Exemption or subsidy?

© AgMedia Inc.


OFA President, Don McCabe, isn't going to win any arguments claiming an exemption from paying tax on diesel fuel isn't a subsidy because this, or any exemption is, by definition, an avoided cost benefit, and, therefore, a subsidy.

In other words, an exemption and a subsidy are, by definition, exactly the same thing.

McCabe would be, however, quite correct to advance the argument that even though this tax exemption is a subsidy for farmers and other off-road users of diesel fuel, it's an exemption that makes sense because the avoided tax is supposed to be directed to maintaining roads that off-road vehicles don't normally use.

McCabe would also be correct to argue that if Ontario's road budget needs an infusion of government dollars, increasing the tax paid by users of clear diesel fuel would be more appropriate than increasing the tax paid by the users of coloured diesel fuel.

Stephen Thompson, Clinton ON

The current state of farming be it cash crop or livestock tends to use our roadways more than in the past. Large equipment is constantly being moved from farm to farm over ever greater distances. The massive weight of modern ag vehicles inflicts way more damage to our roadways than the passenger vehicles that are held up. The advent of "fast tractors" pulling B trains and dumper trailers designed for heavy trucks,that use tax free diesel to pull non safetied, brake worn, hulks up an down the road clearly demonstrates a need to close the loop hole. Take a drive down Morrison line Mr. Thompson. I think you'll agree something needs to be done if this is the current version of common sense.

By taxing farm diesel, we can improve our roadways by hitting farmers were it hurts (or makes them think). Every operation should be audited as to there percentage fuel use while on roadways and be taxed accordingly. This will install common sense to those that are lacking, as well as reward those that have maintained it.

Every year I see continually-more converted B-train and dump trailers being pulled into the local Fleming Feed Mill in Clinton behind "fast" farm tractors. Therefore, I agree completely, and have long-since been quite-vocal, that using "fast" farm tractors to pull overloaded and unsafetied B-train grain trailers down public roads is an abuse of our public trust in any number of ways, some of which were already noted in the posting above:

(1) using coloured diesel fuel to do the same job done by trucks forced to use clear diesel fuel
(2) using unlicensed trailers to do the same job as identical licensed trailers
(3) not being subject to the same weight restrictions as identical licensed vehicles, thereby contributing to the significant potential for early road and/or bridge deterioration.
(4) not being subject to MTO inspections and fines if the vehicle isn't safe
(4) we don't have to get, and annually renew, a CVOR license required by trucks doing the same job.

I do very-much agree with the point that what farmers are doing on, and to, public roads in 2016 is a far-cry from what we were doing in 1970 and that, therefore, a blanket exemption on road tax on farm fuel doesn't make as much sense as it once did.

To pursue the exemption/subsidy thing a little further - farmers will win no points arguing that an exemption isn't a subsidy because they are two sides of the same coin and because agriculture is riddled with subsidies we often don't think of as subsidies - as a non-exhaustive illustration:

(1) the use of coloured diesel fuel (as noted)
(2) the whole B-train thing as noted above
(3) lifetime capital gains exemptions on farmland
(4) the ability to sell standing timber as a capital gain
(5) the ability to expense tile drainage
(6) farm license plates
(7) supply management
(8) ethanol

Therefore, it's pointless to argue something isn't a subsidy when, by definition it is a subsidy, and when it is in addition to a plethora of other subsidies enjoyed by farmers.

The only legitimate argument we have is the "we don't use the roads" argument which, as the above poster noted, is becoming increasingly-less credible.

Stephen Thompson, Clinton ON

Agree somewhat with what Stephan has stated .
Coloured fuel , it should only be allowed if pulling a farm wagon . To pull a trailer designed for brakes and speed by a farm tractor should not be allowed . Especially when most were retired because they were no longer road worthy .
The use of unlicensed trailer agree .
Trailers that were built for a licensed purpose and weight agree they should be inspected and will add that many times the tires are terrible . Many trucks also fall under a conversion exemption and are over loaded for roads .
Farm license plates is a moot point but we do need to keep impostors from getting them
SM needs a serious over haul or be gone with it .
Ethanol is environmentally friendly and can replace fossil fuels so I totally disagree on that one .

