Canada's Federal Budget, released on March 21, 2013 contains two changes to section 31 of the Income Tax Act, in effect reversing the decision horse owner John Craig won at the Supreme Court level in 2012.
The Jockey Club of Canada Tax Committee Chair, John Unger, has released the following statement regarding Section 31 of the Income Tax Act pertaining to the horse racing industry in Canada.
First, the wording of section 31 is being changed so as to in effect reverse the Court decision in the Craig case for future years. As a result, the restricted farming loss rules will apply to you unless farming is your predominate source of income. If you have a non-farming source of income that is not subordinate to farming as a source of your income, any losses suffered from farming will be subject to the restricted farming loss rules.
Second, the restricted farming loss limit is being increased from $8,750 (being $2,500 of losses plus one-half of further losses up to $12,500) to $17,500 (being $2,500 of losses plus one-half of further losses up to $30,000).
These changes are proposed to take effect for taxation years that end on or after March 21, 2013.
The Jockey Club of Canada has maintained an active focus on changing the tax rules governing the owning and maintaining of racehorses in Canada. Section 31 of the Income Tax Act had been described by many as outdated and unfair.
The Jockey Club of Canada, Tax Committee Chair, John Unger, and HBPA President, Sue Leslie, presented a new proposal in meetings with the Federal Government in late 2012 and again in early 2013.
“Section 31 has remained substantially unchanged for 25 years,” commented Jockey Club of Canada Chief Steward, James Lawson. “Although the increase is not as much as we had hoped for, it is still progress.”
The proposed rules are
The proposed rules are actually less favourable than the old rules specifically for horse owners where their main source of income is not from farming activities.
Previously, the rules didn't solely focus on the income test. They considered other factors such as time spent on farming, money invested etc. Now that they are proposing to apply section 31 based solely on the income test, there will be alot of owners that are now restricted to the losses that can be claimed.
Sure an increase to the loss limit will be favourable for some and it is great to see that change but once again, not all of the factors were considered and some horse owners will take another hit. The horse racing industry depends on owners now more than ever to survive... go figure.