Self employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 2 – Income

From: Canada Revenue Agency

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Sole proprietorships

If you are a sole proprietor, fill in all of the applicable areas and lines of:

Partnerships

The details of your farming or fishing activities you have to give us depend on the type of partnership you are in. If you are a partner in a partnership that has to file a partnership information return, fill in Form T2125, Form T2042, or Form T2121, whichever applies, as follows:

  • Fill in the Identification section.
  • For business and professional income, enter in Part 5 at amount c the income amount from your T5013 slip. On your T5013 slip, you will find "Business income" at box 116, "Professional income" at box 120 and "Commission income" at box 122.
  • For farming income, enter the amount from box 125 of your T5013 slip at line 168 of your income tax return. Enter the amount from box 124 (or box 101 if a limited partnership) of your T5013 slip at amount d of Form T2042.
  • For fishing income, enter the amount from box 126 (or box 103 if a limited partnership) of your T5013 slip at amount c of Form T2121.
  • Fill in the "Other amounts deductible from your share of net partnership income (loss)" chart to claim any expenses for which the partnership did not reimburse you, or other amounts you may be able to deduct. Also, fill in the "Calculating business-use-of-home expenses" chart if it applies to you. For more information, see Line 9945 – Business-use-of-home expenses.
  • Enter your share of the net income or loss from the business at Line 9946 – Your net income (loss). If you did not make any adjustments to the amount in:
    • box 116 for business, box 120 for professional, or box 122 for commission of your T5013 slip, the amount you enter at line 9946 will be the same as the amount you entered at amount c of Form T2125
    • box 124 for farming (or box 101 if a limited partnership) of your T5013 slip, the amount you enter at line 9946 will be the same as the amount you entered at amount d of Form T2042
    • box 126 for fishing (or box 103 if a limited partnership) of your T5013 slip, the amount you enter at line 9946 will be the same as the amount you entered at amount c of Form T2121

If you are a partner in a partnership that does not have to file a partnership information return, fill in Form T2125, Form T2042, or Form T2121 as follows:

  • Fill in the Identification section.
  • Fill in the "Income" section to report the partnership's income.
  • Fill in the "Net income (loss) before adjustments" section.
  • Fill in the "Other amounts deductible from your share of net partnership income (loss)" chart to claim any expenses for which the partnership did not reimburse you or any other amounts you may be able to deduct. Also, fill in the "Calculating business-use-of-home expenses" chart if it applies to you. For more information, see Line 9945 – Business-use-of-home expenses.
  • Fill in the "Details of other partners" chart.

To see if your partnership has to file a partnership information return, see Filing requirements for partnerships.

How to fill in Form T2125, Form T2042, or Form T2121

These forms can help you calculate your income and expenses for income tax purposes. To get these forms, go to CRA forms and publications.

We encourage you to use them; however, we will continue to accept other types of financial statements.

You have to fill in a separate form for each business you operate. For more information about the tax consequences of operating more than one business, see Interpretation Bulletin IT-206R, Separate Businesses.

File your completed Form T2125, Form T2042, or Form T2121 with your income tax return.

farm icon Note for farmers

If you are participating in the AgriStability and AgriInvest do not use Form T2042. Instead, use one of the following:

If you are participating in AgriStability and AgriInvest and want to calculate your CCA and business-use-of-home expenses, use Form T1175, Farming – Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses.

The forms are included in the applicable AgriStability and AgriInvest Programs guides. If you need one of the AgriStability and AgriInvest Programs guides, go to Forms and publications or call 1-800-959-5525.

Part 1 – Identification

Fill in all the lines that apply to your business.

Enter your program account number (15 characters), assigned by the CRA, in the appropriate area.

Indicate the period your business year covered, which is your fiscal period. For an explanation of fiscal period, see How to report your self-employment income.

fish icon Note for fishers

Enter the name and the vessel registration number (VRN) given by Fisheries and Oceans Canada of your boat. If your boat has no formal name, enter the VRN only.

Indicate the main species you caught or fished for in your fishing business.

Industry codes

Enter the industry code that best describes your activity.