Ethanol supporters:

(A) wouldn't ever, God forbid, admit that the terms "environmentally-friendly" and "job-and-economy-regressive" both apply to ethanol
(B) absolutely would rather walk barefoot over hot coals than ever admit that there is a definitionally-stronger case to support the latter than the former.

Claiming that ethanol is environmentally friendly while studiously ignoring the basic economic truth that the mandates propping it up make it net-negative for jobs and economic activity, is just like the old, and equally-lame defense of former Italian dictator, Benito Mussolini, - "At least he made the trains run on time".

Stephen Thompson, Clinton ON

All things good come at a cost . Some things like ethanol come cheaper and make a bigger difference . Unlike the rape and pillage of Green Energy .

You have the right to not use any of the above listed .
So let the rest of us know that you have never or never will expense tile drainage , will use your capital gains exemption or any of the other items you have listed to your personal advantage .

Since supply managed farmers can expense drainage and claim capital gains exemptions PLUS take advantage of the producer subsidy equivalent purchasing power afforded by 200% tariff barriers, the rest of us should be allowed to deduct tile drainage expenses twice and get double the capital gains exemption just in order to keep up.

My personal situation has nothing to do with anything, except, it seems, for those people on this site who have nothing better to do than cast snide and anonymous aspersions.

The point of the matter is that for the most part, all farmers get the avoided cost benefit subsidies in the form of cheaper diesel fuel and favourable tax treatment for tile drainage - it's just that some farmers, in particular supply managed farmers and grains farmers get a whole lot more.

Stephen Thompson, Clinton ON

Steven ,Looks like you attack everyone that posts on here are you the GATE KEEPER in disguise! You friend need to back up and read your posts, they are REDICULUS! Bill Denby

I oppose, on behalf of the next generation of farmers and the present generation of consumers, a smug and very thin-skinned rural aristocracy that will, and does, fight like cornered rats to preserve their unearned and undeserved legislated privileges.

This forum continually demonstrates, and abundantly so, that the only weapon possessed by the aristocracy, is the ability to "shoot the messenger", a truth made abundantly-clear by the above posting.

Stephen Thompson, Clinton ON

It is apparent that it is not as much of a whole farm thing but more of a tax issue for the wealthy SM farmers . Would it not be easier to get the tax laws changed for those few who are SM to help level the playing field ? You for one being an economist & accountant should know all the strings to pull to make that happen . Every one who has legislation to set their whole price should not get the exemptions .
As for being personal you have said many times that ethanol paid for your car . You likely have or will use the tile tax treatment and the capital gains exemption . So you are really wanting it both ways .
Many would say your comments about SM are nothing more than the casting of snide remarks . I do appreciate your trying to level the playing field but a good spokes person for the cause you are not . You need to pass the torch to a younger person with less baggage .

In 2012, I bought a $20,000 car with 96,000 km on it (and financed it all and, no, I'm not deducting any of the interest as a farm expense nor am I depreciating it in any way) to try to take some pressure of my 2003 Ford pickup truck which now has over 526,000 km on it - by way of contrast, people with quota buy $20,000 motorcycles and $200,000 cottages.

Of course ethanol is a subsidy and yes, I'd be willing to do without it - but since ethanol is a little more than a supply management injury assistance program, it makes no sense to further compound the problem by introducing Livestock RMP which is, itself, little more than an ethanol injury assistance program

It makes no sense for farmers to want, and governments to introduce, programs that do nothing more than try to offset the injury caused by other already-existing programs.

Yes, I do have some ideas about how to level the playing field and the first would be, in lieu of getting rid of supply management which is, and must be, the ultimate goal, to eliminate any sort, type or kind of capital gains exemption on the sale of quota. The second would be to force supply managed farmers to pay clear diesel prices for fuel but that would backfire because their cost-of-production formulae would immediately transfer the costs onto the backs of the poorest group of consumers.

