2 July 1997 External T.I. 9714745 - MANITOBA RED RIVER FLOOD - CROP RESTORATION 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.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

1. The tax treatment of payments to be made to farmers under the Crop Restoration Program of the Red River Valley Jobs and Economic Restoration Initiative.

2. Will T-Slips (i.e., AGR-1 Slips) be required to be issued in respect of the above-noted payments?

Position TAKEN:

1. This assistance would be included in computing the recipient's farming business income.

2. Yes.

Reasons FOR POSITION TAKEN:

1. This assistance is in respect of current expenses of a farming business, i.e., seeding expenses. This assistance would be included in income by virtue of section 9 (and GAAP) and, if so elected, section 28. Alternatively, such assistance is within the purview of paragraph 12(1)(x). It should also be noted, however, that this treatment will generally preserve the revenue neutrality of the business recipient's position, since the seeding expenses, for which the assistance is received, will be deductible in computing the recipient's business income.

2. These payments represent farm support payments as defined in subsection 234(2) of the Regulations.

Agriculture and Agri-Food Canada
Corporate Services Branch
Financial Operations and Policy		5-971474
Room 887, Sir John Carling Building	M. Azzi
930 Carling Avenue
Ottawa, Ontario
K1A 0C5

Attention: Jennifer Bryant, CA

July 2, 1997

Dear Madam:

Re: Red River Valley Jobs and Economic Restoration Initiative - Crop Restoration Program

This is in reply to your letter of May 27, 1997, wherein you requested our views on the tax treatment of payments to be made to farmers under the Crop Restoration Program (the "CRP") of the Red River Valley Jobs and Economic Restoration Initiative (the "Initiative"). You also enquire as to whether reporting on AGR-1 slips will be required in respect of such payments.

We understand that the objective of the Initiative is to restore economic activity in the Red River Valley to pre-flood levels and to prevent permanent job loss in the areas affected by the 1997 flooding. The CRP, a component of the Initiative, is intended to provide farmers in the Red River Valley with immediate assistance to ensure that the maximum acreage of crop is seeded in 1997. Under the CRP, assistance to farmers will be paid on a per acre basis for crop seeding and the amount will vary depending on when the land is seeded (the assistance will vary from $10 to $60/acre seeded, and no assistance will be provided for land seeded after August 15, 1997).

Application under the CRP will be based on self-assessment by the farmers, who must document the impacts of the flood. The program administration may verify an applicant's declaration as appropriate. In addition, Agriculture and Agri-Food Canada retains the right to audit the records of a recipient at any time during the life of the CRP (and for this purpose the program will remain in effect until March 31, 1999), and to recover any amounts paid to the recipient in excess of those authorized under the terms and conditions of the program.

Our Comments

As indicated in your letter, when victims of a disaster receive payments from governments for personal losses, they do not normally have to include these payments in their income for income tax purposes. However, assistance paid to businesses, including self-employed individuals and farmers, to the extent it represents compensation with respect to an outlay, expense or cost incurred in respect of the business as a result of the disaster, will generally either be included in the recipient's business income or treated as proceeds of disposition of business property, depending on whether the assistance was in respect of a current or capital expenditure of the business.

As the above-described assistance under the CRP will be in respect of current expenses of a farming business, i.e., seeding expenses, it is our view that such assistance must be included in computing the recipient's farming business income. It should also be noted, however, that this treatment will generally preserve the revenue neutrality of the business recipient's position, since the seeding expenses, for which the assistance is received, will be deductible in computing the recipient's business income. The assistance will be included in the calculation of the profit or loss from a business under section 9 of the Income Tax Act (the "Act") and, if the taxpayer so elects, section 28 of the Act. In any event, to the extent such assistance was for any reason not otherwise included in computing a taxpayer's income, the provisions of paragraph 12(1)(x) of the Act will apply to include, in this computation, such amounts received by the taxpayer in the course of earning income from a business.

Furthermore, in our view, the above-described amounts which will be paid to farmers under the CRP will represent farm support payments as defined in subsection 234(2) of the Income Tax Regulations. Accordingly, it will be necessary to report these amounts on AGR-1 slips.

We trust that these comments will be of assistance.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

c.c Mr. B. Cook, Director

Winnipeg Tax Services

Mr. W. Reich, Director

Winnipeg Tax Centre

Mr. B. Desormeaux, Client Services

Ms. C. Pérusse, Communications