Basics, Business Income, CRA & Revenu Québec, Self-Employed

Tax Breaks for Farmers

Who doesn’t love wandering around a farmers’ market? Tables overflowing with the freshest lettuce, spinach and kale vie with mounds of the plumpest tomatoes and peppers – the produce at a farmers’ market is a feast for the eyes as well as the stomach. Here in Canada we are truly blessed to have as many food producers as we do working the land to provide tasty safe food for all of us.

Especially when you consider how much farmers have to contend with, such as what appears to be a never-ending winter!

As consumers, we can support our farmers by buying their food locally and looking for the ‘product of Canada’ label when we’re shopping in grocery stores.

The government of Canada supports farmers by providing programs to help keep farms viable such as AgriStability and AgriInvest, risk management programs that help protect farms from drops in income.

There are also tax breaks for farmers.

First, farming is a business so farmers can deduct all the usual business expenses from their business income, including Business-use-of-home expenses if they used their farmhouse for business reasons.

But farming is a special kind of business, so farmers can also claim deductions that other businesses cannot, such as the cost of fertilizers and lime, veterinary, medicine and breeding fees and fence repairs.  Interest on loans and the amount of deductible premiums to the Crop Insurance Program are also claimable.

Farmers also have advantages when it comes to capital gains

For instance:

  • Each individual taxpayer is entitled to realize $883,384 of capital gains tax-free on qualifying farm property during their lifetime. Qualifying property includes real property and quota used in a farming business, as well as shares in a family farm corporation or an interest in a family farm partnership.
  • If you are a farmer, you can transfer ownership of your assets to your spouse at cost, which means that no capital gains will be realized until your spouse disposes of the property.
  • You can also transfer the ownership of capital property used in your farming business to your children at cost. Once again, no capital gains will be realized until your children sell the property.

There is a catch though

To qualify for the tax deductions above, you have to be a full-time farmer, a person who is operating a farm as a business in the expectation of making a profit. Being a hobby farmer doesn’t count tax-wise.

And besides being eligible for all the deductions above, full-time farmers have no limit on the amount of losses that are deductible. Such a loss can be deducted from your income from all sources – and carried back for three years or carried forward for up to 20 years.

If you ran your farm as a business but farming was not your chief source of income, your loss will be restricted and how much you can deduct from your other income will depend on the amount of your net farm loss.

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