If more than 50% of your business involves one specific activity, choose the code that identifies that main activity. However, if your business is involved in more than one type of economic activity, and none of the codes make up more than 50% of your business, choose the appropriate level of code from the list. Codes with more than one zero are more general and are at a higher level.

For example, your business is 49% computer systems design and 51% video game design and development services. Though there is a level 5 general category you should not use the number 541510. There are more specific codes at level 6 for the focus of your business. You could choose between code 541514 and 541515. The business in this example focuses on Video game design and development services. So your industry code would be 541515.

If you are filing your income tax return on paper, enter the six-digit industry code that corresponds to your business from the appendix of industry codes listed at the end of this guide. For example, if you run a daycare business in your home, use code 624410.

The industry codes listed in this guide are from the latest version of the North American Industry Classification System (NAICS) Canada. This guide only includes a few hundred examples of the most common codes. You will find them in Appendix A.

For more information on NAICS codes and a more detailed list of codes and their descriptions, visit Statistics Canada and search for NAICS.

When you are filing your return electronically, you have to use the industry codes available from your tax preparation software.

Tax shelter identification number

If you have a tax shelter, enter the tax shelter identification number found on your T5013 slip on the proper line.

If you are claiming a deduction or losses for 2018, attach to your income tax return any applicable slip T5003, Statement of Tax Shelter Information, and a completed Form T5004, Claim for Tax Shelter Loss or Deduction.

Note

The identification number issued for this tax shelter must be included in any income tax return filed by the investor. Issuance of the identification number is for administrative purposes only and does not, in any way, confirm the entitlement of an investor to claim any tax benefits associated with the tax shelter. For more information, go to tax shelters.

Tax tip 

For more information about protecting yourself against tax schemes, go to Tax Alert.

Partnership business number

For a partnership, identify your percentage of the partnership and enter the 9-digit business number from the T5013 slip you received, if applicable.

Enter the name and address of the person or firm that prepared your form.

Part 2 – Internet business activities

You may earn income from your webpages or websites:

  • by selling goods and services on your own page(s) or site(s). You may have a shopping cart and process payment transactions yourself or using a third party service
  • if your site does not support transactions but your customers call, fill in and submit a form, or email you for things like making a purchase, ordering or booking
  • by selling goods and services on auction, marketplace or similar sites operated by others
  • if earning income from advertising, income programs or traffic your site generates. This would include either:
    • static advertisements placed on your site for other businesses
    • affiliate programs
    • advertising programs such as GoogleAdSense or Microsoft adCentre
    • other types of traffic programs

Enter the number of webpages and websites your business earns income from.

Enter the address(es) of your page(s) and site(s) in the fields provided. If you have more than five sites, enter the addresses of those generating the most Internet income.

If you don't have a website but you have created a profile or other page describing your business on blogs, auction, market place or any other portal or directory site(s), then enter the address(es) of the page(s) if they generate income.

Enter the percentage of Internet generated income. If you do not know the exact percentage, provide an estimate.

Part 3 – Income

business icon For business, professional, and commission income, see below. Use Form T2125.

farm icon For farming income, see Farming income. Use Form T2042.

fish icon For fishing income, see Fishing income. Use Form T2121.

Each line number we refer to is a standardized financial statement item. For more information on standardized financial statements and items, see Appendix A in Guide RC4088, General Index Financial Information (GIFI).

business icon Business and professional income

Part 3A – Business income

Fill in this part only if you have business income. If you have professional income, leave this part blank and fill in Part 3B. If you have both business and professional income, you have to fill in a separate Form T2125 for each.

If you have self-employed commission income, we treat it as part of your business income. Include your commission income in amount 1 of Part 3A. Make a note for yourself for how much commission income you include in amount 1. You will need to know the gross and net commission income to enter in your income tax return.

Gross sales, commissions, or fees

Your sales include all sales, whether you received or will receive money, services, or other goods that have bartering or monetary value (such as credit units). Bartering is when two people agree to exchange goods or services without using money. For more information, see Interpretation Bulletin IT-490, Barter Transactions.

At amount 1, enter the gross sales, commissions, or fees (including GST/HST, collected or collectible).