When it comes to tile draining, I've closed that door because since I'm renting my land out, and since people with rental income can't expense any tile drainage but rather, have to depreciate it, I'm pretty-much out of luck on that one.

In addition, thanks to some arcane provisions in the Family Law Reform Act, I've used up almost all of my capital gains exemptions but didn't end up with any of the capital I actually gained.

Finally, I don't care if any anonymous person claims I am not a "good spokesperson" because, in agriculture, and anywhere else, being anything but abrasive gets ignored and/or patronized.

There are lots of people who do appreciate what I do, as well as the way I do it - and when they thank me, they most-certainly don't do it anonymously.

Stephen Thompson, Clinton ON

Doesn't share cropping at 50% allow tile cost to be deducted against farm income?

Let's put it this way, some share cropping agreements could be seen as farm income, some not - it depends on the interpretation of the term "joint venture".

Stephen Thompson, Clinton ON

O.K. so it would appear your claim that you are renting your land therefore can't claim tile deductions is simply put "bogus" because you just admitted you are in fact sharecropping instead of renting.

Traditionally, the practice of giving the landlord 1/3 of the crop and then having the landlord call it sharecropping income has been viewed by the Canada Revenue Agency as rental income rather than farm income because it just doesn't pass the joint-venture test. In this case, the farmer would show no seed, fertilizer or herbicide expense, and just a one-line, or two-line income item - and, really, this is a rental operation, not a farm operation and, therefore, a "no-brainer" that this landlord would have to depreciate any tile drainage costs incurred.

Furthermore, I've seen 50/50 sharecrop agreements that are little more than a rental agreement gussied up to look like a joint venture in order to allow the landlord to pretend he/she is a farmer for income tax purposes.

This would be the case when the tenant pays everything and does everything, and, at the end of the year, gives the landlord a summary statement of what the landlord "paid" for seed, fertilizer and herbicide so that the landlord can fill out a farm income tax return claiming he paid for seed, fertilizer and herbicide when, in fact, his bank statement shows he clearly didn't and, furthermore, had no input at all into the decision making process about what to plant, how much fertilizer to apply, when to spray and with what product, and so on, and so forth.

Adding to the "sham" is when the tenant and landlord have a minimum and/or maximum dollar value per acre for rent affixed to their sharecrop agreement.

In my experience, it would take anyone from the Canada Revenue Agency about 30 seconds to see that the above 50/50 crop share scenario was a sham and that the farmer should be filling out a rental income statement, not a farm income statement, and thereby become unable to expense tile drainage costs.

Out of respect for the privacy of my tenant, I can not nor will I not disclose the terms of our agreement, but if/when I undertake significant amounts of tile drainage, I'm not going to vigorously oppose, nor should any farmer operating under any sort of sharecrop agreement, any Canada Revenue Agency ruling stating that tile drainage needs to be depreciated rather than expensed.

Therefore, the advice I give to any landlord who believes that any sort of sharecrop agreement allows him/her to automatically expense tile drainage costs is - "Be prepared to have it disallowed"

The definitive test-case will no-doubt be when a "farmer" (or even the estate of a farmer) with significant pension income, has a farm on which he doesn't even live, and on which he has a sharecrop agreement and since farm losses can be deducted in entirety from pension income, incurs a whack of tile drainage expenses in order to reduce pension income.

All of which shows why government shouldn't, in the early 1960s, have subsidized farmers by giving them the ability to expense what non-farmers are forced to depreciate.

Stephen Thompson, Clinton ON

Ah Yes, reminds me of the U.S. section 179 depreciation comparison. For the last several years U.S. farmers have had the ability to offset livestock and crop income via the section 179 -100% deduction compared to Canada's 15% first year deduction. Along with better U.S. price support programs, it partially explains why a lot more new paint is in machine sheds in U.S. vs Can. As a side benefit of our current low $Can. most good used machinery is now being scooped by U.S. farmers.

