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CCA Report: Tax and NAFTA

From the November 2017 issue of Canadian Cattlemen

It has been a busy and productive month for the Canadian Cattlemen’s Association (CCA). Tax policy has been one of the top domestic policy issues for the CCA since the Government of Canada’s mid-summer announcement. We welcomed the government’s revisions to the tax change proposal announced in October, as their original plan had the potential to have a negative impact on family farms.

The CCA had earlier submitted written comments to the Department of Finance that reflected our concerns about the proposed changes to three specific areas of tax planning: income sprinkling, holding passive investments inside a private corporation, and converting income into capital gains. CCA’s submission was informed by an analysis conducted by agriculture tax experts at Meyers Norris Penny (MNP) on the impact of the proposed changes, if implemented, on beef cattle operations in Canada.

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Closeup of the flags of the North American Free Trade Agreement NAFTA members on textile texture. NAFTA is the world's largest trade bloc and the member countries are Canada, United States and Mexico. 3D rendering with detailed textured grunge effect on closeup.
Closeup of the flags of the North American Free Trade Agreement NAFTA members on textile texture. NAFTA is the world's largest trade bloc and the member countries are Canada, United States and Mexico. 3D rendering with detailed textured grunge effect on closeup.

The government has since decided that it will not implement changes to rules concerning lifetime capital gains exemption and will work with farmers to ensure farm succession can take place. The CCA appreciates that the government heard our concerns and acted on them by not moving forward with this aspect of the proposal. We are eager to continue our work with the government to ensure that farms can be passed down to the next generation.

Starting January 2018, the income sprinkling proposal will move forward but it will be “simplified” from the original proposal, ensuring that a family member who contributes to the company will not be affected. The CCA is encouraged by this move and we look forward to reviewing the technical changes to the proposal.

We will continue to monitor additional announcements on the revised tax proposal and analyze any technical changes that are made to the original proposal to ensure that any shortcomings in tax policy are addressed without unfairly targeting independent businesses such as incorporated farms and ranches.

The announcement was part of the news delivered by Prime Minister Justin Trudeau that the government intends to lower the small business tax rate to 10 per cent, effective January 1, 2018, and to nine per cent, effective January 1, 2019.

Agriculture was the focal point of the fourth round of the North American Free Trade Agreement (NAFTA) negotiations in Arlington, Virginia, near Washington, D.C. Despite some overall frustrations over a lack of concrete and viable proposals from the U.S. overshadowing the increasingly tenuous talks, Prime Minister Trudeau remained focused on modernizing NAFTA.

Canada tabled a proposal on our meat issues. The CCA’s priorities for the beef sector include continued duty-free access for the beef trade, maintaining dispute settlement mechanisms, both within NAFTA (Chapters 19 and 20) and external dispute settlement tools at the World Trade Organization, and improved bilateral cattle and beef trade through greater regulatory co-operation.

However, as anticipated, the U.S. tabled several proposals that are unacceptable. These include making Chapter 11 (dispute settlement mechanism) voluntary and allowing countries to opt out, eliminating the Chapter 19 panels that examine anti-dumping and countervailing duty cases, and making Chapter 20 dispute settlement panels an advisory body with non-binding recommendations.

There remains the constant threat of the U.S. withdrawing from NAFTA. Should that process be started, the agreement requires the U.S. (or any of the signatories) to provide six months’ notice that it wishes to do so. Talks continue under the uncertainty of these issues and the entire tone is more somber. Still, Canada and Mexico are staying at the table and will continue to negotiate.

The CCA’s representation at each of the NAFTA rounds supports the Government of Canada’s negotiations in the agriculture sector. The CCA continues to ensure that the interests of Canadian beef producers are well represented throughout the process.

In early October, an amendment to the export certificate requirement that live cattle exported to the U.S. must be born after March 1, 1999, came into effect. This change reflects CCA’s position that this strict certification requirement is no longer necessary given the number of cattle born prior to March 1999 has dwindled to virtually none. Recently, the CCA presented statistical analysis to U.S. Department of Agriculture (USDA) and Canadian Food Inspection Agency regulators indicating that there would no longer be any dairy or commercial beef cattle born prior to March 1999 in Canadian herds as of 2017, and fewer than 20 head of purebred cattle, with the latter expected to be gone by 2020.

USDA’s Animal and Plant Health Inspection Service agreed that individual ages of animals destined for immediate slaughter in the U.S. will no longer be required to be indicated on the export certificate. While it remains a requirement that the cattle be born after March 1, 1999, the export certificate will no longer have to state the age of the cattle. Certification is to be based on the professional judgement of the accredited veterinarians who examine the animals and various records prior to export.

The CCA is eager to hear producers’ feedback on whether the amended export document requirement has resulted in an improvement in the obtaining certification for live cattle exports. The revised requirement should resolve a related impact: the depressed prices many producers selling cull cows have experienced in recent years. In instances where producers could not document the age of cattle, even animals born after the March 1999 requirement could not be certified as such, and were devalued in the market.

Until next time.

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