A simple amendment to Canada’s tax code could help stem this growing “horse drain” and provide a meaningful boost to rural economies at a time when they badly need one.

The urgency has intensified significantly following President Donald Trump’s 2025 “One Big Beautiful Bill,” which aggressively expanded favourable tax treatment for racehorse investments in the United States. Under the new legislation, businesses and investors can immediately deduct 100 per cent of the cost of racehorses; a major incentive that has already accelerated investment and sales activity south of the border.

This has put our industry at a major competitive disadvantage.

In a highly mobile North American industry, investment follows the most favourable conditions. Owners, breeders, and investors increasingly make decisions based on tax treatment, cash flow flexibility, and long-term business certainty. When Canada maintains uniquely restrictive tax rules, capital inevitably migrates elsewhere.

This matters at a particularly fragile moment for rural Canada. Across the country, farmers, agricultural businesses, and rural employers are facing rising input costs, labour shortages, volatile markets, and fewer alternative employment opportunities. When a major rural employer closes, the effects ripple quickly through entire communities — impacting suppliers, transportation providers, veterinarians, tourism operators, and local families.

Section 31 of the Income Tax Act is the main hurdle to Canada’s competitiveness. This decades-old provision limits the amount of farm-business losses that can be deducted against other income, generally capping those deductions at $17,500 annually. No other sector of the Canadian economy faces a comparable restriction.

The rule was introduced in the 1950s to crack down on “hobby farms” used as tax shelters by wealthy urban Canadians. But the realities of rural business in 2026 bear little resemblance to those concerns.

Today’s agricultural and equine operations are highly capital-intensive businesses exposed to weather shocks, inflation, market swings, and unpredictable operating conditions. Many farmers and horse owners maintain off-farm employment not because their operations are recreational, but because diversified income is often the only way to survive difficult years.

Section 31 punishes that reality. Instead of encouraging resilience and reinvestment, it penalizes legitimate rural businesses for managing risk responsibly.

The consequences are especially visible in Canada’s horse industry, which supports tens of thousands of jobs across breeding, racing, training, transportation, feed production, veterinary care, tourism, hospitality, and construction. Many of these are middle-income jobs located in communities with limited alternative employment opportunities.

This is not about wealthy hobbyists. It is about preserving real rural employers and the economic ecosystems that surround them.

The warning signs are already visible. After more than 60 years of operation, Ottawa’s Rideau Carleton Raceway is closing this year. In British Columbia, Hastings Racecourse, a fixture for more than 130 years, and Fraser Downs have also shut their doors. Economic pressures were cited as key factors in all three closures.

These closures are not isolated events. They represent lost jobs, weakened rural supply chains, declining tourism activity, and reduced economic opportunity in communities already under strain.

The solution is straightforward: repeal Section 31.

Doing so would restore basic tax fairness by allowing legitimate farm and equine businesses to operate under the same rules as every other industry. It would encourage reinvestment, improve liquidity, and help retain economic activity in Canada — all without creating a new subsidy or spending program.

Independent analysis suggests repealing Section 31 would cost the federal government roughly $134 million annually; a tiny fraction of total federal revenues, particularly when weighed against the economic activity and employment it would help preserve.

At a time when governments are focused on productivity, competitiveness, and protecting domestic industries, this is exactly the kind of practical reform Canada should embrace.

Rural Canada needs a tax framework that reflects modern economic reality and allows legitimate businesses to compete fairly.

Budget 2026 offers Ottawa a clear opportunity to act before more investment, jobs, and economic activity cross the border for good.

Donald M. Ferguson is a Steward of the Jockey Club of Canada.