At amount 2, enter any GST/HST, provincial sales tax, returns, allowances, discounts and GST/HST adjustments (included on amount 1).

Note

If you are using the quick method of accounting to calculate your GST/HST remittances, calculate government assistance as follows:

  • At amount 4, enter GST/HST collected or collectible on sales, commissions and fees.
  • For each applicable remittance rate, include the sales, commissions and fees eligible for the quick method plus GST/HST collected or collectible. Multiply this amount by the quick method remittance rate and enter the result on amount 5. This is the amount you enter on line 105 of your GST/HST return (or line 103 if you are filing your GST/HST return on paper).
  • The subtotal at amount 6 is amount 4 minus amount 5.

For more information on the quick method and examples, see Guide RC4058, Quick Method of Accounting for GST/HST.

Amount 7 (Adjusted gross sales) is the total of amount 3 plus amount 6.

Adjusted gross sales – Amount 7

Enter this amount on line 8000 in Part 3C of Form T2125.

Part 3B – Professional income

Fill in this part only if you have professional income. If you have business income, leave this part blank and fill in Part 3A. If you have both business and professional income, you have to fill in a separate Form T2125 for each.

As mentioned in Chapter 1, professional activities are business activities. Usually, you calculate your income from professional activities using the same rules as for a business. Some aspects of professional activities are different from other businesses. Some of these differences are discussed in this section.

Professional fees

Your professional income includes all fees you receive for goods or services you provide. These fees include money or other goods that have bartering or monetary value (such as credit units). Bartering means when two people agree to exchange goods or services without using money.

As a professional, your income normally includes the value of your work-in-progress (WIP). WIP is goods or services that you have not yet finished providing at the end of your fiscal period.

Your professional fees for the current year are the total of:

  • all amounts you received during the year for professional services, whether you provided the services before or during the current year or after your current year

plus:

  • all amounts receivable at the end of the current year for professional services you provided during the current year
  • the value of your WIP at the end of your current year for which you have not received any amount during the year

minus:

  • all amounts receivable at the end of your previous year-end
  • the value of your WIP that was included in professional fees at the end of your previous year

At amount 8, enter the gross professional fees including WIP and GST/HST collected or collectible.

If you elected to use billed-basis accounting for the last tax year that started before March 22, 2017, see the transitional rules for WIP below.

At amount 9, enter any GST/HST, provincial sales tax, returns, allowances, discounts and GST/HST adjustments (included on amount 8) and any WIP at the end of the year you elected to exclude.

Amount 10 is the subtotal of amount 8 minus amount 9.

Note

If you elected to use the quick method of accounting to calculate your GST/HST remittances, calculate government assistance as follows:

  • At amount 11, enter GST/HST collected or collectible on professional fees eligible for the quick method.
  • For each applicable remittance rate, include (professional fees eligible for quick method plus the GST/HST collected or collectible) multiplied by the quick method remittance rate (enter this amount at amount 12). Enter the amount at line 103 on your GST/HST return.

Add the WIP for the start of the year if you excluded it at the end of last year.

Amount 15, Adjusted professional fees, is the total of the amount 10 plus amount 13 plus amount 14.

Election to exclude your WIP

For tax years that began before March 22, 2017, you can choose to exclude your WIP when you calculate your income if you are one of the following professionals:

  • an accountant
  • a dentist
  • a lawyer (including a notary in Quebec)
  • a medical doctor
  • a chiropractor
  • a veterinarian

You do not need a special form to make this election. Attach a letter to your tax return to tell us that you want to exclude your WIP.

You can also exclude your WIP by doing the following:

  • In Part 3B at amount 9 "WIP, end of the year, per election to exclude WIP," enter the amount you included as WIP at the end of the year in your professional fees at amount 8.
  • In Part 3B at amount 14, enter the amount of your WIP at the start of the year, if you excluded it at the end of last year.

If you have a tax year that begins after March 21, 2017, you can no longer elect to exclude amounts for WIP. If you elected to use billed-basis accounting for the last tax year that started before March 22, 2017, the transitional rules allow you to include your WIP into income progressively.

