Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide 2018 - Chapter 3 – Calculating your farming income or loss

From: Canada Revenue Agency

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These sections of the form are used to calculate your Allowable Net Sales for AgriInvest. Allowable Net Sales are allowable commodity sales and program payments, less allowable purchases. For more information on Allowable Net Sales and how we calculate benefits under AgriInvest, see the AgriInvest Program Handbook or go to AgriInvest.

We also use these sections to calculate the cash portion of your program year margin for AgriStability. For more information on how we calculate AgriStability margins, see your program handbook or visit the program website.

Use the Commodity and Program payment code lists found at the back of this guide to report all income and expenses on your T1273. Codes may change from year to year. Check the lists to make sure you use the right code.

If you use the accrual method of accounting, report all your sales and your changes in opening and closing commodity inventories separately using the code for the commodity to report both entries.

If you have more than one farming operation, use form T1274 for each additional operation. Instructions in this chapter apply to both forms.

To make sure you report your information correctly for AgriStability and AgriInvest, read the following instructions carefully.

Income

An agricultural commodity is a plant or an animal produced in a farming business.

Some commodities that may be considered farming income for income tax purposes are not allowable for AgriStability and AgriInvest including:

  • aquaculture
  • trees and seedlings sold for use in reforestation
  • wood sales
  • peat moss
  • wild game reserves
  • cannabis (except for industrial hemp)

Where permitted by law, hunt farms (not wild game reserves) are eligible. For more information on how to apply if you operate a hunt farm, contact your Administration.

If you do not produce any allowable commodities on your farm, use form T2042 to report your farming income from non-allowable commodities to the CRA.

If you produce both allowable and non-allowable commodities on your farm, report the income from:

  • Non-allowable commodities on line 9600, except for woodlots. Report woodlot sales using code 259.
  • Allowable commodities on the "Commodity sales and program payments" section of the form. Use the codes at the end of this guide. Report allowable commodity sales based on the point of sale conditions outlined further on this page.

Sales and purchases of supply managed commodities are not allowable for AgriInvest. You must produce allowable commodities in addition to your supply managed commodities to participate in AgriInvest. Enter both your supply managed and non-supply managed commodities on the "Commodity sales and program payment" section of the form. Use the codes found at the back of this guide.

If you have questions about whether a commodity you produce is allowable for AgriStability and AgriInvest, call 1-866-367-8506.

Farming activities outside Canada

If you produce a commodity in Canada, then ship it outside of the country for further production, the income and expenses generated once the commodity leaves Canada are non-allowable for AgriStability and AgriInvest.

When shipping commodities outside Canada for further production, include the fair market value (FMV) of the commodity at the point it leaves Canada as allowable income using the code for the commodity.

If the commodity is returned to Canada for further production or sale, include the FMV of the commodity at the point it enters Canada as an allowable purchase using the code for the commodity.

If you purchase livestock, you must have made an appreciable contribution to the growth or its increase in value in Canada for the income and expenses to be considered allowable. For AgriStability, commodities reported in the "Livestock inventory valuation" and the "Livestock productive capacity" sections of the form should reflect the allowable production that occurred in Canada only.

Point of sale

AgriInvest benefits are based on Allowable Net Sales, so you have to determine when the sale occurs. For AgriInvest, the point of sale for your allowable commodity is determined by the following conditions:

  • you produce it on your farm
  • it is separate and identifiable from other producers' commodities
  • you bear full risk for it
  • you have a separate billing or accounting transaction that shows the sale value and any deductions from that value

The point of sale is when you:

  • can no longer identify your commodity as your own
  • are no longer at risk for the value of the commodity

If your commodity sales meet these point of sale conditions, fill in the code, name, and gross sale amount of each commodity on the form.

Example

You have potato sales of $50,000, you fill in:

147potatoes$50,000

If you received a cheque for a commodity sale that is net of expenses, report the sale to include the full value of the commodity.

Example

Your receipt from the processor shows:

$10,000
gross apple sales
− 1,500
pack-and-sell costs
$8,500
net sales

Enter $10,000 as your gross apple sales, and $1,500 as an expense on "line 9836 – Commissions and levies."

If your commodity sales include charges that were applied after the point of sale, adjust your sales to show the value of the commodity at the point of sale. Enter any amounts charged after the point of sale on "Line 575 – Point of sale adjustments." This will ensure that we calculate your Allowable Net Sales correctly.

Example

Your cash ticket from the elevator shows:

$7,000
gross wheat sales
− 1,500
freight charges
− 300
elevation charges
$5,200
net sales

Enter the gross wheat sales of $7,000 as income. Enter the freight charges of $1,500 and the elevation charges of $300 as a point of sale adjustment on line 575, under "Commodity purchases and repayment of program benefits" (not under "Allowable expenses"). You enter these charges on line 575 because you incurred these expenses after you delivered your grain to the elevator (for example after the point of sale).

Payment in kind

A payment in kind occurs when you receive or give goods or services instead of money. For instance, to pay someone for a business expense, you may give them something you produced on your farm instead of money. When you do this, include the fair market value (FMV) of the goods or services in income. Use the appropriate code for the commodity. Enter the same amount as an expense.

If you received a payment in kind for a product you would normally have sold, include the FMV of the product in income.

If you were a landlord renting out land involved in sharecropping, we consider any payment in kind you received to be rental income.

Example

You owe your landlord $1,000 for rent. Instead of cash, you pay him by giving him $1,000 worth of seed. Enter the fair market value of the seed crops ($1,000) that you gave the landlord as a commodity sale. Enter the $1,000 on line 9811 as a rental expense.

Gifts

In your income, include the FMV of livestock or other items you gave that you would normally have sold.

Once you give the livestock or other items away, you cannot deduct any more costs for raising or maintaining them.

Crop share

If you are a tenant in a crop share, you are eligible to apply for AgriStability and AgriInvest.

If you are a landlord in a crop share, you are eligible for AgriStability and AgriInvest only if the crop share arrangement is considered a joint venture.

For AgriStability, your crop share arrangement is considered a joint venture if your share of the allowable expenses reported to the CRA is reasonable for your share of the allowable income.

For AgriInvest, your crop share arrangement is considered a joint venture if your share of allowable purchases reported to the CRA is reasonable for your share of the allowable income.

Eligible tenants and landlords report only their individual share of the allowable income and expenses.

Example 1

You are a tenant in a crop share and receive 60% of the income from the sale of your crop. Enter only your 60% share of the sales under "Commodity sales and program payments." Enter your 60% share of expenses under "Allowable expenses."

Example 2

You are an eligible landlord who receives 40% of the income from the sale of the crop. Enter only your 40% share of the sales under "Commodity sales and program payments." Enter your 40% share of expenses under "Allowable expenses."

Commodity futures

You can report income from commodity futures as a commodity sale for AgriStability and AgriInvest purposes if the income is both:

  • from a primary agricultural product that you produced on your farm
  • considered a hedging strategy

Report the gross income earned from the futures transaction as a commodity sale using the code for the commodity. Report related purchases as a commodity purchase using the code for the commodity.

Report income from futures transactions involving commodities that you did not produce or that were not considered a hedging strategy as other farming income on line 9600. Enter losses as a non-allowable expense on line 9896.

Grains, oilseeds, and special crops

If you sold grain directly or through an agency, include in income all the amounts you received from these sales.

Storage and cash purchase tickets

When you delivered grain to a licensed public elevator or process elevator, you received a storage ticket, a cash purchase ticket, or a deferred cash purchase ticket.

If you received a storage ticket, a sale did not take place. Therefore, you do not have to include that amount in income.

However, if you received a cash purchase ticket, a sale did take place. Since we consider that you received a payment at the time you received the ticket, you must include the amount in income.

If you received a deferred cash purchase ticket, you may be able to defer the income until a later fiscal period. You can do this if the ticket provides for payment after the end of the year in which you delivered the grain. This carryover of income is only allowable in specific situations. For more information, see Interpretation Bulletin IT-184R, Deferred Cash Purchase Tickets Issued for Grain.

Cash advances

Under the Agricultural Marketing Programs Act, you may be able to get advances for crops that someone stores in your name. We consider these advances to be loans. Do not include these payments in your income if you have not sold the crops. Include the full amount from the sale of your crops in your income for the tax year in which the sale occurs.

Tree production

Allowable tree production

Trees must be produced through farming activity to be allowable for AgriStability and AgriInvest. Farming activity for trees includes:

  • planting
  • nurturing
  • harvesting

Operations must:

  • pay significant attention to managing the growth, health, and quality of the trees
  • generate normal input and harvesting costs

Allowable tree production includes regular seeding and harvesting of:

  • trees
  • shrubs
  • herbaceous perennials
  • annuals, including ornamental, fruit, and Christmas trees

Report income, expenses, and inventory of allowable tree production using the code for the commodity.

Non-allowable tree production

Trees produced or harvested for the following reasons are non-allowable for AgriStability and AgriInvest:

  • firewood
  • construction material
  • poles or posts
  • fibre, pulp and paper
  • trees and seedlings destined for use in reforestation

Enter income from these non-allowable items on "line 9600 – Other (specify)."

Wood sales (including stumpage)

If you operated or regularly harvested a woodlot, use commodity code 259 to report the sale of trees, lumber, logs, poles, or firewood in your income. This income is non-allowable for AgriStability and AgriInvest.

From this income, you can deduct a type of capital cost allowance known as a depletion allowance. For more information, see Interpretation Bulletin IT-481, Timber Resource Property and Timber Limits.

If you earned the income by letting other people remove standing timber from your woodlot, the proceeds may be a capital receipt. A taxable capital gain or an allowable capital loss may result. For more information on capital gains and losses, see Chapter 8 and guide T4037, Capital Gains.

For more information on the sale of wood, see Income Tax Folio S4 F11 C1, Meaning of Farming and Farming Business.

Livestock

Include insurance payments you received for loss of livestock in the commodity sales column using the livestock commodity code.

Custom feedlot operators

For AgriStability, income and expenses may be allowable if you:

  • grew (or purchased) the feed used in your custom feeding operation
  • made an appreciable contribution to the growth and maturity of the livestock

For AgriInvest, income you earned from custom feeding is allowable based on the value of allowable commodities you grew (or purchased) and fed to custom fed livestock.

If your custom feeding invoices are itemized, enter:

  • allowable feed and protein supplements as a prepared feed sale under "Commodity sales and program payments" using code 243
  • other itemized charges under "Commodity sales and program payments" using code 576

If your custom feeding invoices are not itemized, enter:

  • the amount invoiced as a prepared feed sale under "Commodity sales and program payments" using code 246. We will use 70% of this amount to calculate your Allowable Net Sales.

PMU contract cancellation income

Income you received from the buy-out of pregnant mare urine (PMU) contracts is allowable if paid in lieu of the income you would have received for the sale of the product under the contract. Penalty fees and other compensation are non-allowable.

Use code 322 to report amounts you received for your Collection Agreement, Herd and Health payments, West Nile Reimbursement, and Equine Placement Fund.

Use line 9600 – Other (specify) to report amounts you received for Business Planning Subsidy and capital costs.

Canadian Food Inspection Agency (CFIA) – Destroying livestock

You have to include in income any payments you received under the Health of Animals Act for destroying animals.

Use the CFIA program payment codes to report CFIA payments you received. For more information on how to report your CFIA payments, see Income from program payments.

You can choose to deduct all or part of the payment as an expense in the year. However, if you choose to do this, you have to include in your income for your next fiscal period the amount you deduct in your 2018 fiscal period. If you deferred payments in your 2017 fiscal period, you have to include the deferred amounts as income in your 2018 fiscal period. Use the codes found in the PDR/PFR/CFIA deferred livestock codes to report these amounts.

