Most of the tax rules that apply to Canadian small business owners also apply to farmers and agricultural producers.
There are however some expenses, tax deductions and write-offs that apply specifically to income earned through agricultural activities that will help lower your tax bill.
Expenses, tax deductions and write-offs for Canadian farmers
Building repairs and maintenance
This includes repairs to fences and buildings used for farming (this excludes your farmhouse).
You can deduct expenses for the business use of a work space in your home. This includes part of your maintenance costs (cleaning materials, utilities, home insurance) along with part of your property taxes and mortgage interest.
To claim this expense and avoid scrutiny of the Canada Revenue Agency (CRA), make sure you’ve calculated the percentage of your home that’s used for your farm business and apply that percentage to the tax deduction.
For example, if you’re living in a 1,000-square-foot house, and your work space is 100 square feet, you’re using 10 percent of your home for business use, that means you can deduct 10 percent of your expenses.
Capital Cost Allowance
If you acquire a depreciable property or asset for your farming business, such as a building, furniture, or equipment, and it is valued at more than $500, you can deduct its cost over a period of several years. This yearly deduction is called a capital cost allowance (CCA). There are a few rules you need to follow to claim it.
You cannot deduct its full cost when you calculate your net business income for the year in which you acquired the asset or property. It must be deducted over a period of years.
Silos, for example, are considered Class 8 property which allows you to deduct 20% for your annual CCA.
Tractors, trailers and trucks are typically considered Class 10 which allows for 30% CCA.
There are different rules and classes depending on the asset, its use and its value. We recommend talking to a tax specialist to determine the optimal application for this deduction.
Clearing, levelling and draining land
You can deduct expenses associated with clearing trees, roots, stones and brush from your farmland, building an unpaved road and installing land drainage.
Containers and twine
You can deduct expenses for materials you bought to package, contain or ship farm produce or products.
Crop insurance, Revenue Protection Program, and stabilization premiums
This includes premiums to participate in programs such as AgriStability, AgriInvest, AgriInsurance and AgriRecovery.
Custom or contract work (includes machine rentals)
This includes costs related to hiring subcontractors, rental equipment used in earning farming income (aerators, dozers, plows, etc.).
A word of caution: you must ensure that the fees you are paying for subcontractor work would not qualify as an employee wages as you may later find yourself on the hook for unpaid employment premiums, taxes and may be subject to penalties and interest.