Generally, for the first tax year that starts after March 21, 2017, you must include 20% of the lesser of the cost and the fair market value of WIP. The inclusion rate increases to 40% in the second tax year that starts after March 21, 2017, 60% in the third year, 80% in the fourth year, and 100% in the fifth and all subsequent tax years.

Make this election when you file the original tax return to which it relates. If you are filing an amended return, you cannot make this election.

For partnerships, an authorized partner must choose to exclude the partnership's WIP on behalf of all partners.

The choice to exclude WIP stays in effect for each following year, unless you file an application and we let you make the change.

For more information about excluding WIP, see Interpretation Bulletin IT-457, Election by Professionals to Exclude Work in Progress from Income.

Adjusted professional fees – Amount 15

Enter amount 15 in Part 3C at line 8000.

Part 3C – Gross business or professional income

Line 8000 – Adjusted gross sales or adjusted professional fees

If you are completing Form T2125 for a business activity, enter at line 8000 your adjusted gross sales from amount 7 in Part 3A.

For a professional activity, enter your adjusted professional fees from amount 15 in Part 3B.

Line 8290 – Reserves deducted last year

Include any reserves you deducted for 2017. For more information, see Allowable reserves.

Line 8230 – Other income

On line 8230, enter the total income you received from other sources. Some examples of other income are:

  • a recovered amount you wrote off as a bad debt in a previous year
  • the value of prizes or vacation trips awarded to you because of your business or professional activities
  • payments you received for land you leased for petroleum or natural gas exploration. For more information, see Interpretation Bulletin IT-200, Surface Rentals and Farming Operations.
  • grants, subsidies, incentives, or assistance you get from a government, government agency, or non-government agency. Input tax credits are considered government assistance. Include the amount you claimed on line 108 of your GST/HST return only if you cannot apply the rebate, grant, or assistance you received to reduce a particular expense or an asset's capital cost. For more information, see Grants, subsidies, and rebates.

If you use the quick method to calculate your GST/HST remittances, report the 1% credit (maximum $300) that you claimed on line 108 of your GST/HST return (or on line 107 if you filed on paper). For more information, see Interpretation Bulletin IT-273R2, Government Assistance – General Comments.

Note

Enter on line 9974 in Part 5, the amount of GST/HST rebate for partners you received in the year that relates to eligible capital expenses other than CCA.

Do not include in income any other rebate, grant, or assistance you receive. Subtract that amount from the proper expense or the cost of capital property it relates to. If the rebate, grant, or assistance is for a depreciable asset, subtract the amount you received from the asset's capital cost. This will affect the amount of CCA you can claim for that asset. If the asset qualifies for the investment tax credit, this reduction to the capital cost will also affect your claim for the investment tax credit. For more information, see Form T2038(IND), Investment Tax Credit (Individuals).

Line 8299 – Gross business or professional income

The amount at line 8299 is your gross business or professional income. This amount is your adjusted gross sales or adjusted professional fees at line 8000, plus any reserves deducted last year at line 8290, plus any other income at line 8230.

Enter the amount at line 8299 on your form. If it is business income, enter this amount on your tax return on line 162. If it is professional income, enter this amount on your tax return on line 164.

Note for daycare

If you determine that you are self-employed, report your daycare income as business income on your tax return. Enter your gross daycare income on line 162 and your net income or loss on line 135. If you are filing your return online, use the industry code for daycare that your tax preparation software uses.

Your gross income includes all the income you earned from daycare services you provided during the year. This income includes payments from parents, as well as subsidies such as provincial or territorial grants to care for children.

If you received a grant to buy a daycare property, that amount is not part of your income. Instead, subtract the grant you used to buy the property from the capital cost of the property.

Keep track of how much of your business income was commission income. Enter your gross commission income on line 166 of your income tax return.

Part 3D – Cost of goods sold and gross profit

Fill in this part if you have a business and your business buys goods for resale or makes goods for sale.

Claim the cost of the goods you buy or make for sale in the fiscal period in which you sell them. Enter only the business part of the costs on the form.

