T-SLIPS

The above advances would not be considered farm support
payments and no T-Slips would be required to be issued. NATIONAL FARM BUSINESS MANAGEMENT PROGRAM
("NFBMP")
The objective is to upgrade the farm business management
skills of Canada's farm families leading to an enhanced
ability to compete more effectively in domestic and
international markets and improve the financial viability of
farm operations. The objective is to be achieved through a
combination of activities including: (a) the training of
family farm members to improve their farm business
management skills, (b) the development of superior delivery
systems and processes relating to farm business management
training and services and the augmentation of knowledge and
information in the area of farm business management.

Eligible recipients may be organizations, companies and individuals that can deliver and/or coordinate delivery of parts of the program including: farm organizations, corporations, co-operatives, universities, colleges, agricultural societies and clubs, computing-business organizations, partnerships companies and individuals, provincial governments or agencies of the federal government.

Costs incurred in carrying out approved eligible activities are eligible for financial support. Financial support can be up to 100% of eligible project costs. Federal allocations to provincial activities will be matched by provinces on a 50-50 basis.

TAXATION

The payments will pursuant to paragraph 12(1)(x) of the Act be required to be included in income.

T-SLIPS

The payments would generally not be considered farm support
payments as it appears the recipients would be receiving the
payment in respect of the business of training farmers,
rather than the business of farming. PLANT QUARANTINE
The purpose of this program is to compensate persons
suffering financial losses as a result of crops affected by
tobacco veinal necrosis strain of potato virus Y ("PVYn").

Eligible claims would include those where Agriculture Canada inspectors have issued a declaration requiring the disposition of products infested with PVYn.

TAXATION

Payments received under this program would be required to be included in income.

T-SLIPS

Payments received under this program would be considered
farm support payments and T-Slips would be required to be
issued. RABIES PROGRAM
At present only the provinces of Quebec, Ontario, New
Brunswick and Manitoba participate in this program. The
provinces compensate the producers. The government of
Canada in turn reimburses the province for two-fifths of the
compensation paid.

TAXATION

The compensation paid would be required to be included in income.

Subsection 80.3(2) of the Act permits a taxpayer, who has included an amount in income in the year in respect of the forced destruction of livestock under statutory authority, to deduct in computing income for the year an amount not exceeding the amount included in income. Such amount deducted must pursuant to subsection 80.3(3) of the Act be included in income in the next year. For example if a producer is required under the Health of Animals Act to destroy certain farm animals and receives compensation of say $1,000.00, the producer would include the $1,000.00 in computing income for the year. However, the producer would then be permitted in computing income for that year to deduct any amount he chooses between $1.00 and $1,000.00. The amount deducted must then be included in computing income for the following year. These comments will also apply to the Anthrax program and the Compensation for Animals Slaughtered program.

T-SLIPS

These compensation payments would be considered farm support
payments and T-Slips would be required to be issued by the
provinces. COMPENSATION FOR ANIMALS SLAUGHTERED
The objective of this program is the eradication of
tuberculosis, brucellosis and equine infectious anemia
(swamp fever).

Compensation received is valued at approximately 95% of market value.

TAXATION

Payments received under this program would be required to be included in income.

Please refer to our comments regarding income deferral under the heading "Rabies Program".

T-SLIPS

Payments under this program would be considered farm support
payments and T-Slips would be required to be issued. ANTHRAX
Animals with Anthrax must be destroyed and disposed of on
the owners property. The compensation, which varies for each
animal, is outlined in the Health of Animals Regulations.

TAXATION

The compensation paid would be required to be included in income. Please refer to our comments regarding income deferral under the heading "Rabies Program".

T-SLIPS

The compensation would be considered farm support payments
and T-Slips would be required to be issued. PERMANENT COVER PROGRAM II
The program was designed to reduce soil deterioration on
high risk lands presently under annual cultivation. The
program is directed at lands where annual cultivation is
causing long-term soil damage and where special farming
practices cannot reduce the ongoing deterioration.
Financial assistance is provided under the program to
convert lands to permanent cover by planting perennial
forages for hay or pastures (or trees for wildlife). The
applicants enter into long-term (10 or 21 year) land use
contracts to ensure that the conversion is long lasting.

TAXATION

Payments under this program would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient.

T-SLIPS

The payments will be considered farm support payments and T-
Slips will be required to be issued. RURAL WATER DEVELOPMENT PROGRAM
The objective of the program is to encourage a standard for
water development projects on the prairies which will lessen
the vulnerability to drought. Payments will be based on the
cost of dams, wells, dugouts, pipelines and irrigation
projects. Recipients will be municipalities, legally
associated groups of farmers or ranchers, Indian Bands and
individual farmers and ranchers.

TAXATION

Payments under this program would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient.

T-SLIPS

The payments will be considered farm support payments and T-
Slips will be required to be issued. PARTNERSHIP AGREEMENT ON MUNICIPAL WATER
INFRASTRUCTURE
This is a joint Canada/Manitoba initiative to improve water
and waste water infrastructure in selected rural Manitoba
communities. The objectives of the program are to encourage
the sustainable development and economic diversification of
the rural economy, to improve the quality of life and
preserve the health of residents in the communities and to
protect the environment by ensuring the economic development
is environmentally sustainable.

Payments will be made to municipalities based on the cost of water infrastructure development.

TAXATION

These payments to the municipalities are not taxable. Paragraph 12(1)(x) of the Act applies only to amounts received in the course of earning income from a business or property. Canadian Municipalities are exempt from tax under the Income Tax Act.

T-SLIPS

These payments are not considered farm support payments and
T-Slips will not be required. SASKATCHEWAN IRRIGATION BASED ECONOMIC
DEVELOPMENT
This objective of this Canada/Saskatchewan (50/50) program
is the implementation of a comprehensive economic
development program based on irrigation and related
research, demonstration, production, marketing and
processing. It comprises:

(a) development of new water supply projects
implemented by Sask Water,
(b) economic development and support activities related
to irrigation implemented by Sask Water, and
(c) irrigation systems improvements in S.W.
Saskatchewan implemented by PFRA.

Payments will be based on the cost of various types of projects including irrigation related studies, evaluations and capital works.

The recipient will be the Saskatchewan Water Corporation

TAXATION

Payments under this program would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient.

T-SLIPS

These payments would not be considered farm support payments
and T-Slips would not be required. PARTNERSHIP AGREEMENT ON WATER-BASED ECONOMIC
DEVELOPMENT
The objective of this Federal - Provincial agreement is to
assist in the release of water-related constraints in order
to facilitate diversification of Saskatchewan's agricultural
sector on a regional basis and optimize associated economic
development opportunities.

Payments will be based on the cost of water-related research, studies and demonstration activities, economic development projects and water-related capital works.

Recipients will be the Saskatchewan Water Corporation, municipalities, special interest groups, farmers, businesses, educational institutions, cooperatives and provincial crown corporation and agencies.

TAXATION

Payments under this program would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient.

T-SLIPS

These payments would not be considered farm support payments
and T-Slips would not be required. PARTNERSHIP AGREEMENT ON RURAL DEVELOPMENT
The objective of this Canada/Saskatchewan program is
economic sustainability and development to revitalize rural
Saskatchewan through four agreement programs:

(a) project planning assistance for sustainable rural
development projects,
(b) human resource development assistance to increase
entrepreneurial skills,
(c) marketing activity assistance, and
(d) assisting in the development of strategic/systemic
initiatives.

Payments will be based on the cost of development project planning, human resource development, market development strategic/systemic studies and initiatives.

Recipients will be various boards, committees, associations, groups, educational institutions, businesses, corporations, cooperatives, individuals and provincial departments, corporations and agencies.

TAXATION

Payments under this program would pursuant to paragraph 12(1)(x) of the Act be required to be included in the income of the recipient.

T-SLIPS

These payments would not be considered farm support payments
and T-Slips would not be required. FEED FREIGHT ASSISTANCE
This program subsidizes a portion of the transportation
costs for the movement of Canadian feed grains used by
livestock feeders in many parts of Eastern Canada, British
Columbia, Yukon and Northwest Territories.

The payment is made either to the feed manufacturer who conveys it to the respective livestock producer(s) or where the livestock producer manufactures the feed himself, payment is made directly to the livestock producer.

TAXATION

The payments would be required to be included in the recipient's income. To the extent the feed manufacturer passes on the subsidy payments to the livestock producers there would not be any tax consequences in so far as the feed manufacturer is concerned.

T-SLIPS

The payments received by livestock producers would be
considered farm support payments and T-Slips would be
required to be issued. RESEARCH BRANCH

• • One payment of $990,000 is made annually to the National Sciences and Engineering Council (the "NSEC"). The NSEC distributes research funds to qualified research organizations such as universities and scientific organizations.
• • Research Branch transfers funds to Pest Management Office, which in turn awards research grants to organizations who qualify under the terms and conditions of the Green Plan.

TAXATION

Where the amount of the research grant exceeds the expenses incurred to carry out the research such excess must pursuant to paragraph 56(1)(o) of the Act be included in income.

T-SLIPS

The research grants are not considered farm support payments. However, current Regulation 200(2)(b) requires the NSEC and the Pest Management Office to issue T4A-Slips with respect to such research grants.

• • A payment is made which represents the Government of Canada's membership dues in the Commonwealth Agriculture Bureau International.

TAXATION

This payment is not taxable.

T-SLIPS

The payment is not considered a farm support payment and T- Slips will not be required.