If you earn money from farming, you have to report your income to the CRA. The agency considers income from a range of sources as farming income, and failure to report it can result in penalties.
Defining Farming Income
Any income you receive from tilling soil, raising livestock, maintaining racehorses or other such farming activities counts as farming income. In addition to income from dairy, fruit and tree farms, you also have to declare income from beekeeping and wild game reserves.
In some cases, income from raising fish, plant nurseries or maple sugar bushes can also qualify as farming income. Additionally, if you receive farming support payments, you may have to report those amounts as income if they are included on your AGR-1 slip.
Trade and Barter Arrangements
In addition to requiring you to report cash payments you receive for your farming activities, the CRA requires you to report payments in kind. For example, if you raise poultry and you give some of your poultry to your neighbor in exchange for some of his peaches, you must report the peaches as income. Use the fair market value of such products on the day that you receive them.
Failure to Report Farming Income
If you fail to report some of your income, the CRA may reassess your tax return and hold you responsible for unpaid taxes. Additionally, the agency will charge you a 10 percent penalty on the amount you failed to report.
Income Reporting Methods
There are two different ways to report your farm income: the cash or accrual method.
Under the cash method of accounting, you report the income the year that you receive it, and report the expenses the year that you pay them. Under the accrual method, you report the income and expenses for the year that they are earned or accrued, regardless of when you receive or pay them.
For example, if you agree to sell one ton of wheat for $280, under the accrual accounting method you will consider the funds as income when you agree to the sale. However, under the cash method, you do not report the money until you actually have it in hand.
If you want to change between these methods, you can quit using the accrual method and jump to the cash method at any time. However, you must account for adjustments between the two methods and include a statement noting the adjustments with your income tax return.
If you use the cash method and want to switch to the accrual method, you must request the change in writing. Submit the request to your nearest tax centre.
Filing Your Tax Return
When you are ready to file your income tax return, use form T2042 – Statement of Farming Activities to report your farming income and expenses. However, if you participate in the AgriInvest or AgriStability programs, you must use forms T1273 – Statement A – Harmonized AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals or T1163 – Statement A – AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals, depending on where you live.
To guide you through these forms and provide additional information on farming income, the CRA offers residents of Prince Edward Island, Ontario, Saskatchewan or Alberta, guide RC4060 Farming Income and the AgriStability and AgriInvest Programs Guide and residents of the rest of Canada guide RC4408 – Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide.