Originally published on June 13, 2002


I recently asked a rancher how he, his pasture and his herd were coping with the drought.  He said that while they were all in tough shape, his pasture was taking the worst of it.

He thought that his native grass pasture, while being resilient to drought, was probably over-grazed the year before, which was also a drought year.  Over-grazing this year is not an option.

Feed is too expensive.  The latest price he was quoted for high moisture timothy hay was about $185 per tonne.

This rancher has decided, although reluctantly, to sell part of his breeding herd.  Since he is in a prescribed drought area, he may be eligible to defer tax on a portion of the sale proceeds to the following year.

Section 80.3 of the Income Tax Act provides a deduction that will be included in the rancher's income for the following taxation year, resulting in a one-year deferral.

To obtain this deduction and defer income, the breeding herd must have been reduced by at least 15 per cent.  If this is the case, then 30 percent of the net sales can be deferred.  If the breeding herd has been reduced by 30 percent or more, then 90 percent of the income from net sales can be deferred.

Breeding animals and breeding herd are defined as deer, elk and other similar grazing ungulates, cattle, bison, goats and sheep that are older than 12 months and are kept for breeding.  Horses are eligible only if they are kept for breeding in the commercial production of pregnant mares' urine.  

The tax department calculates breeding herd size by subtracting from your breeding animals the amount by which the number of female cattle that have not given birth exceeds one-half of the number of cows that have given birth. This adjustment may catch ranchers who decide to sell their replacement heifers instead of their cow-calf pairs.

For example, let's assume that rancher Al, who has 60 cows and 20 replacement heifers, wants to sell 28 animals.  He has two options:

Option one: Sell 20 cow-calf pairs and eight replacement heifers.

Option two: Sell 28 cow-calf pairs.



In the table, I have compared the two options using the calculations presented in the tax department's 2001 Farming Income Guide. 


Option one results in no deferral while option two qualifies for the 30 percent deferral. 

If you are reducing your breeding herd and are planning to defer the net sale proceeds to 2003, review the table and calculate your breeding herd reduction. If you qualify, the deduction is made on line 9470 of your Statement of Farming Income.  Inquiries can be made to the Canada Customs and Revenue Agency at 1-800-959-5525.


Allyn Tastad, chartered professional accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at allyn@hth-accountants.ca or website www.hth-accountants.ca. All data and information provided is for informational purposes only. Readers are cautioned that laws and regulations are subject to change. Consult your accountant for current professional advice tailored to your situation.