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Filing a tax return for your farm

Filing a tax return for your farm

Posted on: February 03, 2014
Author: Staff

This article is provided by Intuit Canada and is for general information only. You are encouraged to seek professional tax advice if you have questions.

Learn more about Intuit and TurboTax

Like the harvest, tax season will arrive faster than you think. By planning now, you can limit headaches and stress later, but that means understanding exactly where you stand and discovering the advantages you have as a farmer. There are a number of things that must be taken into account. The following insights will help shed light on your situation:

Who qualifies as a farmer?

To qualify, your farming activities must be of a business nature, must consume a significant amount of time, and your resources must be aimed at future expansion. For instance, community gardens are great, but planting flowers or vegetables in your local park does not make you a farmer – at least according to the Canada Revenue Agency (CRA). But what does?

When it comes to filing taxes, farming includes soil tilling, livestock-raising or showing, racehorse maintenance, poultry-raising, dairy farming, beekeeping, and a number of other endeavours, all of which can be found here.

Raising fish, market gardening, operating a nursery or greenhouse or a maple sugar bush also qualify, though only under certain circumstances. Before filing taxes for your farm, confirm that you are eligible. Interestingly, those that work as employees of farming businesses are not.

So you're a farmer, but how do you report your income?

There are two ways to do this: accrual and cash. You can choose either method. It is important to note that if you choose the accrual method, you would not have to consider when you are paid and when you pay for expenses. Revenue and expense deductions apply to the year in which they were incurred. Note also that inventories must be taken into account.

On the other hand, when using the cash method you report income in the year you receive it and deduct expenses in the period in which you pay them. Moreover, you don't need to take your inventory into account when calculating your income. You can change from accrual to cash whenever you like, but to do the reverse you must gain permission from tax services.

Both methods are based on a predetermined fiscal period—typically 12 months and, in most cases, ending on December 31.

What else do you need to know?

There are many things to keep in mind when filing. For one, did you know that, as long as you're using a building on your property to farm—or if you have a stake in a family farm's capital stock or interest in a partnership—then you qualify for capital gains deductions?

Also, if farming accounts for more than 50 per cent of your income then you can claim your farm losses. And if it's a major source of income but not your primary means, then you can still claim restricted losses up to $17,500 against your cumulative income.

Whether you're a multi-generational farmer, a long-time owner, or a new partner, there is much to understand. While the above will prove helpful, you can find a more comprehensive guide here.

You can file your taxes from the comfort of your own home using TurboTax.

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