To calculate your cost of goods sold, you need to know the following:

  • the value of your inventory at the start of your fiscal period
  • the value of your inventory at the end of your fiscal period
  • the cost of your purchases (net of discounts) for the fiscal period

Line 8300 – Opening inventory and Line 8500 – Closing inventory

Enter your opening inventory amount at line 8300 and your closing inventory amount at line 8500. These amounts must include raw materials, goods in process, and finished goods. The way you value your inventory is important in determining your income. For income tax purposes, choose one of the following two methods:

  • value your entire inventory at its fair market value (FMV). Use the price you would pay to replace the item or the amount you would get if you sold the item
  • value individual items in your inventory at either their FMV or their cost, whichever is less. Cost is the price you incur for an item. Cost also includes any expenses you incur to bring the item to the business location and put it in a condition so that you can use it in the business. When you cannot easily tell one item from another, you can value the items as a group

Once you have chosen a method for valuing your inventory, you have to use that method consistently.

If this is your first year of reporting business income, you can choose either method to value your inventory. In your first year of business, you will not have an opening inventory amount to enter on line 8300. If this is not your first year of business, continue to use the same method you used in past years. The value of your inventory at the start of a fiscal period has to be the same as the value of your inventory at the end of the preceding fiscal period.

Do an actual stock count at the end of each fiscal period, unless you use a perpetual inventory system. Under this system, you do periodic stock counts and keep a written record of each count. Remember to keep your inventory records with your other records.

Businesses that are adventures or concerns in the nature of trade must value their inventory at cost.

For more information about valuing inventory, see Interpretation Bulletin IT-473R, Inventory Valuation.

Inventory value of an artistic endeavour

An artistic endeavour occurs when you are in the business of creating paintings, murals, original prints, etchings, drawings, sculptures, or similar works of art. An artistic endeavour does not include reproducing works of art.

When you calculate your income from an artistic endeavour, you can elect to value your closing inventory at zero. To do this, enter zero at line 8500. Your election of zero closing inventory stays in effect for each following year, unless you request a change and we allow the change. You cannot use this election if you reproduced the works of art.

For more information, see Interpretation Bulletin IT-504R2, Visual Artists and Writers.

Gifts of inventory by an artist

If you donate a work of art you created, you may not have to report a profit on your donation for income tax purposes. To benefit from this tax treatment, your gift must fall under the definition of gifts of certified cultural property. For more information about gifts and donations, see Pamphlet P113, Gifts and Income Tax.

Line 8320 – Purchases during the year (net of returns, allowances, and discounts)

The cost of goods you buy to resell or use in manufacturing other goods includes costs such as delivery, freight, and express charges. Enter the amount of your net purchases during the year (your total purchases minus any discounts you received).

Sometimes you might purchase goods for your business that you put to personal use. When this happens, you have to subtract the cost of these goods from your total purchases for the year.

Line 8340 – Direct wage costs

Include the remuneration you paid to employees who work directly in the manufacture of your goods. Do not include:

Line 8360 – Subcontracts

Enter all the costs to hire outside help to perform tasks related to the goods you sell.

Line 8519 – Gross profit

Enter your gross profit. This is your gross business income minus your cost of goods sold.

The rules for calculating business and professional income are similar.

farm icon Farming income

Lines 9370 to 9378 (inclusive)

Enter the income from the sale of your grains and oilseeds, whether sold directly or through an agency, on the appropriate lines 9371 to 9378. If you have other income from grains and oilseeds not listed at lines 9371 to 9378, enter the amount at line 9370.

If you sold grain directly or through an agency, include in income all the amounts you received from these sales. For example, include any Canadian Wheat Board payments from the sale of wheat, durum wheat, and barley.

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. Because you received a payment at the time you received the ticket, you have to include this amount in income.

If you received a deferred cash purchase ticket, you may be able to defer the income until the following tax year. You can do this if the ticket indicated payment after the end of the tax 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.

Lines 9421 to 9424 (inclusive)

Enter the total income from the sale of the identified produce on the applicable line. Whether you sold produce directly or through an agency, include in income all the amounts you received from these sales.

Do not include amounts received from the sale of greenhouse vegetables. For more information, see line 9425.