In theory the low Canadian dollar should attract US buyers like it has in the past when our dollar crashed but I haven't seen any sign of that this time around. In fact the recent US depreciation has driven new equipment purchases there but that has led to a bloated inventory of used equipment in the US so why what are they going to do with our used equipment.

He claims this is in fact happening. Granted the U.S. Farm-Bill plus section 179 has certainly kept J.D. and other companies selling a lot of high-tech monster equipment to out do us with, however the dollar has also allowed them to scoop up our used equipment for those smaller or beginning farmers or perhaps just to strip down for parts and resell to Canadians.

Could be but that's not what I'm hearing. I have no evidence one way or another. Has anyone seen any stats on this?

You want evidence just drive by Hahn Farms . Lot is about empty .

Yep! Section 179 plus U.S. Farm Bill and dollar is Working! ......................Advantage U.S. Farmer.

For some reason we north of the border get the shaft more times than enough .
Price of equipment/parts was about a third higher in price here even when the dollar was par . Now it is even worse . If you can even find equipment to buy .

BF must have read the comments here LMAO but their latest story about machinery sales tells a different story than the unnamed credible economist and the above comment. Basically it says there is not much "scooping of used equipment happening". Where do these rumours get started?

Wow Steven ,you of all people ,the great professor CAUGHT ripping off the TAX MAN! This shows you operate with double standards and your they guy attacking SUPPLY MANAGEMENT FARMERS. Shame on you! Bill Denby

There's an old adage that Caesar's wife not only must be chaste, she must also be seen to be chaste, and that adage applies to people in the tax discipline, or any walk of life.

Therefore, I take great pains to not only never participate in any sort of double-standard, especially a tax-related double-standard, I also take great pains to try to never be seem to be participating in any - I oppose them all.

That's why I, and my clients, have an impeccable record with not only the Canada Revenue Agency, but also with Agricorp, with AgriInvest, with the banking system (including the Farm Debt Review Board) and any other agency and/or organization with which we deal.

Therefore, it appears Mr. Denby has, in a fit of continuing pique, whipped himself into his usual daily lather - tomorrow it will be something else.

Stephen Thompson, Clinton ON

Your 50/50 agreement means you are classified as a farmer for tax purposes and therefore could expense the drainage cost but you don't want to spend any more on drainage to make your land more productive because you only get 50% of the increase? Or, to put it another way, their are some farmers who, through human nature, as you might say, want to have it both ways!

Commenting on the class of vehicle used is a different topic in my opinion. In our case the real cost difference between the two diesel fuels is about $0.06 far from the road tax of 14.7cents per liter (if I am correct with the current road tax rate). We are not allowed on to a maze of highways throughout this province with our field going equipment. Farm vehicles that do use these roads and are plated and do use clear diesel now. A large percentage of the road traffic is seasonal and as mentioned field to farm, the daily congestion of commuters going to and from the cities cause much more damage to the road grid as a whole. There is no doubt that our infrastructure needs a great deal of repair. This repair however, will not come from a restructuring of our diesel tax regulations.

Repair and restructuring will come from higher farm property taxes . End of story .

What did our Ag representation do in Paris . Obvious that some one did not set the story straight at the right time .

First , other than GTA who the heck voted for Wynne's gov't? Ag-off road,construction fuel should be exempt . Have got stopped with plated farm truck and had tank checked for coloured fuel twice one week and told the former OPP lady that " why would I use coloured fuel as tax is only like 7 cents l when we are paying $1+l for diesel" ....not like the days when diesel was 33 cents a GALLON..... revenue lady says "if I find coloured feul you can explain it to the judge as you farmers and contstruction guys are the worst offenders" ..........Ms. Saxe worries about coloured feul and lives in Toronto and lived a privileged life as the daughter of Morton Schulman.....did I mention Ms. Wynnes gov't has disappointed me....kg kimball

Would the loss of tax exempt coloured fuel raise the cost of food ? Likely not .
The loss of coloured fuel for road construction would raise road costs for sure !

Those millions saved on reduced tax exemption would sure look good in the pockets of the "green" energy wind turbine companys wouldn't they !