Prescribed drought region (PDR) and Prescribed flood region (PFR)

The Livestock Tax Deferral provision allows you to sell part of your breeding herd due to drought or flooding in a prescribed drought or flood area. You would be permitted to defer a portion of your sales proceeds to the following fiscal period or a later year if the condition persists and your region is still a prescribed region.

To be able to do this, you must meet these two conditions:

  • your farming business was located in a PDR or PFR at some time during your 2018 fiscal period
  • you reduced, by sale or other means, the number of breeding animals in your breeding herds by at least 15%

For a list of the prescribed regions of drought, flood or excessive moisture, contact the CRA or Agriculture and Agri-Food Canada or visit canada.ca and search for "Drought Watch" or "Livestock Tax Deferral provision."

Income deferral

The following animals kept for breeding that are over 12 months of age are considered breeding animals eligible for the income deferral:

  • bovine cattle
  • bison
  • goats
  • sheep
  • deer, elk, and other similar grazing ungulates
  • horses you breed to produce pregnant mare's urine that you sell

Eligibility for the income deferral includes:

  • all horses over 12 months of age kept for breeding
  • breeding bees not used mainly to pollinate plants in greenhouses and larvae of such bees. For the purposes of the income deferral rule, breeding bee stock is defined as follows:
    • at any time, a reasonable estimate of the quantity of your breeding bees held at that time in the course of carrying on a farming business using a unit of measurement that is accepted as an industry standard

The unit of measurement at the end of the year is the same as that used for the beginning of the year. A formula is used to calculate what you can defer for breeding bees.

To determine the size of your breeding herd at the end of your 2018 fiscal period, fill in the following chart.

Breeding herd chart
Part 1

How many of your female bovine cattle over 12 months of age held at the end of your 2018 fiscal period have given birth?

 
Line 1

How many of your female bovine cattle over 12 months of age held at the end of your 2018 fiscal period have never given birth?

 
Line 2

Enter one half of the amount from line 1

 
Line 3

Enter either the amount from line 2 or line 3, whichever is less

 
Line 4
Part 2

How many breeding animals did you have at the end of your 2018 fiscal period?

 
Line 5

Enter the amount from line 2

 
Line 6

Enter the amount from line 4

 
Line 7

Line 6 minus line 7

 
Line 8

Number of breeding animals in your breeding herd at the end of your 2018 fiscal period: line 5 minus line 8

 
Line 9

If the amount from line 9 is not more than 85% of the number of animals in your breeding herd at the end of your 2017 fiscal period, you can defer part of the income received in 2018 from the sale of breeding animals.

Before you determine how much you can defer, you need to calculate a few amounts. First, determine your sales of breeding animals for your 2018 fiscal period minus any reserves you claimed for these sales.

A reserve is created when you sell property and do not receive the full proceeds at the time of the sale. Instead, the amount of proceeds is spread over a number of years, which allows you to defer reporting these proceeds to the year in which you receive them. For more information on reserves, see Interpretation Bulletin IT-154R, Special Reserves.

When you have determined your sales of breeding animals, subtract from this amount the cost of breeding animals you bought in your 2018 fiscal period. The result is your net sales amount.

You then determine how much you can defer as follows:

  • if the amount at line 9 is more than 70% and not more than 85% of your breeding herd at the end of your 2017 fiscal period, you can defer up to 30% of your net sales amount
  • if the amount at line 9 is between 0% and 70% of your breeding herd at the end of your 2017 fiscal period, you can defer up to 90% of your net sales amount

You do not have to defer all of this income. You can include any part of it in your 2018 income. However, the deferred income must be reported in the fiscal period that ends in either:

  • the year beginning after the period or periods when the region stops being a PDR or PFR
  • the year when the farmer dies
  • the first year when, at the end of that year, the farmer is a non-resident and has ceased to carry on business through a fixed place of business in Canada

If you want, you can elect to report the deferred income in the year after you deferred it.

Report the income you received from the sale of breeding animals as a commodity sale using the commodity code (see "Commodity list"). Report the amount you are deferring as a purchase using one of the deferred livestock codes listed below.

In the year that you must report the deferred income, report it under commodity sales using the same deferred livestock code you used before.

PDR/PFR/CFIA deferred livestock codes
Deferred livestock Livestock codes
Deferred bovine cattle 150
Deferred bison 151
Deferred goat 152
Deferred sheep 153
Deferred deer 154
Deferred elk 155
Deferred horse for PMU sales 156
Deferred other breeding animals 157

If your farming business was not in a PDR or PFR at any time during your 2018 fiscal period, you cannot defer the amount you received when you sold breeding animals. Also, you must include in your 2018 income any unreported amounts you deferred in earlier years.

However, as long as your farming business was in a PDR or PFR at any time in your 2018 fiscal period, you do not have to include income you deferred in earlier years.

Income earned from the use of commodities

Include income earned from the use of commodities with commodity sales, except for pollination services. For example, report income from stud fees with horse sales. However, enter income earned from pollination services using code 376.

Private insurance proceeds for allowable commodities

Use code 661 to enter proceeds you received from private insurance for revenue losses for allowable commodities.

For example, enter proceeds you received from Global Ag Risk for production losses of allowable commodities using this code.

Insurance proceeds for allowable expense items

Use code 406 to enter insurance proceeds you received for allowable expense items, such as fertilizers, chemicals, fuel, or twine.

Income from program payments

For AgriInvest, only payments received for the loss of an allowable commodity are included in your Allowable Net Sales. For example:

  • AgriInsurance (production/crop/hail insurance)
  • private insurance for allowable commodities
  • wildlife damage compensation

For AgriStability, only payments that compensate you for losses covered under AgriStability are included in your program year margin.

Use the codes found in the Program payment list A or B to report your program payment. Enter the program payment code, name, and amount under "Commodity sales and program payments."

If you recorded program payments net of expenses in your books (for example, income minus expenses), report the full amount of the payment as income and the deductions as an expense.

Example

$6,000
hail insurance proceeds
− 2,000
premiums
$4,000
net proceeds

Enter $6,000 as a program payment using Code 401 "AgriInsurance (production/crop/hail insurance) - Grains, oilseeds, and special crops."

Enter $2,000 as an allowable expense, on line 9665 – Insurance premiums (crop or production).

You should receive an AGR-1 slip, Statement of Farm-Support Payments, identifying all 2018 taxable farm-support program payments from which you received more than $100. These include farm-support programs administered by the federal, provincial, territorial, and municipal governments, and by producer associations.

You have to include in income all taxable farm-support payments you received in your 2018 fiscal period, including amounts of $100 or less.

If your farm is operated as a partnership, only one partner should attach the AGR-1 slip to his or her income tax return. However, if your partnership has to file a partnership information return, you should file the AGR-1 slip with that return.

If the annual period of the AGR-1 slip is not the same as the fiscal period of your farming operation, report only the part of the farm-support payments you earned during your normal fiscal period. For example, if your farming business has a fiscal period ending on June 30, 2018, and your AGR-1 slip shows income of $10,000 in box 14, but you earned only $6,000 of that income by June 30, 2018, include only $6,000 in your income for your 2018 fiscal period. Include the remaining $4,000 in your next fiscal period. However, include the AGR-1 slip issued for the 2018 calendar year with your 2018 income tax return or partnership information return.

The back of the AGR-1 slip contains information about how to report amounts that appear in the various boxes.

Canadian Food Inspection Agency (CFIA)

Enter the portion of CFIA payments you received for:

  • The loss of an allowable commodity using code 663 "CFIA payment for allowable commodities."
  • The loss of a commodity that is non-allowable for AgriStability or AgriInvest using code 587 "CFIA payments for non-allowable commodities." For example, a payment you received for the loss of trees destined for use in reforestation.
  • The loss of a supply managed commodity using code 664 "CFIA payment for supply managed commodities."
  • Costs not directly related to a commodity loss using code 665 "CFIA payment for other amounts." For example, a payment you received for the cost of carcass disposal.

Payments from the AgriStability and AgriInvest programs

Do not report any government contributions you have withdrawn from Fund 2 of your AgriInvest account on this form.

Payments you receive from AgriStability (shown in box 14 of your AGR-1) are considered farming income. Enter these payments on line 9544 – Business risk management (BRM) and disaster assistance program payments.

If you received an AGR-1 slip with a negative amount in box 14, enter this amount on line 9896 – Other (specify). You could have a negative amount if you were in an overpayment in one year and repaid the money the following year.

Other farming income

The instructions for completing "Other farming income" apply to forms T1273 and T1274.

Rental income

Except for leases explained under line 9613 you do not usually include rental income in your farming income. To determine your rental income, use form T776, Statement of Real Estate Rentals. You will find this form in guide T4036, Rental Income. Enter the amount of your net rental income on line 126 of your income tax return.

However, for AgriStability and AgriInvest, landlords are eligible if the crop share arrangement is a joint venture. For more information, see Crop share.

If you were a landlord renting out land involved in sharecropping, we consider the payments you received, whether in kind or cash, to be rental income for tax purposes.

Line 9540 – Other program payments

Include the total income you received from all other stabilization and farm subsidy programs made to farm producers under federal, provincial, municipal, territorial or joint programs that are not listed on Program payment list A or B or under line 9544.

If you received an overpayment from any of these programs, enter the amounts you repaid on line 9896 – Other (specify).

Do not include AgriInsurance (production/crop/hail insurance) on this line.

Line 9544 – Business risk management (BRM) and disaster assistance program payments

Enter any payments you received from federal or provincial BRM and disaster assistance programs (AgriStability and Canadian Agricultural Income Stabilization (CAIS), including interim or Targeted Advance payments).

If you received an overpayment from any of these programs, enterthe amounts you repaid on line 9896 – Other (specify).

Do not include AgriInsurance (production/crop/hail insurance) on this line.

Line 9574 – Resales, rebates, GST/HST for allowable expenses

Enter the total resales and rebates of allowable expenses, including GST/HST rebates, unless you have already reduced your expenses by these amounts.

Line 9575 – Resales, rebates, GST/HST for non-allowable expenses, and recapture of capital cost allowance (CCA)

Enter the total resales and rebates for non-allowable expenses, including GST/HST rebates, unless you have already reduced your expenses by these amounts.

Recapture of capital cost allowance (CCA)

Include in your income the amount of any recapture of CCA you have from selling depreciable property such as tools and equipment.

Fill in the "Calculation of capital cost allowance (CCA)" chart on form T1175, Farming – Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses, to find out if you must report any recapture of CCA. For more information, see Chapter 5.

Line 9601 – Agricultural contract work

Enter the total of your incidental farming income from such things as custom or contract work, harvesting, combining, crop dusting or spraying, seeding, drying, packing, cleaning, and treating seeds.

To report income you received from renting farm machinery, see line 9614 – Machine rentals.

If you are a custom feedlot operator, see Custom feedlot operators for more information on reporting your custom feeding income.

Line 9605 – Patronage dividends

Enter your total patronage dividends (other than those for consumer goods or services) that are received by eligible members of agricultural co-operatives on line 9605.

If you receive a patronage dividend in the form of "tax deferred co-operative shares" there is no need to immediately include it in income. Tax may be deferred to the year in which the shares are disposed of or deemed to be disposed of. The balance of the shares could then be carried forward and sheltered until actual or deemed disposition.

The temporary deferral of tax on patronage dividends paid by an agricultural cooperative corporation in the form of eligible shares is extended in respect of eligible shares issued before 2021.

