Section 31 Should be Repealed to Achieve Equal Treatment
The Restricted Farm Losses Provision Represents Outdated Discrimination Against the Rural Economy and Should Be Repealed
An outdated provision of the Income Tax Act limits the business losses from farming that farmers can claim against their income when they also earn income from other sources. It limits the deduction such farmers can claim to $17,500. This provision discriminates against rural Canada.
There is no such limitation faced by other economic sectors.
The provision dates to a time when there was a concern that “hobby farmers” were moving to rural Canada, buying farms, and squeezing out traditional small-scale mixed farming. This is no longer a concern. In fact, today, it is normal for even some of the most successful and large farmers to also engage in other businesses and income-generating activity. Any justification for limiting the ability to claim farm losses because a taxpayer has other sources of income has long ago disappeared.
The Restricted Farm Losses Provision, section 31 of the Income Tax Act, actually hurts the most marginal elements of the rural farm economy. This includes many small holders, and the rural horse economy, which creates many modest income opportunities for hard-working individuals, and agriculture-related businesses in rural Canada.
The anti-farming section 31 of the Income Tax Act should be repealed.
There Is No Similar Restriction on Claiming Economic Losses Against Income in Other Sectors
The Restricted Farm Losses rule unfairly discriminates against a particular type of business – farming – and thus unfairly discriminates against Canada’s entire rural economy. The rule offends two fundamental objectives of tax policy: horizontal equity and neutrality.
The Restricted Farm Losses rule offends horizontal equity because it causes taxpayers who are in similar circumstances (i.e. taxpayers who carry on a business as a secondary source of income) to bear different tax burdens depending on the type of business carried on.
This also offends neutrality because, by limiting the losses that certain taxpayers can claim from farming businesses, the rule discourages Canadians from investing their time and resources in farming businesses.
The provision causes long-term harm to the rural Canadian economy by discouraging investment in agricultural infrastructure such as barns, stables, and other farm buildings.
The Discriminatory Provision is Especially Harmful to the Rural Horse Economy – It Includes Many Smaller Operations And People With Other Businesses
Those hurt most of all by the policy impact squeezing small farms are the many rural workers in the horse economy. These are individuals earning modest incomes, caring for horses, maintaining farms, training animals, and providing the myriad of goods and services to that rural horse economy.
The rural horse economy is unusual in agriculture as one of only two major areas that employ many workers. (But it is different from the other labour-intensive sector - fruit, vegetable and horticulture - in that most workers in the horse economy are local residents, rather that temporary foreign workers.)
The rural horse economy includes small operations that board horses, teach children riding, support competitive horse activities such as showing, jumping and racing, provide mental health and disabled therapies. The second small business incomes of horse farm owners are often in related sectors - such as transportation of horses, running competitions, or supplying goods and services to other farm operations.
The Restricted Farm Losses Provision Threatens Ordinary, Hard-Working Rural Canadians
A 2011 study for Equestrian Canada indicates that horse economy on-farm activities generated 76,000 full-time jobs. These included modest income employment for many ordinary rural Canadians, with an average salary of $25,478 – hardly a class of workers that should be penalized through unequal harsh tax provisions. The overall horse economy supported 154,000 jobs in Canada in 2011. However, a similar study for Equestrian Canada in 2023 suggested that this may have fallen to about 71,000 full-time jobs, reflecting the economic
challenges facing the horse economy.
There are Other Tax Policies that Ensure that Repeal of Section 31 Will Not Result in Abuses
There is certainly no longer any concern that the presence of “hobby farmers” hurts the agricultural sector. Rather, they are now an important component of rural economies, and provide benefits such as low cost farmland leases to cash crop operations.
The continued application of the existing “intention to profit”, addresses any concern that deducting farm operation losses would to inappropriately reduce tax on a non-farm business. That is impossible due to the “intention to profit” test applied by the Canada Revenue Agency. As such, section 31 no longer serves any useful public policy purpose – but has only a harmful impact discriminating against the rural economy.
Repeal of Section 31 Would Advance Important Policy Goals
- Lower Taxes and Increase Take Home Pay
- Support Rural Economy
- Support Agriculture and Farming
- Simplify Taxation System
- Eliminate Discriminatory Treatment of Rural Economy
- Support Modest Income Workers and Small Businesses