Forget the road maintenance and concerns of rural Ontario, this is just another slam/dunk for Queens Park.The sad part is the Liberals would probably not lose 1 seat in Parliament, in any forthcoming election if this fuel exemption tax was cancelled tomorrow.

Ms. Saxe now claims that she was misquoted by the National Post in the Jan. 12/16 article. She now claims agriculture benefits to the tune of "$18M" through coloured diesel subsidies. It is hard to figure the coloured base non tax price is a subsidy when the clear road tax fuel is a dedicated tax to maintain roads.
Much has been publicly stated of a perceived $18M (or is it $190M)? Will the National Post acknowledge the misquote? "subsidy" to farmers but no mention about construction, mining, fisheries, residential heating, northern Ontario power generation including hospitals, etc use of tax exempt use of coloured diesel.

Ms. Saxe also ignores probably the biggest tax subsidy in Ontario.
Municipal residential tax rates! She claims "By international definition, a change in the rate of tax is a subsidy". Toronto's municipal residential tax rate is almost half my rate. By her definition, the city of Toronto is being subsidized $$$BILLIONS on residential properties alone. (not factoring in commercial, industrial, etc that make other municipalities noncompetitive).

Will Ms. Saxe address the biggest tax subsidy in Ontario? Or will she just choose to discriminate against a minority groups, Ontario farmers and their use of a tax exempt fuel? Ms. Saxe thinks a tax break meets the legal definition of a subsidy when “Having a lesser rate of tax on the same product for different uses or users.” She is quoted as saying "Fossil-fuel subsidies do not reduce inequality, they increase inequality, "because most of the money goes to the better-off". She is also concerned about urban sprawl but chooses to focus on a $190M subsidy she is reported as saying goes to farmers (no proof provided) even though the Ministry of Finance says dyed diesel is "used for non-taxable purposes only". If she truly believes in tax equality then she would do well to look at municipal taxation. MPac was the provincial solution to fair taxation, municipalities are only agents of the Province. Toronto's residential tax rate was 0.57% lower than my rural rate (2015). So lets do the math.
Toronto had 692,811 residential properties (2013) with an average assessed value of $524,833.00 (2015). That means TO had over $363 BILLION of residential assessment. Since their rate was 0.57% lower, Toronto was subsidized to the tune of $2.072 Billion in 2015! That tax inequality creates urban sprawl and other problems. With a law background Ms Saxe should be as equally interested in preserving democracy and fairness as getting her quoted facts strait. If Ms. Saxe is serious about environmental issues and tax subsidizes, she should ask why Toronto residents aren't paying their fair share. Comment modified by editor

Farmers are not winning now, and will not win any points with government by continually pushing the subsidy/no subsidy button - everyone, and not just in government, with even the most-basic post-secondary education in economics knows that the definition of subsidy includes avoided cost benefit which is, in layman's terms, an exemption.

Or, to look at it another way, for farmers to keep harping that a diesel tax exemption isn't a subsidy, does little but suggest that farmers are hicks who don't understand basic economic terminology, and that's absolutely-not the image we should be presenting to anyone, especially to government.

The only issue is whether this subsidy/exemption is appropriate and responsible public policy. Therefore, the sooner we throw our misunderstanding and our vitriol about what is, or is not, a subsidy out the window and concentrate on attempting to demonstrate the appropriateness of this and/or other policies Ms. Saxe is completely-entitled to question, the more-responsible, the more-professional and the more-believable we will appear.

Stephen Thompson, Clinton ON

Yes really, like hicks who don't understand basic economic terminology that most Guelph grads learned in 36-120 Intro Microeconomics. Terms like oligopoly......300 or 400 firms is NOT a few.

Economics is, if nothing else, the triumph of common sense over narrow half-truth and that adage applies to the above poster's attempt to take the definition of oligopoly to the absurd extreme, or in the vernacular it means - "he/she can't see the forest for the trees".

Oligopoly is more about control of the market than the number of firms actually doing the controlling - monopoly is control by one firm, oligopoly is control of the market by more than one firm. Never is it specified anywhere what a "few" means as long as it is more than one.