Line 9607 – Interest

Enter the total incidental interest earned on business accounts related to your farming business, not interest on personal accounts and investments.

Line 9610 – Gravel

Enter the amounts you received from the sale of soil, sand, gravel, or stone. For some of these items, you can claim a depletion allowance.

Line 9611 – Trucking (farm-related only)

Enter the amounts you received for trucking related to your farming business.

Line 9612 – Resales of commodities purchased

Report the total sales of commodities that you did not produce on your farm. These are commodities that you bought for resale.

Enter the corresponding purchases you made in this fiscal period on line 9827 – Purchases of commodities resold.

Line 9613 – Leases (gas, oil well, surface, etc.)

If you received payments for leasing your farmland for petroleum or natural gas exploration, these payments will be either income or a capital receipt.

Include in your income the yearly amounts for rental, severance, or inconvenience from a surface rental agreement.

The first payment from these agreements is often larger than the rest of the annual payments. However, the agreement may not specify how much of the first payment is for such things as damage to land, land improvements, severance, inconvenience, or the first year's rent. When this happens, in the year you received the first payment, include in income an amount that is equal to the annual payment you will receive in the following years. The rest of the first payment is a payment for property. This may result in either a capital gain or loss. For more information on capital gains, see Chapter 8.

Line 9614 – Machine rentals

Enter the amounts you received from renting your farm machinery.

Line 9600 – Other (specify)

Enter the total amount of all other types of farming income not listed on the form. Then list the items on the blank lines provided under it.

Report all program non-allowable farming income including:

  • aquaculture
  • trees and seedlings sold for use in reforestation
  • peat moss
  • wild game reserves

Income from wood sales, as defined in Wood sales (including stumpage) is also non-allowable but is reported using code 259.

Income from cannabis (except for industrial hemp) is also non-allowable but is reported using code 382.

The following paragraphs identify some of the other income items you can enter on line 9600.

Insurance proceeds

Enter the amount of any insurance proceeds you received as compensation for loss or damage to certain types of property. Report the amount of insurance proceeds that did not relate to a specific commodity. For example, you may have received insurance proceeds for damage to a building due to fire.

Enter the total insurance proceeds on this line if you are being reimbursed for either:

  • the cost of non-depreciable property you previously deducted as a current expense
  • the cost of property that was a saleable item

Indicate "insurance proceeds" on one of the lines below line 9600. If the insurance proceeds compensated you for damages to depreciable property, and you used all of them to repair the property within a reasonable period of time, include the proceeds as income on this line. Claim a deduction for the same amount in the "Expenses" area of the form. Claim repairs to depreciable property that is machinery on line 9760 and repairs to motor vehicles on line 9819. If you did not spend all of the insurance proceeds on repairs within a reasonable length of time, we consider the amounts you did not spend to be proceeds of disposition. For more information, see column 5 – Proceeds of dispositions in the year.

Insurance proceeds that compensate you for replacement of lost or destroyed depreciable property are considered to be proceeds of disposition for that depreciable property. Do not include this type of insurance proceeds on line 9600. For more information, see Chapter 5. For information on how insurance affects the adjusted cost base of capital property, see Chapter 8.

Do not include insurance proceeds from federal, provincial, or municipal government programs. For the codes to use for government insurance programs, see the Program payment lists.

Miscellaneous

Include in your income amounts you receive from the sale of soil, sand, gravel, or stone. For some of these items, you can claim a depletion allowance.

You can deduct 100% of the cost of property such as small tools if they cost less than $500. If you bought the property and you later sold that property, you have to include this amount as income you received from the sale.

Include in your income prizes you won from fairs or farming exhibitions. For more information, see Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime.

Enter resales and rebates of allowable expenses on line 9574.

Summary of income

From the "Income" section of the form, enter the amount of Total A and the amount of Total B in the "Summary of income" table. Add the totals for your gross farming income. Gross farming income is your total farming income before you deduct expenses.

Expenses

Fill in your expenses in this section. If you have more than one farming operation, use a separate form T1274 for each additional operation.

You cannot include expenses for your personal use of either of the following:

  • property of your farming business
  • partnership property or services

In addition, you cannot include any of the following as part of your expenses:

  • the cost of saleable goods or services you, your family, or your partners and their families personally used or consumed, such as dairy products, eggs, fruit, vegetables, poultry, and meat
  • donations to charities and political contributions
  • interest and penalties you paid on your personal income tax
  • most life insurance premiums (see line 9804 – Other insurance premiums)

For AgriStability, there are two types of expenses:

  • allowable expenses
  • non-allowable expenses

Allowable expenses are the operating or input expenses you paid that directly relate to producing your commodities.

Non-allowable expenses are costs not directly related to producing your commodities. These include amounts paid for interest and capital-related expenses.

For AgriInvest, only allowable commodity purchases are used to calculate your Allowable Net Sales.

Current or capital expenses

Renovations and expenses that extend the useful life of your property or improve it beyond its original condition are usually capital expenses. However, an increase in a property's market value because of an expense is not a major factor in deciding whether the expense is capital or current. To decide whether an amount is a current expense or a capital expense, consider your answers to the questions in the following chart.

Current or capital expenses
Criteria Capital expenses Current expenses
Does the expense provide a lasting benefit? A capital expense generally gives a lasting benefit or advantage. For example, the cost of putting vinyl siding on the exterior walls of a wooden house is a capital expense. A current expense is one that usually recurs after a short period. For example, the cost of painting the exterior of a wooden house is a current expense.
Does the expense maintain or improve the property? The cost of a repair that improves a property beyond its original condition is probably a capital expense. If you replace wooden steps with concrete steps, the cost is a capital expense. An expense that simply restores a property to its original condition is usually a current expense. For example, the cost of repairing wooden steps is a current expense.
Is the expense for a part of a property or for a separate asset? The cost of replacing a separate asset within that property is a capital expense. For example, the cost of buying a compressor for use in your business operation is a capital expense. This is the case because a compressor is a separate asset, and is not a part of the building. The cost of repairing a property by replacing one of its parts is usually a current expense. For instance, electrical wiring is part of a building. Therefore, an amount you spend to rewire is usually a current expense, as long as the rewiring does not improve the property beyond its original condition.
What is the value of the expense? (Use this test only if you cannot determine whether an expense is capital or current by considering the three previous tests.) Compare the cost of the expense to the value of the property. Generally, if the cost is of considerable value in relation to the property, it is a capital expense. This test is not a determining factor by itself. You might spend a large amount of money for maintenance and repairs to your property all at once. If this cost was for ordinary maintenance that was not done when it was necessary, it is a maintenance expense, and you deduct it as a current expense.
Is the expense for repairs made to used property that you acquired intended to put it in suitable condition for use? The cost of repairing used property that you acquired to put it in a suitable condition for use in your business is considered a capital expense, even though in other circumstances it would be treated as a current operating expense. Where the repairs were for ordinary maintenance of a property you already had in your business, the expense is usually current.
Is the expense for repairs made to an asset in order to sell it? The cost of repairs made in anticipation of selling a property, or as a condition of sale, is regarded as a capital expense. Where the repairs would have been made anyway, but a sale was negotiated during the course of the repairs or after their completion, the expense is considered current.

For more information, see Chapter 5 and Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Do not include any of the following in your expenses:

  • salary, wages (including drawings) paid to self, partner(s), or both
  • the cost of saleable goods or services you, your family, or your partners and their families used or consumed (including items such as food, home maintenance, and business properties)
  • items such as dairy products, eggs, fruit, vegetables, poultry, and meat
  • donations to charities and political contributions
  • interest and penalties you paid on your income tax
  • most life insurance premiums; for more information on a limited exception see line 9804
  • the part of any expenses that can be attributed to non business use of business property
  • most fines and penalties imposed, under the law of Canada or a province or a foreign country

Disability related modifications

You can deduct expenses you incur for eligible disability related modifications made to a building in the year you paid them. You can do this instead of adding them to the capital cost of your building. Eligible disability related modifications include changes you make to accommodate wheelchairs, such as:

  • installing hand activated power door openers
  • installing interior and exterior ramps
  • modifying a bathroom, an elevator, or a doorway

You can also deduct expenses paid to install or get the following disability related devices and equipment:

  • elevator car position indicators (such as braille panels and audio indicators)
  • visual fire alarm indicators
  • listening or telephone devices for people who have a hearing impairment
  • disability specific computer software and hardware attachments

Grants, credits, and rebates

Subtract from the applicable expense any grant, credit, and rebate you received.

If the grant, credit, and rebate are for a depreciable asset, subtract the amount of the rebate from the property's capital cost before calculating the capital cost allowance. For more information, see Chapter 5. If the asset qualifies for the investment tax credit, this reduction to the capital cost will also affect your claim. For more information, see form T2038(IND), Investment Tax Credit (Individuals).

If you cannot apply the rebate, grant, or assistance you received to reduce a particular expense or to reduce a capital cost, include the total on line 9574 or 9575. Only include the amount that was not used to reduce the cost of a property or the amount of an outlay or expense.

GST/HST input tax credits

If you claim the GST/HST you paid on your expenses as an input tax credit, reduce the amounts of the business expenses you claim by the amount of the input tax credit. Do this when the GST/HST for which you are claiming the input tax credit was paid or became payable. Enter the net expense figure on the appropriate line of form T1273 or T1274.

Input tax credits you claim for the purchase of depreciable property used in your business will affect your claim for CCA. If you cannot apply the credit you received to reduce a particular expense, or to reduce an asset's capital cost, include the amount as income on line 9574 or 9575 of form T1273 or T1274.

For more information on how the input tax credit for registrants will affect your CCA claim, see column 2 – Undepreciated capital cost (UCC) at the start of the year.

Prepaid expenses

A prepaid expense is an expense you paid for ahead of time. Under the accrual method of accounting, claim the expense you prepay in the year or years in which you get the related benefit. Suppose your fiscal year end is December 31, 2018. On June 30, 2018, you prepay the rent on your building for a full year (July 1, 2018, to June 30, 2019). You can only deduct one half of this rent as an expense in 2018. You can deduct the other half as an expense in 2019.

Under the cash method of accounting, you cannot deduct a prepaid expense amount (other than for inventory) relating to a tax year that is two or more years after the year the expense is paid. However, you can deduct the part of an amount you paid in a previous year for benefits received in the current tax year. These amounts are deductible as long as you have not previously deducted them.

If you paid $600 for a three year service contract for office equipment in 2018, you can deduct $400 in 2018. This represents the part of the expense that applies to 2018 and 2019. On your 2020 income tax return, you could then deduct the balance of $200 for the part of the prepaid lease that applies to 2020.

For more information, see Interpretation Bulletin IT-417R2, Prepaid Expenses and Deferred Charges.

Business-use-of-home expenses

You can deduct expenses for the farming business use of a work space in your home, if you meet one of these conditions:

  • it is your principal place of business
  • you use the space only to earn income from your farming business, and you use it on a regular and ongoing basis to meet your clients or customers

You can deduct part of your maintenance costs such as heating, home insurance, electricity, and cleaning materials. You can also deduct part of your property taxes, mortgage interest, and CCA.

If you rent your home, you can deduct the part of the rent and any expenses you incur that relate to the workspace. To calculate the part you can deduct, use a reasonable basis, such as the area of the workspace divided by the total area of your home.

The amount you can deduct for business-use-of-home expenses cannot be more than your net income from the farming business before you deduct these expenses. In other words, you cannot use these expenses to increase or create a farming business loss. If you claimed business-use-of-home expenses and you report a farming loss on line 9944, you must adjust your loss for income tax purposes at line 9934. For more information on how to make this adjustment, see the instructions for line 9934.

The capital gain and recapture rules will apply if you deduct CCA on the business use part of your home and you later sell your home. For more information about recapture and capital gains rules, see Chapters 6 and 8 as well as guide T4037, Capital Gains.

Include your expenses for business-use-of-home on line 9896 – Other (specify) of form T1273 or T1274. For more information, see Additional expenses (partnerships) and line 9934 – Adjustment to business-use-of-home expenses.

Example

Marjorie calculates that $85 of her household electrical expense is for her farming business use. The total electrical expenses for her farm outbuildings are $1,200. She enters $1,200 on line 9799 and $85 on line 9896.

For income tax purposes, you cannot use business-use-of-home expenses to create or increase a farming loss. Therefore, if you claimed business-use-of-home expenses and you report a farming loss on line 9944, you must adjust your loss for income tax purposes at line 9934. For more information on how to make this adjustment, see the instructions for line 9934.

Business-use-of-home expenses are non-allowable expenses for AgriStability and AgriInvest.

For more information, see Income Tax Folio S4-F2-C2, Business Use of Home Expenses.

Commodity purchases

Report the following as commodity purchases:

  • feed
  • seed
  • plants
  • transplants
  • livestock
  • marketable products

If you are an apple producer replacing damaged or dead trees, enter apple tree purchases using the code for apples. If you are buying trees to expand an orchard, enter this purchase as a capital expense.

Do not include the cost of seeds and plants you used in your personal vegetable or flower garden.

Include expenses you incurred from the use of commodities with the commodity purchases, except for pollination fees. For example, report stud fees with horse purchases. However, enter pollination fees using code 376.

If you made a payment in kind for a farming business commodity purchase, enter the value of the payment as a purchase. For more information, see Payment in kind.

If you are a tenant in a crop share, only include your share of the crop in your income or expenses.

Livestock owners and custom feedlot operators with prepared feed purchases

If the ingredients on your purchase invoices of prepared feed and protein supplements are listed separately, enter:

  • allowable commodities (such as grains, forage, and oilseeds) and protein supplements using code 046
  • the remaining expenses (such as minerals and salts) using code 570

If the ingredients on your purchase invoices of prepared feed and protein supplements are not listed separately, enter your total purchase using code 571 (we will use 65% of this amount to calculate your Allowable Net Sales).

Livestock owners with custom feeding expenses

If the ingredients on your purchase invoices are listed separately, enter:

  • allowable commodities (such as grains, forage, and oilseeds) and protein supplements using code 577
  • the remaining expenses (such as minerals and salts) using code 572

If the ingredients on your purchase invoices are not listed separately, enter your total purchase using code 573 (we will use 70% of this amount to calculate your Allowable Net Sales).

Ranch fur operators with prepared feed purchases

If the ingredients on your purchase invoices of prepared feed and protein supplements are listed separately, enter:

  • allowable commodities (such as grains, forage, and oilseeds) and protein supplements using code 046
  • the remaining expenses (such as minerals and salts) using code 310

If the ingredients on your purchase invoices of prepared feed and protein supplements are not listed separately, enter your total purchases using code 574 (we will use 20% of this amount to calculate your Allowable Net Sales).

Livestock insurance premiums

Enter premiums you paid for private livestock insurance using line 9953 – Private insurance premiums for allowable commodities.

Repayment of program benefits

If you had to repay a program benefit, report the repayment as a purchase using the code for the program. Amounts you repaid are shown in box 17 of your AGR-1 slip.

If you repay a program benefit from the programs listed on lines 9540 and 9544, enter the amounts you repaid on line 9896 – Other (specify).

AgriStability program – Allowable expenses

Line 9661 – Containers and twine

Enter the total amount you paid for material to package, contain, or ship your farm produce or products.

If you operated a nursery or greenhouse, report the cost of your containers and pots for the plants you sold.

Line 9662 – Fertilizers and soil supplements

Enter the total amount you paid for fertilizers and lime you used in your farming business.

If you used soil supplements or other growth media, report the amounts you paid for them here. Examples of soil supplements include mulch, sawdust, and weed-mats.

Report your expenses for water you purchased to produce your commodity (crop or livestock) if it was not included in your municipal taxes.

Line 9663 – Pesticides and chemical treatments

Enter the total amount you paid for herbicides, insecticides, rodenticides, and fungicides.

Insecticides include chemicals for pest control purposes as well as any predators or parasites introduced for that use. Also report the total amount you paid for chemicals used in treating water, manure, or slurry, as well as those used in disinfecting equipment and facilities.

Report seed treatment expenses on this line if the treatment is listed separately from the seed purchase on your original invoice. If not listed separately, include the treatment as part of the commodity purchase.

Line 9665 – Insurance premiums (crop or production)

Enter the total amount of premiums paid for crop or production insurance (AgriInsurance), including hail insurance on this line. For more information on other types of insurance premiums such as private, business-related, or motor vehicle insurance, see line 9804 – Other insurance premiums.

Line 9713 – Veterinary fees, medicine, and breeding fees

Enter the total amount you paid for medicine for your animals, and for veterinary and breeding fees. Examples of such fees include the cost of artificial insemination, stud service and semen, embryo transplants, disease testing, and neutering or spaying. If you used disposable veterinary supplies for your farming business, enter these costs here.

Line 9714 – Minerals and salts

Enter the total purchases of minerals, salts, vitamins, and premixes (which are mainly minerals and vitamins).

If you have purchased feed expenses, see Commodity purchases for information on the codes you use to report these amounts.

Line 9764 – Machinery (gasoline, diesel fuel, oil)

Enter the amount you paid for fuel and lubricants for your machinery used in your farming operation.

Line 9799 – Electricity

Only the part of your electricity costs that relates to your farming business is deductible. To determine the part you can deduct, keep a separate record of the amounts that apply to the farmhouse and other farm properties.

The business part of your electricity expense will depend on how much electricity is used for the barns and shops. Because the electricity for the farmhouse is a personal expense, you cannot deduct it unless you meet the conditions explained in Business-use-of-home expenses. Include your expenses for business-use-of-home on line 9896 – Other (specify).

Do not include the electricity expense for a house that you rented to someone else. This is a rental expense, which you enter on form T776, Statement of Real Estate Rentals. You can get this form in guide T4036, Rental Income.

Line 9801 – Freight and shipping

Enter the amount you paid for shipping farm inputs to your operating site and shipping farm produce to market.

Enter amounts you paid for carcass disposal on this line.

If you were trucking for someone else, the trucking expenses are non-allowable for AgriStability. For more information on how to report these costs, see line 9798 – Agricultural contract work.

For more information on how to report freight and shipping charged after the point of sale, see "line 575 – Point of sale adjustments."

Line 9802 – Heating fuel

Enter the total amount you paid for natural gas, coal, and oil to heat farm buildings. Report your expenses for fuel used for curing tobacco, crop drying, or greenhouses.

You can deduct only the part of these costs that relate to your farming business. To determine the part you can deduct, keep a separate record of the amounts you paid for the farmhouse and other farm properties.

The business part of your heating fuel expense will depend on how much heating fuel you used for the barns and shops. Because the heating fuel for the farmhouse is a personal expense, you cannot deduct it unless you meet the conditions we explain in Business-use-of-home expenses. Include your expenses for business-use-of-home on line 9896 – Other (specify).

Do not include heating fuel expenses for a house that you rented to someone else. This is a rental expense, which you enter on form T776, Statement of Real Estate Rentals. You can get this form in guide T4036, Rental Income.

Line 9815 – Arm's length salaries

Enter the amount of gross wages you paid to your employees. Include the cost of board for hired help. Do not include salaries paid to related persons (see the definition below). If you paid salaries to related persons, see line 9816 – Non-arm's length salaries.

Related persons are:

  • individuals connected by blood relationship, marriage or common-law partnership, or adoption
  • a corporation, and
    • an individual, group of persons, or entity that controls the corporation
    • an individual, group of persons, or entity of a related group that controls the corporation
    • any individual related to a person described above

Salaries or drawings paid to yourself are not deductible for tax purposes.

As the employer, you must deduct your part of CPP or QPP contributions and employment insurance premiums. You can also deduct workers' compensation amounts payable on employees' remuneration and Provincial Parental Insurance Plan (PPIP) premiums. The PPIP is an income replacement plan for residents of Quebec. For details, contact Revenu Québec. For more information on making payroll deductions, go to Payroll.

Do not deduct the amounts you withheld from your employees' remuneration, since you already deducted them in the amount you claimed as wages.

You may have paid wages in kind to your employees. For example, you may have paid your employees by giving them livestock or grain instead of cash. If you did this:

  • your employees include in their income the value of the livestock or grain
  • you include the same amount in your gross sales for the year and deduct it as a wage expense

Keep a detailed record of the amounts you paid to each employee and the employee's name, address, and social insurance number.

Line 9822 – Storage/drying

Enter the amount you paid for storing and drying commodities. For example, include:

  • amounts paid for storage and drying services
  • air treatment expenses
  • purchase of germination inhibitors and other preservative agents

Enter electricity and heating fuel costs incurred in storage and drying commodities on lines 9799, Electricity, and 9802, Heating fuel, respectively.

Line 9836 – Commissions and levies

Enter the amount you paid in commissions and levies incurred in the sale, purchase, or marketing of commodities. Also include levies paid to marketing boards, except those due to penalties or fines you incurred. Do not include commissions paid to a salesperson you contracted to market your product.

If you market fruit or vegetables through a co-op, enter your pack-and-sell expenses here, except pack-and-sell expenses incurred after the point of sale. Enter these amounts on "Line 575 – Point of sale adjustments."

Line 9953 – Private insurance premiums for allowable commodities

Enter your private insurance premiums paid for allowable commodities such as livestock.

Enter premiums for hail insurance on line 9665 – Insurance premiums (crop or production).

Do not include any premiums for:

  • private insurance for non-allowable commodities
  • business-related insurance
  • motor vehicle insurance

For more information on other types of insurance premiums, see line 9804 – Other insurance premiums.

AgriStability program – non-allowable expenses

Line 9760 – Machinery (repairs, licences, insurance)

Enter the total amount of repair, licence fee, and insurance premiums for your machinery. If you received insurance proceeds to help pay for repairs, see Insurance proceeds.

Line 9765 – Machinery lease/rental

Enter the amount you paid for leasing machinery used to earn your farming income.

If you lease a passenger vehicle, see line 9829 – Motor vehicle interest and leasing costs.

If you entered a lease agreement, you can choose to treat your lease payments as combined payments of principal and interest. However, you and the person from whom you are leasing must agree to treat the payments this way.

In this case, we consider that you have:

  • bought the machinery rather than leased it
  • borrowed an amount equal to the fair market value of the leased machinery

You can deduct the interest part of the payment as an expense. You can also claim capital cost allowance (CCA) on the machinery. For more information on CCA, see Chapter 5. You can make this choice as long as the machinery qualifies and the total fair market value (FMV) of all the machinery that is subject to the lease is more than $25,000. For example, a combine that you lease with a FMV of $35,000 qualifies. However, office furniture and automobiles often do not.

To treat your lease this way, attach one of the following forms with your income tax return for the year you make the lease agreement:

Both of these forms explain which property qualifies for this treatment.

Line 9792 – Advertising and promotion costs

Enter the amount you paid for advertising and promoting your farm products.

If you market fruit or vegetables through a co-op, see line 9836 – Commissions and levies for information on how to report your pack-and-sell expenses.

Line 9795 – Building and fence repairs

Enter the amount you paid for repairs to fences and all buildings you used for farming, except your farmhouse. Do not include the value of your own labour. If the expenditure improved a fence or building beyond its original condition, the costs are capital expenditures. Add the expenditure to the cost of the asset or building on your capital cost allowance (CCA) charts on form T1175, Farming – Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses. We explain the CCA charts in Chapter 5.

For more information on capital expenditures, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Note

You may have received insurance proceeds to pay for the cost of repairs. If the insurance proceeds compensated you for damages to depreciable property such as buildings or fences, and you used all of them to repair the property within a reasonable period of time, you can claim a deduction for the amount spent on repairs on line 9795. However, you have to include the insurance proceeds as income on line 9600. If you did not spend all the insurance proceeds on repairs within a reasonable length of time, include the remainder as proceeds of disposition in column 5 of Area A, Calculation of capital cost allowance (CCA) on form T1175. For more information, see column 5 – Proceeds of dispositions in the year.

Line 9796 – Land clearing and draining

Enter the total of the expenses listed below. In most cases, you can deduct the costs for:

  • clearing the land of brush, trees, roots, and stones
  • first ploughing the land for farm use
  • building an unpaved road
  • installing land drainage

You do not have to deduct all of the costs in the year you paid them. If you paid all the costs, you can deduct any part of them in the year you paid them. You can carry forward any part of the costs you did not deduct to another year. However, if you rented land to someone else, you cannot deduct the costs mentioned above. Instead, you may be able to do one of the following:

  • add these costs to the cost of the land;
  • add these costs to the cost of the building if you plan to build on the land right away; or
  • include these costs under Class 8 in the CCA charts on form T776, Statement of Real Estate Rentals, if you installed a tile, plastic, or concrete land drainage system. In this case, you also need to add the costs for a tile, plastic or concrete land drainage system to Class 8 on your CCA charts on form T2042. For more information, see Chapter 4.

For more information, see Interpretation Bulletin IT-485, Cost of Clearing or Levelling Land.

Improving land

You cannot deduct the cost of a paved road. Instead, you have to add this cost to class 17 of your CCA charts on form T1175. For more information, see Chapter 5.

You can deduct most of the cost to drill or dig water wells in the year you did the work. However, you have to add some of the costs to class 8 on your CCA charts. The costs you add to class 8 are those you incurred to purchase and install:

  • the casing and cribwork for the well
  • the system that distributes water, including the pump and pipes

You can deduct amounts you paid to have public utilities brought to your farm as long as the installations remain the property of the utility.

You can deduct amounts you paid under the Canada Cooperatives Act to build a distribution system under a gas service contract.

Line 9798 – Agricultural contract work

Enter the expenses you paid for custom and contract work, other than custom feeding. For example, you may have had a contract with someone who cleaned, sorted, graded, and sprayed the eggs your hens produced, or someone who had facilities to age the cheese you produced. You may have also contracted someone to do your harvesting, combining, crop dusting, or seed cleaning.

If you are a custom feedlot operator, see Livestock owners and custom feedlot operators with prepared feed purchases for information on reporting your custom feeding expenses.

For AgriStability, agricultural contract work is a non-allowable expense. However, if the charges on your invoice are listed separately, report amounts that are allowable expenses for AgriStability on their specific line.

For example, your invoice lists the costs charged for chemical, fuel, and salaries. Enter these amounts as follows:

Enter the remaining non-allowable amounts on line 9798.

Line 9804 – Other insurance premiums

Enter the amount of business-related insurance premiums you paid to insure your farm buildings, farm equipment (excluding machinery and motor vehicles), and business interruption. For information on reporting premiums for hail insurance or livestock, see line 9665 – Insurance premiums (crop or production) and line 9953 – Private insurance premiums for allowable commodities.

In most cases, you cannot deduct your life insurance premiums. However, if you use your life insurance policy as collateral for a loan related to your farming business, you may be able to deduct a limited part of the premiums you paid. For more information, see Interpretation Bulletin IT-309R2, Premiums on Life Insurance Used as Collateral.

In most cases, you cannot deduct the amounts you paid to insure personal property such as your home or car. However, if you used the personal property for your farming business, you can deduct the business part of these costs. For more information, see Business-use-of-home expenses and line 9819 – Motor vehicle expenses.

Premiums to a private health services plan (PHSP)

You can deduct premiums paid to a private health services plan (PHSP) if you meet the following conditions:

  • your net income from self-employment (excluding losses and PHSP deductions) for the current or previous year is more than 50% of your total incomeFootnote 1
  • your income from sources other than self-employmentFootnote 2 is $10,000 or less for the current or previous year
  • you are actively engaged in your farming business on a regular and continuous basis, individually or as a partner in a partnership
  • the premiums are paid to insure yourself, your spouse or common-law partner, or any member of your household

You cannot claim a deduction for PHSP premiums if another person deducted the amount, or if you or anyone else claimed the premiums as a medical expense. For your premiums to be deductible, your PHSP coverage has to be paid under a contract with one of the following:

  • an insurance company
  • a trust company
  • a person or partnership in the business of administering PHSPs
  • a tax-exempt trade union of which you or the majority of your employees are members
  • a tax-exempt business organization or a tax-exempt professional organization of which you are a member

For more information on PHSPs, see Interpretation Bulletin IT-339R2, Meaning of ‘private health services plan' (1988 and subsequent taxation years) or go to Private health services plan premiums.

For the purposes of this claim, the following terms apply:

Arm's length employees are, generally, employees who are not related to you and who are not carrying on your business with you, for example, as your partners. For more information, see Arm's length.

Qualified employees are arm's length, full-time employees who have three months service since they last became employed with a business carried on by you, a business in which you are a majority interest partner, or a business carried on by a corporation affiliated with you. Temporary or seasonal workers are not qualified employees.

Insurable persons are people to whom coverage is extended and who are either:

  • qualified employees
  • people who would be qualified employees if they had worked for you for three months
  • people carrying on your business (including yourself and your partners)

How to calculate your maximum deduction for PHSPs

The following sections explain how to calculate your maximum PHSP deduction based on whether you had employees, and whether you insured them throughout the year or part of the year. Find the section that describes your situation.

Note

All PHSP deduction limits and calculated limits must include all applicable taxes as part of the total dollar amount.

If you did not have any employees throughout 2018

Your PHSP deduction is restricted by an annual dollar limit. The limit is a maximum of:

  • $1,500 for yourself
  • $1,500 for your spouse or common-law partner and each household member that is 18 years of age or older at the start of the period when they were insured
  • $750 for each household member under the age of 18 at the start of the period

The maximum deduction is also limited by the number of days that person was insured. Calculate your allowable maximum for the year by using the following formula:

A ÷ 365 × (B + C), where:

  • A is the number of days during the period of the year you insured yourself and your household members, if applicable
  • B equals $1,500 × the number of household members age 18 and over who were insured during that period
  • C equals $750 × the number of household members under the age of 18 who were insured during that period
Example 1

Edwin was a sole proprietor who ran his farm alone in 2018. He had no employees and did not insure any of his household members. Edwin paid $2,000 for PHSP coverage in 2018. His coverage lasted from July 1 to December 31, 2018 (a total of 184 days).

Edwin's maximum allowable PHSP deduction is calculated as follows:

184 ÷ 365 × $1,500 = $756

Even though Edwin paid $2,000 in premiums in 2018, he can only deduct $756, because the annual limit is $1,500 and he was only insured for about half of the year. If he had been insured for the entire year, his deduction limit would be $1,500.

Example 2

Bruce was a sole proprietor who ran his farm alone in 2018. He had no employees. From January 1 to December 31, he insured himself, his wife, and his two sons. Bruce paid $1,800 to insure himself, $1,800 to insure his wife, and $1,000 for each of his sons. One of his sons was 15 years old and the other turned 18 on September 1. Bruce's PHSP deduction is limited to the following amounts:

  • $1,500 for himself
  • $1,500 for his wife
  • $750 for his 15-year-old son
  • $750 for the son who turned 18 (this limit applies because he did not turn 18 until after the insured period began)

If you had employees throughout 2018

If you had at least one qualified employee throughout all of 2018, and at least 50% of the insurable persons in your business were qualified employees, your claim for PHSP premiums is limited in a different way. Your limit is based on the lowest cost of equivalent coverage for each of your qualified employees.

Use the following steps to calculate your maximum allowable claim for the PHSP premiums paid for yourself, your spouse or common-law partner, and your household members.

For each of your qualified employees, calculate the following:

X × Y = Z, where:

  • X equals the amount you would pay to provide yourself, your spouse or common-law partner, and your household members with coverage equal to that provided to a particular employee, his or her spouse or common-law partner, and household members
  • Y equals the percentage of the premium you pay for that particular employee
  • Z equals your limit based on that particular employee

If you had more than one qualified employee, you have to do the X × Y = Z calculation for each employee. Your limit is then the least amount you calculate for each employee.

Example 1

You have one qualified employee. To provide yourself with coverage equal to his or hers, you pay a premium of $1,800. You pay 60% of your employee's premium. Your deduction limit for yourself is $1,080, calculated as follows:

$1,800 (amount X) × 60% (amount Y) = $1,080 (amount Z)

The maximum you can claim is $1,080, if you had only one qualified employee.

Example 2

You have three qualified employees, Jack, Jill, and Sue. The following table shows how much you would pay for coverage equivalent to each of theirs, and the percentage of each employee's premium you pay.

Example of the percentage of an employee's premium
Name of employee Cost of equivalent coverage for yourself Percentage of the employee's premium you pay
Jack $1,500 20%
Jill $1,800 50%
Sue $1,400 40%

You have to do the following three calculations:

  • Jack: $1,500 (X) × 20% (Y) = $300 (Z)
  • Jill: $1,800 (X) × 50% (Y) = $900 (Z)
  • Sue: $1,400 (X) × 40% (Y) = $560 (Z)

Your limit is $300, the lowest of the amounts you calculated for the three employees.

Note

If you have a qualified employee with no coverage, you cannot claim your PHSP premiums as a deduction from self-employment income. However, you may be able to claim them as medical expenses.

If you had employees throughout 2018 but the number of arm's length employees you insured was less than 50% of all the insurable persons in your business, your maximum allowable deduction is the lesser of the following two amounts:

Amount 1

Determine this amount by calculating:

A ÷ 365 × (B + C), where:

  • A is the number of days during the period of the year you insured yourself and your household members, if applicable, but insured less than 50% of your employees
  • B equals $1,500 × the number of household members 18 years of age or older insured during that period
  • C equals $750 × the number of household members under the age of 18 insured during that period

Amount 2

If you had at least one qualified employee, Amount 2 is the lowest cost of equivalent coverage for each qualified employee, calculated by using the X × Y = Z formula in the previous example. If you did not have at least one qualified employee, the limit in Amount 1 will apply.

If you had employees for part of the year

If you had at least one qualified employee for part of the year and your insurable arm's length employees represented at least 50% of all the insurable persons in your business, calculate your limit for that period by using the X × Y = Z forumla of If you had employees throughout 2018.

For the rest of the year when you had no employees or when your insurable arm's length employees represented less than 50% of all the insurable persons in your business, your deduction limit for that remaining period is the lesser of Amount 1 and Amount 2, calculated in the same way as in the previous section.

Undeducted premiums

If you deduct only a part of your PHSP premium at line 9804 and you paid the premium in the year, you can include the undeducted balance in the calculation of your non-refundable medical expense tax credit. For more information, see "line 330" in your General Income Tax and Benefit Guide.

