The Federal government recently introduced a refundable “return of fuel charge proceeds to farmers tax credit” to farming businesses to help them offset certain fuel charges that they incur in their farming businesses. The credit was passed into law on June 9, 2022, in Bill C-8.
The credit applies to farming businesses carrying on business in designated provinces, sometimes referred to as “backstop jurisdictions”. The Department of Finance has designated Ontario, Manitoba, Saskatchewan, and Alberta, which, according to the Federal government, “do not meet the federal stringency requirements” under the federal carbon pollution pricing system.
The government offers the credit to help farmers, who often use natural gas and propane in their business operations.
Since it is a refundable credit, it can be claimed even if the taxpayer has no income tax to pay for the year.
The credit is computed using the payment rate for the relevant calendar year (see below) for the designated province multiplied by the “eligible farming expenses” for the province for the days in the taxation year that fall within the calendar year. If the business is carried on in a corporation, it may have an off-calendar taxation year. In such a case, the credit is pro-rated based on the number of days of the taxation year that fall within the calendar year.
The credit is also available to individuals carrying on a farming business, and members of a partnership carrying on a farming business. For an individual, the taxation year is of course the same as the calendar year. For a partnership, its fiscal period is deemed to be its taxation year.
The payment rate for a calendar year is the rate specified by the Minister of Finance. The payment rate for the 2021 calendar year is $1.47 per $1,000 of eligible farming expenses. The rate for the 2022 calendar year is $1.73 per $1,000 of eligible farming expenses.
The credit is available only if the taxpayer incurs $25,000 or more of eligible farming expenses, which are generally expenses deducted for income tax purposes in computing income from farming activities. However, the eligible farming expenses do not include expenses incurred in transactions with non-arm’s length parties (basically, related parties).
If a taxpayer carries on a farming business in more than one province, the eligible farming expenses are allocated to a designated province in the same proportions that taxable income is allocated under the Income Tax Regulations.
The taxpayer must file a prescribed form with their tax return for the relevant taxation year to claim this credit.
Since the credit is considered “government assistance”, the amount of the credit is included in income in the taxation year for which the credit is claimed.