Line 9420 – Other crops

Enter the total income from the sale of pulse crops, sugar beets, hops, or any other crops you have not identified on another line.

Line 9425 – Greenhouse and nursery products

Enter the total income from the sale of such things as ornamental plants, shrubs, trees, cut and field-grown flowers, rooted cuttings, seeds and bulbs, sod and turf, and greenhouse vegetables.

Line 9426 – Forage crops or seeds

Enter the total income from the sale of hay, alfalfa, clover and clover seed, alsike, timothy, fescue, grass seed, or any other forage crops or seeds.

Lines 9471 to 9474 (inclusive) – Livestock sold

Enter the total income from the sale of the identified livestock on the applicable line. In some cases, you can defer including some amounts in income, as explained below. These deferrals do not apply if you were a non-resident and were not carrying on a farming business through a fixed place of business in Canada at the end of the tax year. Also they do not apply in the year of the farmer's death.

Line 9470 – Livestock and animal products revenue

Enter on this line the total income from the sale of any other livestock not specifically identified on another line (for example, the sale of horses, ponies, goats or llamas). Include amounts from the sale of fur-bearing animals you raised in captivity, such as fox, chinchilla, mink, or rabbit, as well as income from an apiary operation.

Prescribed drought region (PDR)

In some cases, you may be able to defer the applicable income received from the sale of breeding animals in your 2018 fiscal period to a later fiscal period.

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

  • your farming business was located in a PDR 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 PDRs, contact us at 1-800-959-5525 or Agriculture and Agri-Food Canada (AAFC). For a list of the prescribed regions of drought, flood or excessive moisture, see "Designations" at Livestock Tax Deferral Provision.

Prescribed flood region (PFR)

Eligible farmers who dispose of breeding livestock in a tax year because of flood or excessive moisture will be permitted to exclude a portion of the sale proceeds from their incomes until the following tax year or a later tax year if the condition persists. You may want to file your return based on the legislation in the same manner as you would for a prescribed drought region.

For a list of the prescribed regions of flood or excessive moisture, see "Designations" at 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 year) have given birth?

Blank space for value 
Line 1

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

Blank space for value 
Line 2

Enter one half of the amount from line 1

Blank space for value 
Line 3

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

Blank space for value 
Line 4

Part 2

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

Blank space for value 
Line 5

Enter the amount from line 2

Blank space for value 
Line 6

Enter the amount from line 4

Blank space for value 
Line 7

Line 6 minus line 7

Blank space for value 
Line 8

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

Blank space for value 
Line 9

If the amount from line 9 is not more than 85% of the total number of animals in your breeding herd at the end of your 2017 fiscal year, 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.

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

Line 9476 – Milk and cream (not including dairy subsidies) and Line 9477 – Eggs for consumption

On the applicable line, enter the total income from selling eggs, milk, and cream. Do not include any amount you received as dairy subsidies. Include these in your 2018 fiscal period, on line 9541.

Line 9520 – Other commodities

On this line, enter the total income from selling any other commodity not specifically identified on another line. Other commodities include the sale of semen, stud services, embryo transplants, artificial insemination, and pregnant mares' urine. Also include amounts from the sale of maple products, mushrooms, and ginseng.

Program payments

You should receive an AGR-1 slip, Statement of Farm Support Payments, to identify your 2018 taxable farm-support payments for all farm-support programs from which you received payments of 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 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.

Line 9541 – Dairy subsidies

Enter the dairy or milk subsidies you received.

Line 9542 – Crop insurance

Enter any insurance proceeds you received from federal, provincial, or joint federal/provincial programs for loss of crops.

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.

Disaster assistance program payments

Enter any payments you received from federal or provincial disaster assistance programs. These include the following:

  • the Agricultural Income Disaster Assistance (AIDA) Program in Saskatchewan, Manitoba, Nova Scotia, Newfoundland and Labrador, New Brunswick, Prince Edward Island, and Quebec
  • the Canadian Farm Income Program (CFIP) in Saskatchewan, Manitoba, Nova Scotia, Newfoundland and Labrador, New Brunswick, Prince Edward Island, and Quebec
  • the Whole Farm Insurance Pilot (WFIP) Program in British Columbia
  • the Farm Income Disaster Program (FIDP) in Alberta
  • the Ontario Whole Farm Relief Program (OWFRP) and the Ontario Farm Income Disaster Program (OFIDP) in Ontario

Destroying livestock

You have to include in income any payments you received under the Health of Animals Act for destroying animals. 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 2018.