Line 9805 – Interest (real estate, mortgage, other)

You can deduct interest you incurred on money borrowed for farming business purposes or to acquire property for farming business purposes. However, there are limits on:

  • The interest you can deduct on money you borrowed to buy a passenger vehicle. For more information, see line 9819 – Motor vehicle expenses.
  • The amount of interest you can deduct for vacant land. Usually, you can only deduct interest up to the amount of income from the land that remains after you deduct all other expenses. You cannot use any remaining amounts of interest to create or increase a loss, and you cannot deduct them from other sources of income.

You can report interest you paid on any real estate mortgage you incurred to earn farming income, but you cannot deduct the principal part of loan or mortgage payments. Do not deduct interest on money you borrowed for personal purposes or to pay overdue income taxes.

You may be able to deduct interest expenses for a property you used for farming business purposes, even if you have stopped using the property for such purposes because you are no longer in the farming business. For more information, see Income Tax Folio S3-F6-C1, Interest Deductibility, or call 1-800-959-5525.

Line 9807 – Memberships/subscription fees

Enter the amount of annual dues or fees you paid to keep your membership in a trade or commercial farming association. You cannot deduct club membership dues (including initiation fees) if the main purpose of the club is dining, recreation, or sporting activities.

You can also deduct fees for subscriptions to farming publications you use in your farming business.

Enter the amounts you paid for your AgriStability Administrative Cost Share (ACS) and your fee on this line.

Line 9808 – Office expenses

You can deduct the cost of office expenses. These include small items such as pens, pencils, paper clips, stationery, and stamps. Office expenses do not include items such as calculators, filing cabinets, chairs, and desks. These are capital items. For more information on capital property, see Chapter 6.

Line 9809 – Legal and accounting fees

Report the fees you incurred for external professional advice or services, including consulting fees.

You can report accounting and legal fees you incur to get advice and help in keeping your records. You can also report fees you incur for preparing and filing your income tax and GST/HST returns.

You can report accounting or legal fees you paid to have an objection or appeal prepared against an assessment for income tax, Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, or employment insurance premiums. However, the full amount of these deductible fees must first be reduced by any reimbursement of these fees you have received. Enter the difference on line 232 of your income tax return. If you received a reimbursement in 2018 for the types of fees you deducted in a previous year, enter the amount you received on line 130 of your 2018 income tax return.

You cannot report legal and other fees you incur to buy capital property, such as land, buildings, and equipment. Add these fees to the cost of the property. For more information on capital property, see Chapter 6.

For more information, see Interpretation Bulletin IT-99R5, Legal and Accounting Fees.

Line 9810 – Property taxes

Enter the amount of land, municipal, and realty taxes you paid for property used in your farming business. Since the municipal tax for the farmhouse is a personal expense, you cannot report it unless you meet the conditions explained in Business-use-of-home expenses.

If you are repaying a loan for land drainage through your property tax payments to your township, you cannot include the amount you repaid as part of your property tax expense.

Line 9811 – Rent (land, buildings, pastures)

Enter the amount of rent you paid for land, buildings, and pastures you used for your farming business.

If you farmed in a crop share and paid your landlord a share of the crop, only include your share of the crop in your income and expenses.

Line 9816 – Non-arm's length salaries

Keep a detailed record of the amounts you paid to each related person. For a definition of related persons, see line 9815 – Arm's length salaries.

As the employer, you must deduct your part of CPP or QPP contributions and employment insurance premiums. You can also deduct workers' compensation amounts payable on employees' remuneration and Provincial Parental Insurance Plan (PPIP) premiums. The PPIP is an income replacement plan for residents of Quebec. For details, contact Revenu Québec. For more information on making payroll deductions, go to Payroll.

Do not deduct the amounts you withheld from remuneration, since you already deducted them in the amount you claimed as wages. Do not include the cost of board.

The terms "salaries" and "wages" are used interchangeably in the description of this non-allowable expense.

You can deduct the wages you paid to your child, as long as you meet all of these conditions:

  • you paid the wages by cheque, in cash or in kind
  • the work your child did was necessary for you to earn farm income
  • the wages were reasonable when you consider your child's age
  • the amount you paid is what you would have paid someone else to do the same work

Keep documents to support the wages you paid to your child. If you paid your child by cheque, keep the cancelled cheque. If you paid cash, have your child sign a receipt.

If you paid wages in kind to non-arm's length employees (including your spouse or children), report such wages in the same manner that is described at line 9815 – Arm's length salaries.

You can deduct wages you paid to your spouse or common-law partner, as long as that person is not a partner in your business and you follow the same rules that apply to wages paid to your child.

If you were a partner of a farm partnership that employed your or your partner's spouse or common-law partner, the farm partnership can deduct that person's wages if it incurred the expense to earn farming income and the wages were reasonable.

Line 9819 – Motor vehicle expenses

Business use of a motor vehicle

If you use your motor vehicle for personal and business use, you can deduct only the part of the expenses you paid to earn farming income. Farming business use includes things such as trips to pick up parts and farm supplies, or to deliver grain. You can deduct the full amount of parking fees related to your business activities and supplementary business insurance for your motor vehicle. If you did not live on your farm, the travel between the farm and your home is not considered business travel.

To support the amount you can deduct, keep a record of the total kilometres you drive and the kilometres you drive to earn income. Also, keep track of what it costs you to run and maintain the motor vehicle for your fiscal period.

What type of vehicle do you own?

The kind of vehicle you own can affect the expenses you can deduct. For income tax purposes, there are two definitions for vehicles:

  • motor vehicles
  • passenger vehicles

A motor vehicle is an automotive vehicle designed or adapted for use on highways and streets. A motor vehicle does not include a trolley bus or a vehicle designed or adapted to be operated only on rails.

A passenger vehicle is a motor vehicle designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers. Most cars, station wagons, vans, and some pick-up trucks are passenger vehicles. They are subject to the limits for CCA, interest, and leasing.

A passenger vehicle does not include:

  • an ambulance
  • a clearly marked police or fire emergency response vehicle
  • a motor vehicle you bought to use more than 50% as a taxi, a bus used in the business of transporting passengers, or a hearse used in a funeral business
  • a motor vehicle you bought to sell, rent, or lease in a motor vehicle sales, rental, or leasing business
  • a motor vehicle (except a hearse) you bought to use in a funeral business to transport passengers
  • a van, pick-up truck, or similar vehicle that seats no more than the driver and two passengers and that, in the tax year you bought or leased it, was used more than 50% to transport goods and equipment to earn income
  • a van, pick-up truck, or similar vehicle that, in the tax year you bought or leased it, was used 90% or more to transport goods, equipment, or passengers to earn income
  • a pick-up truck that, in the tax year you bought or leased it, was used more than 50% to transport goods, equipment, or passengers to earn or produce income at a remote work location or at a special work site that is at least 30 kilometres from the nearest community with a population of at least 40,000
  • a clearly marked emergency medical service vehicle used to carry paramedics and their emergency medical equipment

If you own or lease a passenger vehicle, there may be a limit on the amounts you can deduct for CCA, interest, and leasing costs.

The following chart will help you to determine if you have a motor vehicle or a passenger vehicle. The chart does not cover every situation, but it gives some of the main definitions for vehicles bought or leased and used to earn self-employment income.

Vehicle definitions
Type of vehicle Seating (includes driver) Business use in year bought or leased Vehicle definition
Coupe, sedan, station wagon, sports car, or luxury car 1 to 9 1% to 100% passenger
Pick-up truck used to transport goods or equipment 1 to 3 more than 50% motor
Pick-up truck (other than above) 1 to 3 1% to 100% passenger
Pick-up truck with extended cab used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Pick-up truck with extended cab (other than above) 4 to 9 1% to 100% passenger
Sport-utility used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Sport-utility (other than above) 4 to 9 1% to 100% passenger
Van or minivan used to transport goods or equipment 1 to 3 more than 50% motor
Van or minivan (other than above) 1 to 3 1% to 100% passenger
Van or minivan used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Van or minivan (other than above) 4 to 9 1% to 100% passenger

Do not include any of the following:

  • interest on the money you borrow for a motor vehicle
  • leasing costs for a motor vehicle
  • the capital cost allowance (CCA)

For more information on interest and leasing costs, see line 9829. For more information on CCA, see Chapter 5.

Example

Murray's farming business has a December 31 year-end. He owns a truck that is not a passenger vehicle. He uses the truck to pick up supplies and equipment. Murray kept the following records for his 2018 fiscal period:

Farming business kilometres
27,000 km
Total kilometres
30,000 km
Expenses
Gasoline and oil
$3,500
Repairs and maintenance
500
Insurance
1,000
Licence and registration fees
100
Total expenses for the truck
$5,100

This is how Murray determines the motor vehicle expenses he can deduct in his 2018 fiscal period:

27,000 (farming business kilometres) ÷ 30,000 (total kilometres) × $5,100 = $4,590

Murray enters $4,590 on line 9819 of the form as motor vehicle expenses in his 2018 fiscal period. He calculates and deducts the interest on the loan to buy his truck separately on line 9829.

Note

You may have received insurance proceeds to pay for the cost of repairs. If the insurance proceeds compensated you for damages to a motor vehicle for which you claimed CCA, and you used all of them to repair the vehicle within a reasonable period of time, claim a deduction for the amount spent on repairs on line 9819. You must also include the insurance proceeds as income on line 9600. If you did not spend all the insurance proceeds on repairs within a reasonable length of time, include the remainder as proceeds of disposition in column 5 of Area A, Calculation of capital cost allowance (CCA), on form T1175, Farming – Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses. For more information, see Column 5 – Proceeds of dispositions in the year.

For more information on motor vehicle expenses, see Interpretation Bulletin IT-521R, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Simplified logbook for motor vehicle expense provisions

Following a Federal initiative to reduce the paper burden on businesses, you can choose to maintain a full logbook for one complete year to establish a base year's business use of a vehicle.

After one complete year of keeping a logbook to establish the base year, you can use a three month sample logbook to extrapolate business use for the entire year, as long as the usage is within the same range (within 10%) of the results of the base year. Businesses will have to show that the use of the vehicle in the base year remains representative of its normal use.

More than one vehicle

If you use more than one motor vehicle for your business, for each vehicle keep a separate record that shows the total personal use kilometres and business kilometres you drive, as well as the cost to run and maintain each vehicle. Calculate each vehicle's expenses separately.

For more information, see Interpretation Bulletin IT-521R, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Line 9820 – Small tools

If a tool costs you less than $500, you can report its full cost. If it costs you $500 or more, add the cost to your CCA charts on form T1175 as class 8 property. For more information, see Chapter 5.

Small tools that cost less than $500 are fully deductible in the year you buy them. You may claim them as an expense at line 9820 or claim capital cost allowance (CCA) by including them in Class 12 (with a CCA rate of 100%). Either method is acceptable, but do not claim the amount twice. For more information on CCA, see Chapter 5.

Line 9821 – Soil testing

Enter the amount of expenses you paid for testing soil samples.

Line 9823 – Licences/permits

Enter the total of annual licence and permit fees that you paid to run your business.

Line 9824 – Telephone

Do not deduct the basic monthly rate of your home telephone. However, you can deduct any long-distance telephone calls you made on your home telephone for farming business purposes.

If you have a separate telephone to use in your business and you use it for business calls only, you can deduct its basic monthly rate.

Line 9825 – Quota rental (tobacco, dairy)

Enter the amount of expenses you paid for quota rentals in the fiscal period.

Line 9826 – Gravel

Enter the amount of expenses you paid for gravel used to earn farming income in the fiscal period.

Line 9827 – Purchases of commodities resold

Enter purchases of commodities that you bought for resale and then sold. Enter the corresponding sales of commodities purchased for resale on line 9612 – Resales of commodities purchased.

Enter purchases of commodities that you bought for resale but have not yet sold.

Line 9829 – Motor vehicle interest and leasing costs

Enter the leasing costs for your motor vehicle or the interest on the money you borrowed for a motor vehicle.

If you used a passenger vehicle to earn farming income, there is a limit on the amount of interest you can deduct. Whether you use the cash or accrual method to determine your income, fill in the following chart to calculate the interest you can deduct. If you used your passenger vehicle for both personal and farming business use, fill in the chart before you determine how much interest you can deduct as an expense.

Interest chart

Enter the total interest you paid (cash method) or that is payable (accrual method) in your fiscal period

$
Amount A

$10Footnote 3 × _____ number of days in your fiscal period or which interest was paid or payable

$
Amount B

Your available interest expense is either A or B, whichever amount is less

$
 

Example

Heather's farming business has a December 31 year-end. On January 1, 2018, she bought a new passenger vehicle that she uses for both personal and business use. She borrowed money to buy the vehicle, and the interest she paid in her 2018 fiscal period was $2,200.

Since the car Heather bought is a passenger vehicle, there is a limit on the interest she can deduct. Heather's available interest is either of these two amounts, whichever is less:

  • $2,200 (the total interest she paid in her 2018 fiscal period)
  • $3,650 ($10 × 365 days)

Heather drove 20,000 kilometres on farming business out of the total 25,000 kilometres she drove in her 2018 fiscal period. Here is how Heather determines the motor vehicle interest expenses she can deduct for her 2018 fiscal period:

20,000 (farming business kilometres) ÷ 25,000 (total kilometres) × $2,200 = $1,760

Heather enters $1,760 on line 9829, as motor vehicle interest for her 2018 fiscal period.

Leasing costs for a passenger vehicle

You can report costs you incur to lease a motor vehicle you use to earn income. Include these amounts on line 9819.

When you use a passenger vehicle to earn farming business income, there is a limit on the amount of the leasing costs you can deduct. To calculate your eligible leasing costs, fill in the Eligible leasing costs for passenger vehicles chart.

If the lease agreement for your passenger vehicle includes items such as insurance, maintenance, and taxes, include them as part of the lease charges on line 1 when you fill in the chart.

Note

Generally, leases include taxes (GST/HST or PST), but not items such as insurance and maintenance. You have to pay these amounts separately. Include the taxes at line 1 of the chart, and list the items like insurance and maintenance on the appropriate line on form T1273.

For your 2018 fiscal period, use the GST rate of 5% or the applicable HST rate of your specific province to fill in the chart below.

The following example shows how to calculate the eligible leasing costs. In this chart, we use prescribed amounts. Prescribed means it is written in the law.

Example

On July 1, 2018, Meadow started leasing a car that is a passenger vehicle. She used the car to earn farming income. Her business has a December 31 fiscal year-end. The PST rate for her province is 8% and GST is 5%. Meadow entered the following for 2018:

Monthly lease payment
$500
 
Lease payments for 2018
$3,000
 
Manufacturer's suggested list price
$33,000
 
Number of days in 2018 she leased the car
184
 
Prescribed CCA capital cost limit
$30,000
 
Prescribed CCA capital cost limit × Prescribed limit rate: 30,000 × (100/85)
$35,294
 
Prescribed deductible leasing costs limit
$800
 
GST and PST on $30,000
$3,900
 
GST and PST on $35,294
$4,588
 

GST and PST on $800

$104
 
Total lease charges incurred in 2018 fiscal period for the vehicle
$3,000
Line 1
Total lease payments deducted in fiscal periods before 2018 for the vehicle
$0
Line 2
Total number of days the vehicle was leased in 2018 and previous fiscal periods
184
Line 3
Manufacturer's list price
$33,000
Line 4
The amount on line 4 or $39,882 ($35,294 + $4,588), $39,882 × 85%, whichever is more
$33,900
Line 5
($904 × 184) ÷ 30
$5,545
Line 6
($33,900 × $3,000) ÷ $33,900
$3,000
Line 7

Meadow's eligible leasing cost is either line 6 or 7, whichever amount is less. In this case, her allowable claim is $3,000.

Eligible leasing costs for passenger vehicles

Total lease charges incurred in your 2018 fiscal period for the vehicle

$
Line 1

Total lease payments deducted before your 2018 fiscal period for the vehicle

$
Line 2

Total number of days the vehicle was leased in 2018 and before 2018

 
Line 3

Manufacturer's list price

$
Line 4

The amount on line 4 or ($35,294 + GST Footnote 4 and PST Footnote 4, or $35,294 + HST Footnote 4), _____× 85%  (whichever is more) =

$
Line 5

[[($800 + GST Footnote 4 and PST Footnote 4, or $800 + HST Footnote 4) × line 3] ÷ 30] _____ − line 2: _____ =

$
Line 6

[($30,000 + GST Footnote 4 and PST Footnote 4, or $30,000 + HST Footnote 4) × line 1] ÷ line 5

$
Line 7

Eligible leasing cost: Line 6 or line 7, whichever is less

$
 

Repayments and imputed interest

When you lease a passenger vehicle, you may have a repayment owing to you, or you may have imputed interest. If so, you will not be able to use the chart.

Imputed interest is interest that would be owing to you if interest were paid on the money you deposited to lease a passenger vehicle. Calculate imputed interest for leasing costs on a passenger vehicle only if all of the following apply:

  • one or more deposits were made for the leased passenger vehicle
  • one or more deposits are refundable
  • the total of the deposits is more than $1,000

For more information, see Interpretation Bulletin IT-521R, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Joint ownership of a passenger vehicle

If you and another person own or lease a passenger vehicle, the limits on CCA, interest, and leasing costs still apply. The total amount you (as a joint owner) or any other owners deduct cannot be more than the amount one person owning or leasing the vehicle could deduct.

Line 9936 – Capital cost allowance

Enter the amount of capital cost allowance (CCA) you calculate on all the eligible assets used in your farming operation. To calculate your CCA claim, use the charts on form T1175, Farming – Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses. For more information on how to fill in these charts, see Chapter 5.

Line 9937 – Mandatory inventory adjustments – prior year

If you included an amount for the Mandatory inventory adjustment (MIA) on line 9942 in your 2017 fiscal period, enter the amount as an expense on line 9937 in your 2018 fiscal period. Do not include the valuation of inventories if you are using the accrual method of accounting. For more information about the accrual method, see Reporting methods.

For more information on MIA, see line 9942.

Line 9938 – Optional inventory adjustments – prior year

If you included an amount for the Optional inventory adjustment (OIA) on line 9941 in your 2017 fiscal period, deduct the amount as an expense on line 9938 in your 2018 fiscal period. Do not include the valuation of inventories if you are using the accrual method of accounting. Do not include the valuation of inventories if you are using the accrual method of accounting. For more information about the accrual method, see Reporting methods.

For more information on OIA, see line 9941.

Line 9896 – Other (specify)

The expenses listed on the form are only the most common ones. If you have other farming expenses, that are not listed on the form and are non-allowable for AgriStability, enter the total amount on line 9896. Then list the items on the blank lines provided under line 9896. For more information about other expenses, see guide T4002, Self-employed Business, Professional, Commission, Farming and Fishing Income.

Enter any overpayments you repaid for any of the programs identified on lines 9540 and 9544.

Summary of expenses

Copy totals C, D, and E from the bottom of each of the three tables in the "Expenses" section of the form. Add the totals for your total expenses.

Summary of income and expenses

Line 9959 – Gross farming income

Enter your gross farming income from line 9959 to line 168 of your income tax return. If you also completed form T1274, add the totals from line 9959 on your form T1273 and all your T1274 forms. Enter the result on line 168 of your income tax return.

Line 9969 – Net income (loss) before adjustments

If you are a partner of a partnership, this amount is the net farming business income of the partnership. If the amount is negative, enter the amount in brackets.

Line 9940 – Other deductions

You can enter any business-use-of-home expenses that you are carrying forward from a previous fiscal period, as long as you meet one of the following conditions:

  • the work space is your principal place of business
  • you use the space only to earn your farming business income, and you use it on a regular, ongoing basis to meet your customers

For more information, see line 9934.

Line 9941 – Optional inventory adjustment – current year

If you want to include an inventory amount in income, read this section.

By making the optional inventory adjustment (OIA), you can include in your income an amount up to the FMV of your inventory minus the mandatory inventory adjustment (MIA). You can only make the OIA if you use the cash method. For the meaning of inventory and FMV, see line 9942.

For the OIA, unlike for the MIA, the inventory does not have to be purchased inventory. It is the entire inventory you still have at the end of your 2018 fiscal period.

Enter the amount of your OIA on line 9941. You must deduct this amount as an expense in your next fiscal period.

Line 9942 – Mandatory inventory adjustment – current year

The mandatory inventory adjustment (MIA) decreases your net loss if you held inventory at the end of your fiscal period. Read this section even if you do not have to make the MIA. This section will show you how to determine the value of the farm inventory you bought and still have at the end of your 2018 fiscal period. You will need to know this value if you have to make the MIA this year or in the future.

You have to make the MIA if all of the following apply:

  • you use the cash method to report your income
  • you have a net loss on line 9969 of the form
  • you bought inventory and still have it at the end of your 2018 fiscal period. This does not refer only to inventory you bought in 2018. It includes inventory you had previously bought and still owned at the end of your 2018 fiscal period

Your MIA is the lesser of these two amounts:

  • the net loss before adjustments on line 9969
  • the value of the purchased inventory you still have at the end of your 2018 fiscal period

To calculate your MIA, fill in charts 123, and 4. Once you have filled in Chart 4, enter the amount on line 9942. For more information, see Interpretation Bulletin IT-526, Farming – Cash Method Inventory Adjustments.

In your next fiscal period, deduct from your farming income the MIA you added to your net loss in your 2018 fiscal period.

Note

If you bought a specified animal in a non-arm's length transaction, we consider that you bought the animal in the same year and at the same price for which the seller bought it. A non arm's length transaction is, for example, a transaction between members of a family, such as a husband and wife, or a parent and child.

To value your inventory, you need to know the meaning of the following terms:

Inventory is a group of items that a business holds and intends to consume or sell to its customers.

Farm inventory is tangible property that is:

  • held for sale, such as harvested grain
  • used in the production of saleable goods, such as seed and feed
  • in the process of being produced, such as standing crops or feeder livestock

Seed you have already planted and fertilizer or chemicals you have already applied are no longer part of your inventory items but are included in the value of the standing crops that may be included in the OIA.

Purchased inventory is inventory you have bought and paid for.

Specified animals are horses. You may also elect to designate cattle you registered under the Animal Pedigree Act as specified animals. To make this choice, put a note on your income tax return saying you want to designate the animal this way. If you indicate on your return that it is a specified animal, we will continue to consider it as such until you sell it.

Cash cost is the amount you paid to buy your inventory.

Fair market value (FMV) is generally the highest dollar value you can get for your property in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who are dealing at arm's length with each other.

Value of your purchased inventory

To value your purchased inventory, read the text that follows and the example of how to fill in the MIA charts. There are blank charts for you to use. Keep these charts as part of your records.

Except for specified animals, you have to value any purchased inventory you bought before or during your 2018 fiscal period at the lesser of these amounts:

  • the cash cost
  • the fair market value

To determine which amount is less, compare each item or group of items separately in the inventory.

