Farming income has its own rules in Canada. Farmers may report on a cash basis, most farm support programs run through the tax return, and farm property can pass to children on terms that other property cannot. Each of those choices has consequences for years afterwards.
The points where tax and accounting rules come into play are numbered.
Numbered points are explained below.
At: Plan the season
AgriStability can support the farm in a bad year, but only if you enrolled in time. It is a margin-based program that responds when whole-farm profitability falls; participants enrol by the program’s deadline and report their farm income and expenses for the program every year.
We prepare the program reporting from the same records as your tax return.
At: Sell
The method you use changes how much farm income you report in each year. Farmers can report on the cash method: income when received and expenses generally when paid, though most prepaid expenses are deducted in the year they relate to. Inventory is generally left out, but an inventory adjustment can apply; switching from the accrual method needs a statement of adjustments with the return.
We keep your records to suit the method you use and prepare the adjustments if you switch.
At: Year-end
Passing the farm on is often the largest tax decision a farm family makes. The Income Tax Act lets a parent transfer farm land and certain depreciable farm property to a child during the parent’s lifetime at an amount that can defer the gain, with specific rules on who counts as a child and what property qualifies.
We work through the transfer with you and your lawyer before anything is signed, and report it on the return.
Farm income is reported on the T1 or T2 each year, and the cash method choices are made there.
Program reporting and the tax return both depend on clean records of farm income and expenses.
Seasonal cash flow and equipment decisions benefit from a forecast built around the crop year.
Farm property left to a child on the owner’s death can qualify for a tax deferral, reported on the final return.
Yes. Farmers, fishers and self-employed commission agents are the only businesses allowed to use it; other self-employment income is reported on the accrual method.
The Income Tax Act allows a deferral for qualifying farm property transferred to a child. Whether it applies, and at what amount, depends on the property and how it has been used.