Farmers of all types, from dairy to fruit to livestock, contribute to the economy and to the healthy lives of Canadians. The Canada Revenue Agency (CRA) wants to help make filing your income tax and benefit return easier so you can save your time and energy for the harvest.
If your farming is considered a hobby (for example, you only raise a few farm animals or have a plot to grow food for your own table), you can’t deduct any expenses or losses. In comparison, you’re likely carrying on a farming business if your farming activities are more substantial and carried out in a business-like manner (for example you spend most of your time raising animals or growing crops and running the operation). Keep in mind that farming income does not include money earned from working as an employee on a farm or from trapping. For more information, including the types of farming income and deductions and tax credits available to farmers, go to cra.gc.ca/farming, or read the CRA’s Income Tax Folio S4-F11-C1, Meaning of Farming and Farming Business.
Farmers can generally deduct any reasonable current expense from farming income, including interest on loans and losses, and the cost of fertilizer, feed, veterinary fees and materials to pack and ship goods. Other eligible expenses are machinery rental, electricity, insurance, and motor vehicle expenses. To find out more, go to cra.gc.ca/smallbusiness and click on “Report business or professional income and expenses.”
When it’s time to harvest your crops, you may need a helping hand (or two) out in the field and if you do hire someone, the cost may be claimed as an expense. If the person you hire is a qualified Red Seal trade apprentice, like an agricultural equipment technician, you may also be able to claim the apprenticeship job creation tax credit. This non-refundable investment tax credit is 10 per cent of the apprentice’s salary or wages. The maximum credit an employer can claim is $2,000 per year for each eligible apprentice. For more information about the apprenticeship job creation tax credit, go to cra.gc.ca/smallbusiness and click on “Investment tax credit (line 412),” and then on “Apprenticeship Job Creation Tax Credit (AJCTC).”
Reporting income or loss
As with any business, not every year will be profitable. When your farming business expenses are more than your farming business income in a year, you have a net loss. You can transfer a farm loss amount back to any of the preceding three years or forward to any of the next 20 years to deduct the loss from income for another year. For more information on farm losses and how to calculate and apply them, see Chapter 6 of CRA Guide T4003, Farming and Fishing Income.
Eligible farmers who dispose of breeding livestock in a tax year because of drought or flood can exclude part of the sale proceeds from their income until the next tax year, under the livestock tax deferral provision. This provision also covers breeding horses over 12 months of age and certain breeding bees. For more information, see Chapter 2 of Guide T4003.
To avoid the stress of ploughing through countless invoices and receipts, stay on top of your record keeping during the year. Records of your business-related expenses will support your claims. These records need the same constant and conscientious care as your crops. Without supporting documents, the CRA may not allow a credit or deduction. To learn more, go to cra.gc.ca/records.
Completing your return
The legislated deadline for most Canadians to file their income tax and benefit return is April 30. Since that date is a Sunday in 2017, the CRA will consider your return as filed on time and your payment to be made if the CRA receives your submission or it is postmarked no later than May 1. Self-employed individuals and their spouses or common-law partners have until June 15 to file their returns. However, if those persons have a balance owing to the CRA, that amount is due no later than May 1.
If you’re facing cash flow problems and can’t pay your tax balance owing in full, you may be able to pay off your tax debt in more than one payment. You can set up a pre-authorized debit payment agreement through the CRA’s My Business Account or My Account service or by calling 1-888-863-8657. To learn more about your payment options, go to cra.gc.ca/payments.
This year, you can file your return online as early as February 20. The CRA has a list of certified tax preparation software on its website, including some software that is free. Last year, more than 84 per cent of individuals filed their tax return online. File online, so you can spend less time working on your return and more time doing the things you love. To find out more, go to cra.gc.ca/netfile.
When filing online, you can save valuable time by using the CRA’s auto-fill my return feature. This feature automatically fills in parts of your return. For more information, go to cra.gc.ca/auto-fill. If you sign up for online mail, you can find out the status of your return immediately after you file your return and receive your notice of assessment the next day.
When it comes time to file your return, don’t risk your reputation and your business by intentionally underreporting your income. If you get caught evading tax, you may face fines, penalties, or even jail time. It’s not worth the risk. Don’t participate in the underground economy. For more information, go to cra.gc.ca/undergroundeconomy.
If you make a mistake or omission, the CRA offers you a chance to set things right under the Voluntary Disclosures Program. If you make a valid disclosure before you know about compliance action taken against you by the CRA, you may only have to pay the tax owing plus interest. You can get more information about the program at cra-arc.gc.ca/voluntarydisclosures.
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