Value the specified animals you acquired in your 2018 fiscal period and still have at the end of this period at one of the following amounts:

  • the cash cost
  • 70% of the cash cost
  • any amount between these two amounts

Value the specified animals you acquired before your 2018 fiscal period and still have at the end of this period at one of the following amounts:

  • the cash cost
  • 70% of:
    • the value of the specified animals for MIA purposes as determined at the end of your 2017 fiscal period, plus
    • any amounts you paid in your 2018 fiscal period toward the purchase price
  • any amount between these two amounts
Example

Doug started his farming business in 2015 and uses the cash method to report his income. His year-end is December 31. Doug shows a net loss of $55,000 in 2018 on line 9969. Doug has purchased inventory at the end of his 2018 fiscal period. This means he has to decrease his net loss by the MIA. Doug made a chart for the cash cost of his livestock that is purchased inventory at the end of his 2018 fiscal period.

Livestock
Year of purchase Cost of purchase Amount Doug paid by the end of his 2018 fiscal period
2018 $30,000 $25,000
2017 $26,000 $26,000Footnote 5
2016 $22,000 $22,000
2015 $20,000 $20,000

Doug's other inventory is fertilizer, seed, and fuel. The cash cost is the same as the fair market value for this inventory. Its value is as follows:

  • $15,000 bought in his 2018 fiscal period
  • $6,000 bought in his 2017 fiscal period
  • $5,000 bought in his 2016 fiscal period

At the end of his 2018 fiscal period, Doug did not have any other inventory that he bought before his 2015 fiscal period.

Doug has registered his livestock under the Animal Pedigree Act. He wants to designate these animals as specified animals.

Doug fills in Chart 1 as follows:

Chart 1 – Cash cost of purchased inventory

Doug enters the amount he paid by the end of his 2018 fiscal period for the specified animals he bought:

Fiscal period

Cash cost

in his 2018 fiscal period

$25,000
Line 1

in his 2017 fiscal period

$26,000
Line 2

in his 2016 fiscal period

$22,000
Line 3

in his 2015 fiscal period

$20,000
Line 4

before his 2015 fiscal period

$0
Line 5

Doug enters the amount he paid by the end of his 2018 fiscal period for all other inventory he bought:

in his 2018 fiscal period

$15,000
Line 6

in his 2017 fiscal period

$6,000
Line 7

in his 2016 fiscal period

$5,000
Line 8

in his 2015 fiscal period

$0
Line 9

before his 2015 fiscal period

$0
Line 10

Doug now knows the cash cost of his purchased inventory, including his specified animals. He uses these amounts to calculate the value of his purchased inventory at the end of his 2018 fiscal period. To do this, he fills in Charts 2, 3, and 4 as follows:

Chart 2 – Value of purchased inventory for specified animals

The small letters in front of each line match the paragraphs at the end of this chart. These paragraphs explain how Doug calculates the number on each line.

Inventory bought in his 2018 fiscal period
Doug enters an amount that is not more than the amount on line 1, but not less than 70% of this amount.

Line 11

Inventory bought in his 2017 fiscal period
Doug enters an amount that is not more than the amount on line 2, but not less than 70% of the total of the value at the end of his 2017 fiscal period, plus any amounts he paid in his 2018 fiscal period toward the purchase price.

Line 12

Inventory bought in his 2016 fiscal period
Doug enters an amount that is not more than the amount on line 3, but not less than 70% of the total of the value at the end of his 2017 fiscal period, plus any amounts he paid in his 2018 fiscal period toward the purchase price.

Line 13

Inventory bought in his 2015 fiscal period
Doug enters an amount that is not more than the amount on line 4, but not less than 70% of the total of the value at the end of his 2017 fiscal period, plus any amounts he paid in his 2018 fiscal period toward the purchase price.

Line 14

Inventory bought before his 2015 fiscal period

Line 15
  1. Doug chose $20,000, which is between the cash cost of $25,000 and $17,500 (70% of the cash cost).

  2. Doug chose to value the inventory he bought in his 2017 fiscal period at 70% of the cash cost. Therefore, the value of this inventory at the end of his 2017 fiscal period was $13,300 ($19,000 × 70%). Remember, Doug paid $19,000 for these specified animals in 2018. He paid $7,000 in 2018.

    For his 2018 fiscal period, Doug chose to value the inventory that he bought in his 2017 fiscal period at 70% of the total of the value at the end of the 2017 fiscal period plus any amounts that he paid in his 2018 fiscal period toward the purchase price. Therefore, the amount he enters on line 12 is $14,210 [70% × ($13,300 + $7,000)]. He could choose any amount between the cash cost of $26,000 and the lowest acceptable inventory value of $14,210.

  3. Doug chose to value the inventory that he bought in his 2016 fiscal period at 70% of the cash cost. Therefore, the value of this inventory at the end of his 2016 fiscal period was $15,400 ($22,000 × 70%).

    For his 2017 fiscal period, Doug chose to value the inventory that he bought in his 2016 fiscal period at 70% of the total of the value at the end of his 2017 fiscal period. Therefore, the value of this inventory at the end of his 2017 fiscal period was $10,780 ($15,400 × 70%).

    For his 2018 fiscal period, Doug chose to value the inventory that he bought in his 2016 fiscal period at 70% of the total of the value at the end of his 2017 fiscal period. Therefore, the amount he enters on line 13 is $7,546 ($10,780 × 70%). He could choose any amount between the cash cost of $22,000 and the lowest acceptable inventory value of $7,546.

  4. Doug chose to value the inventory he bought in his 2015 fiscal period at 70% of the cash cost. Therefore, the value of this inventory at the end of his 2015 fiscal period was $14,000 ($20,000 × 70%).

    For his 2016 fiscal period, Doug chose to value the inventory he bought in his 2015 fiscal period at 70% of the total of the value at the end of his 2015 fiscal period. Therefore, the value of this inventory at the end of his 2016 fiscal period was $9,800 ($14,000 × 70%).

    For his 2017 fiscal period, Doug chose to value the inventory that he bought in his 2015 fiscal period at 70% of the total of the value at the end of his 2016 fiscal period. Therefore, the value of this inventory at the end of his 2017 fiscal period was $6,860 ($9,800 × 70%).

    For his 2018 fiscal period, Doug chose to value the inventory that he bought in his 2015 fiscal period at 70% of the total of the value at the end of his 2017 fiscal period. Therefore, the amount he enters on line 14 is $4,802 ($6,860 × 70%). He could choose any amount between the cash cost of $20,000 and the lowest acceptable inventory value of $4,802.

  5. Doug had not purchased any specified animals before his 2015 fiscal period.

Chart 3 – Value of purchased inventory for all other inventory

Inventory bought in his 2018 fiscal period:
Doug enters the amount from line 6 or the fair market value, whichever is less.

$15,000
Line 16

Inventory bought in his 2017 fiscal period:
Doug enters the amount from line 7 or the fair market value, whichever is less.

$6,000
Line 17

Inventory bought in his 2016 fiscal period:
Doug enters the amount from line 8 or the fair market value, whichever is less.

$5,000
Line 18

Inventory bought in his 2015 fiscal period:
Doug enters the amount from line 9 or the fair market value, whichever is less.

$0
Line 19

Inventory bought before his 2015 fiscal period:
Doug enters the amount from line 10 or the fair market value, whichever is less.

$0
Line 20

Chart 4 – Calculation of MIA

Doug enters the amount of his net loss from line 9969.

 
$55,000
Line 21

Doug enters the value of his inventory from charts 2 and 3:

the amount on line 11

$20,000
 

the amount on line 12

$14,210
 

the amount on line 13

$7,546
 

the amount on line 14

$4,802
 

the amount on line 15

$0
 

the amount on line 16

$15,000
 

the amount on line 17

$6,000
 

the amount on line 18

$5,000
 

the amount on line 19

$0
 

the amount on line 20

$0
 

Total value of inventory

$72,558
 
$72,558
22

MIA – Doug enters the amount on line 21 or line 22, whichever is less.

$55,000
23

The MIA that Doug uses for his 2018 fiscal period will be the same amount he deducts from his farming income when he calculates his income for his next fiscal period.

Enter the figure from line 23 of Chart 4 on line 9942 of form T1273.

Partnership information – Your share of amount a

Enter your share of amount a or the amount from your T5013 slip. Fill in the Partnership information chart on your form.

Line 9934 – Adjustment to business-use-of-home expenses

If you have claimed business-use-of-home expenses (including a carry forward from a previous year claimed on line 9940) in arriving at your net income (loss), and the amount on line 9944 is negative (a loss), you must make an adjustment on line 9934. Enter the lesser of the following amounts:

  • the expenses you claimed from the business use of your home, including current-year expenses and any expenses you are carrying forward from previous years
  • the amount of your loss on line 9944

This does not mean that you cannot use your claim for business-use-of-home expenses. In a future year, you can use any expense you could not deduct in your 2018 fiscal period, as long as you meet one of these conditions:

  • the work space is your principal place of business
  • you use the space only to earn your farming business income, and you use it on a regular and ongoing basis to meet your customers

Use the chart on form T1175 to calculate your allowable claim for business-use-of-home expenses. Be sure to include any part of the CCA that you claimed for the business use of your home.

For more information, see Income Tax Folio S4-F2-C2, Business Use of Home Expenses.

Line 9974 – GST/HST rebate for partners received in the year

If you received a GST/HST rebate for partners, enter the amount of the rebate that relates to eligible expenses other than CCA on line 9974, in the section "Summary of income and expenses" of forms T1273 or T1274 in the year you receive the rebate.

In the chart "Partnership information," show the full names of the other partners, as well their percentages of ownership shares in the partnership.

Line 9946 – Net farming income (loss)

Enter your net farming income or loss on this line of your form. Also enter it on line 141 of your T1 return if:

If you have more than one farming operation or additional expenses that apply to partnerships, add the amounts from line 9946 of form T1273 and form T1274. Enter the total of these amounts on line 141 of your income tax return.

If you have a loss, enter the amount in brackets. For more information about losses, see Chapter 7.

You may have to adjust the figure from line 9946 before entering it on your income tax return. You may have filed form T1139, Reconciliation of 2017 Business Income for Tax Purposes, with your 2017 income tax return. If so, you may have to complete the same form for 2018. To find out if you have to file form T1139, and calculate the amount of income to report on your 2018 income tax return, see form T1139, Reconciliation of 2018 Business Income for Tax Purposes.

Partnership information chart

Partnership name

Enter the partnership's name.

CRA partnership number

Enter your CRA partnership number.

Your percentage of the partnership

Enter your own percentage share of the partnership.

Fill in all other partners' information on the lines below.

Fill in this chart if you are a partner in a partnership.

AgriStability and AgriInvest Participant Identification Number (PIN)

Enter the PIN (if available) for each individual partner, corporate or co-operative partner.

Partners' names

Fill in the first and last names of each individual partner. If a corporation or co-operative is a partner, enter the name of the corporation, or co-operative. If another partnership is a partner, list the names of the partners in that partnership.

Percentage (%) share

Enter each partner's percentage share based on the allocation of partnership net income/loss reported to us unless one of the following conditions is met:

  • interest has been paid on the partners' capital
  • salaries have been paid to partners

In these cases, exclude these amounts when you determine the partner's percentage share.

If another partnership is a partner, determine the beneficial ownership of each individual partner. (See the following example.)

Example

The Fred and Mary Smith Partnership (a 50/50 partnership) owns 60% of the Sunny Skies Partnership. Therefore, Fred and Mary Smith would each have a 30% beneficial ownership in the Sunny Skies Partnership.

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