Line 9570 – Rebates

Enter the amount of the rebate, grant, or assistance you received on this line. Before doing so, reduce any related expense or the capital cost of a related depreciable asset by the amount of the rebate, grant, or assistance you received. For more information, see Grants, subsidies, and rebates. You may be able to claim the GST/HST you paid on your farming business expenses as an input tax credit on line 9570. For more information, see GST/HST input tax credits.

For more information about GST/HST rebates, go to GST/HST.

Line 9600 – Other income

Enter the total of any other farming income you have not specifically identified on another line. The following paragraphs identify some of these income items.

Wood sales (including stumpage)

If you operated or regularly harvested a woodlot, include in your income the amounts from the sale of trees, lumber, logs, poles, or firewood.

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-CONSOLID, 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 7 of this guide 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.

Gifts

In your income, include the FMV of livestock or other items you gave away 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.

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 FMV of the goods or services in income. Deduct 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.

Surface rental for petroleum or natural gas exploration

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 payment will be considered as payment for property for income tax purposes. This may result in either a capital gain or loss. For information about capital gains, see Chapter 7.

Rental income

Except for the surface rental previously explained, 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.

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.

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.

To find out if you have any recapture of CCA, fill in the applicable areas on Form T2042. For more information, see Chapter 4.

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.

Line 9601 – Custom or contract work (includes machine rentals)

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

Line 9604 – Insurance proceeds

Enter the amount of any insurance proceeds you received as compensation for loss or damage to certain types of property. For example, you may have received insurance proceeds for damage to a building due to fire, or for the loss of livestock to disease.

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, such as livestock

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 "Other expenses" area of Form T2042. 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. Report these amounts in column 5 of Area A of Form T2042. 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 this line. For more information, see Chapter 4. For information on how insurance affects the adjusted cost base of capital property, see Chapter 7.

Do not include insurance proceeds from federal, provincial, or municipal government programs. For information on government insurance programs, see lines 9540 and 9542.

Line 9605 – Patronage dividends

Report 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 9659 – Gross income

Gross farming income is your total farming income before you deduct expenses. Enter your gross farming income on line 168 of your income tax return.

Fishing income

This section explains how to fill in the "Income" area of Form T2121.

T4 slip, Statement of Remuneration Paid

An employed fisher's income must be reported on a T4 slip. If you employ fishers, see the RC4120, Employers' Guide – Filing the T4 Slip and Summary.

As a fisher, you may have received a T4 slip that shows your fishing income. Since your T4 slip may not show all of your fishing income for the year, you should keep a detailed record of all your fishing income. Enter on Form T2121 the income you received in your 2018 fiscal period.

Your T4 slip also shows the amount of income tax that has been deducted from your fishing income for the calendar year.

However, if your fiscal period ended on a date other than December 31, enter on line 437 of your income tax return one of these amounts:

  • the total tax deducted for the year, as shown on your T4 slip
  • the part of the tax deducted for your 2018 fiscal period (in 2019, you claim the amount that remains)

In either case, include your T4 slip with your 2018 income tax return.

If you are claiming income tax that was deducted from a 2017 T4 slip, attach a note to your 2018 income tax return telling us you are doing this.

You can choose to have tax deducted at the rate of 20% on an amount you will receive from a catch. To do this, fill in Form TD3F, Fisher's Election to Have Tax Deducted at Source, which you and the buyer of the catch or the designated employer have to sign.

You can view your T4 and other tax information slips using My Account for Individuals.

Fish products

Include all amounts you received from the sale of fish, lobster, scallops, and so on. If you sell on the high seas, report the amount you received in Canadian dollars. Use the exchange rate in effect at the time you sold the fish. If you sell at various times in the year, use an average rate.

