Changes tackle 'grey area' in Ontario's Grains Act

Thursday, May 24, 2012

by SUSAN MANN

Ontario’s grain farmers will soon have the permanent tax planning and management tool of being able to use deferred payments.

Allowing deferred payments is among a number of changes to Grains Act regulations approved by the province’s legislative committee and filed with the Registrar of Regulations for Ontario. The changes go into effect July 1.

Dave Buttenham, CEO of the Ontario Agri Business Association, says under current Grains Act regulations, deferred payments are prohibited but a temporary regulation permitted them until July 1.

Henry Van Ankum, Grain Farmers of Ontario chair, says the practice of farmers requesting deferred payments was happening despite the current prohibition and it was “kind of a grey area” within the Grains Act.

He explains deferred payments “can be a valuable tool from the standpoint of tax planning.”

Farmers try to schedule the sale of grain to market high points but those times may not be the best moment to receive that income for tax planning purposes. “If somebody could defer receiving that payment for a month, it just allows for better tax and cash flow planning on the farm.”

The new rules stipulate all deferred payments under 180 days are eligible for declining coverage as part of the Grain Financial Protection program’s insurance provision for farmers selling to licensed dealers. There’s a prorated schedule of coverage for deferred payments less than 180 days but no coverage is available for payments of more than 180 days even for sales to licensed dealers.

It’s the farmer who must request the deferred payment. “I’d be a little concerned if I had a grain dealer come to me saying: “‘Let’s defer.’ It’s the farmers’ tool,” Van Ankum says.  The dealer must provide the farmer with written confirmation of: the date the deferred payment was entered into; the date or dates payments will be made; and the amount of each payment plus the total amount of all payments.

As well, the initial payment for basis contracts will be lowered to 60 per cent of the price when the contract takes effect from the current level of 75 per cent. Buttenham says there’s more volatility in the marketplaces now. This change is being implemented to manage the volatility “so that producers and elevators can better manage the risk.”

Extending the number of days to five from one for elevators and dealers to pay for grain sold out of storage is another major change.

Buttenham says this change enables elevators to be more efficient because many can no longer hand-write a cheque on demand. “We typically do cheque runs at least once a week so we can do all of these cheques for payments out of storage as part of that process.”

The current regulation of 2 p.m. the next trading day isn’t feasible for branches of companies where farmers draw product out of storage but those companies issue cheques from their head office, he adds.

Grain Farmers, the agri business association, the provincial agriculture ministry and Agricorp developed the changes. BF