For example, a quick Google search produced the following definition:

(A) DICTIONARY.CA - "the market condition that exists when there are few sellers as a result of which they can greatly influence price and other market factors".

The above definition of oligopoly so-completely describes the Ontario egg-farming sector that only a pedant (or somebody keen to fail an economics course) would continue to argue that 300, or so, egg farmers doesn't constitute an oligopoly because their numbers are too-high to be an oligopoly, even though these few-hundred farmers are doing exactly what an oligopoly does.

To add further definitional interpretation to oligopoly:

(B) INVESTOPEDIA: - "Oligopoly is a market structure in which a small number of firms has the large majority of market share. An oligopoly is similar to a monopoly, except that rather than one firm, two or more firms dominate the market".

Once again, even the most-cursory examination of the top-five egg farms in Ontario would indicate they have a huge market share and would, therefore, once again satisfy the criteria for an oligopoly regardless of how many firms are actually in the market.

(C) BUSINESSDICTIONARY.COM - "In oligopolistic markets, independent suppliers (few in numbers and not necessarily acting in collusion) can effectively control the supply and thus the price, thereby creating a seller's market."

Once again, the numerical quantifiers of the term "few" is never specified, but rather, the operative definition turns on the ability of the "few" suppliers to "effectively control the supply" and that's exactly what Ontario's egg farmers do.

Therefore, I would invite the above poster to come out of his/her self-created "forest of pedantic fog" and into the "light of common-sense reality".

Stephen Thompson, Clinton ON

Egg graders are obviously an oligopoly - but for egg farmers, supply is set by quotas and price is set by the cost of production. Decisions by the largest few farms can not "effectively control the supply" or impact prices. So no oligopoly here - not sure why Someone can't admit it, except perhaps for ego and NPD.

Decisions setting egg quota levels are made by the National Farm Products Council.
Egg farmers operate under a regulated monopoly and sell directly to graders.

Even if you ignored the absolute control of supply and price under the regulated monopoly of supply management, knowledgeable examination of the top-five egg farms in Ontario would indicate they have a total market share of around 15%. Hardly the "huge market share ..... to satisfy the criteria for an oligopoly".

My apologies in advance for the narcissistic rant to come next.

If the above poster knew what he/she was talking about, why would he/she feel the need to direct venomous personal slurs against me as well as do it in the most-cowardly possible manner - anonymously?

Dutifully ignored by the above poster is:

(A) any recognition that an oligopoly "can influence price and other market
(B) any recognition that an oligopoly "can effectively control the supply and thus the price, thereby creating a seller's market."

In exactly the same way that if something walks like a duck and quacks like a duck, it IS a duck, any group of a few individuals or even a few-hundred individuals that controls supply (in this case by quotas), and thereby controls price and other market factors (including this case, barriers to entry) is an oligopoly.

The more-important issue dutifully and conveniently ignored by the above poster remains the multi-level screwing of the consumer by an oligopoly selling to a monopoly which, in turn, sells to another oligopoly.

Stephen Thompson, Clinton ON

Steven ,I have to agree with you on your post about two things ,Yes Supply Management is a OLIGOPOLY in Canada but their are a lot more! The second ,is people posting Attacks without signing to names, THAT IS CHILDISH & GUTLESS! These people should have to sign their names or their post can not be posted! They are like BULLIES hiding behind Anonymous but what is worse that BF publishes their posts, is it to protect them or they do not exist??? If we are going to have a good debate ,their names have to be posted! Bill Denby importer/ exporter

Post new comment

To prevent automated spam submissions leave this field empty.
We welcome thoughtful comments and ideas. Comments must be on topic. Cheap shots, unsubstantiated allegations, anonymous attacks or negativity directed against people and organizations will not be published. Comments are modified or deleted at the discretion of the editors. If you wish to be identified by name, which will give your opinion far more weight and provide a far greater chance of being published, leave a telephone number so that identity can be confirmed. The number will not be published.