Other marine products

Include all amounts you received from the sale of Irish moss, herring scales, herring roe, seal meat and flippers, seaweed, kelp, roe on kelp, and so on.

Subsidies

Include the income you received during your 2018 fiscal period from all fishing subsidy programs made to fishers under federal, provincial, territorial, municipal, or joint programs.

Compensation for loss of fishing income or property

You may have received insurance proceeds for property that was lost or destroyed. If you previously deducted the cost of the property as an expense, include the amount of the proceeds in your fishing income. This also includes any amounts you may have received for lost or destroyed nets and traps you included in inventory. Also include on this line compensation you received for loss of income, such as payments from the Fisheries Restructuring and Adjustment Program.

Compensation for lost or destroyed capital property, such as a fishing boat, equipment, or nets and traps you capitalize, are proceeds of disposition for the property. Therefore, you have to deduct the proceeds from the UCC of the class to which the property belongs. For more information, see Chapter 4.

Other income

You may have other types of fishing income that are not listed on Form T2121. In this case, enter this income on the "Other income" line. Below, we have listed some of the more common types of other income.

Paying debts with part of a catch

You may have bought property or paid off a debt with fish or other catch instead of money. In this case, include in your income the FMV of the fish or other catch.

You may have paid off a business expense with fish or other catch. If you did this, include in income the FMV of the fish or other catch. Then you can deduct as an expense the FMV of that fish or other catch.

Sale of property

The tax treatment of the proceeds of disposition from a sale depends on the type of property you sold.

For instance, if you sold capital property, you may have to include in your income a capital gain and a recapture of CCA, or you may be able to deduct a terminal loss. For more information, see Chapter 4.

On the other hand, you may have sold an item you deducted as an expense, such as a small tool. In this case, include the proceeds of disposition for the tool in your income.

However, if you sold a fishing boat and the sale price includes other items such as a fishing licence, nets, or traps, you have to divide the proceeds of disposition among the items. You and the buyer should try to reach an agreement on the price for each item.

Note

It has become a standard industry practice to pay amounts to existing licenceholders to relinquish their fishing licence if the licenceholder recommends to Fisheries and Oceans Canada (FOC) that a replacement licence be issued to a specific individual and that particular individual is granted a new licence. It is common industry terminology to refer to this exercise as "selling" or "buying" a licence.

Example

Richard sold his fishing boat, licences, and other equipment to Stacey for $32,500. Richard and Stacey agree on how to divide the proceeds of disposition. To determine how to treat each item, they set up this calculation:

Tax treatment for fishing equipment
Item Amount Tax treatment
Fishing boat $20,000 Richard deducts whichever is less: the proceeds of disposition (net of disposition costs) or the capital cost from the class. Richard may also have a capital gain as well as a recapture of CCA , or a terminal loss. Stacey  adds the amount to the class. See  Chapter 4 for details on CCA .
Nets and traps 7,000 Richard includes the amount in his income if he inventories his nets and traps, or he includes the amount as proceeds of disposition if he capitalizes his nets and traps. He may also have a capital gain as well as a recapture of CCA , or a terminal loss. See  Chapter 4 . Stacey sees Line 9137 – Nets and traps .
Fishing licences 5,000 Richard and Stacey see Chapter 4 for information on CCA Class 14.1.
Hooks and lines 500 Richard includes this amount in his income.
Stacey deducts this amount as an expense.
Total $32,500

Income from related activities

Report other income you received that is not on your T4 slip or elsewhere on Form T2121. Some examples of other income are incomes you received working as a captain, engineer, first mate, or cook.

An owner may have paid you wages and let you keep part of a catch. In this case, include the wages on the appropriate line of your income tax return and the balance received as "Other income" on Form T2121.

If you are a resident of Canada and fish on a foreign vessel, include in your income any amount you received as wages or as your share of the catch. Report the amount you received in Canadian dollars.

Sharesperson income

Report the income you received as a sharesperson. Also, write down the name of the fishing boat and captain.

Line 8299 – Gross income

Gross fishing income is your total fishing income before you deduct expenses. Enter your gross fishing income on line 170 of your income tax return.

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