Self-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 3 – Expenses

This chapter discusses the more common expenses you might incur to earn income from your activities. Incur means you paid or will pay the expense.

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.

For more information, see Chapter 4 – Capital cost allowance and Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

You cannot claim expenses you incur to buy capital property. However, as a rule, you can deduct any reasonable current expense you incur to earn income. The deductible expenses include any GST/HST you incur on these expenses less the amount of any input tax credit claimed.

Also, since you cannot deduct personal expenses, enter only the business part of expenses on Form T2125, Form T2042 or Form T2121.

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)
  • for farmers, this includes 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 limited exceptions:
  • for farming, see Line 9804
  • for fishing, see Line 8690
• 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

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, 2022. On June 30, 2022, you prepay the rent on your building for a full year (July 1, 2022, to June 30, 2023). You can only deduct one-half of this rent as an expense in 2022. You can deduct the other half as an expense in 2023.

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 2022, you can deduct $400 in 2022. This represents the part of the expense that applies to 2022 and 2023. On your 2024 income tax return, you could then deduct the balance of $200 for the part of the prepaid lease that applies to 2024.

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

Part 4 – Net income (loss) before adjustments

If you are self-employed, you can deduct certain amounts you spent to earn business, professional, commission, farming and fishing income. For the definition of self-employed fisher, see Find out if this guide is for you. If you use the cash method of reporting income and expenses, you can only deduct expenses you paid in the year. If you are using the accrual method, you can deduct expenses you had during the year, whether you paid them or not. There are special rules for deducting prepaid expenses. For more information, see Prepaid expenses.

This section will introduce expense line numbers from Part 4 of all three forms in ascending order. To determine which lines occur on which forms, please reference the icons below:

 For business and professional expenses

 For farming expenses

 For fishing expenses

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 of Financial Information (GIFI).

 Line 8521 – Advertising

You can deduct expenses for advertising, including advertising in Canadian newspapers and on Canadian television and radio stations. You can also include any amount you paid as a finder's fee.

To claim the expenses, you must meet certain Canadian content or Canadian ownership requirements. These requirements do not apply if you advertise on foreign websites.

Restrictions apply to the amount of the expense you can deduct for advertising in a periodical. You can deduct all the expense if your advertising is directed at a Canadian market and the original editorial content in the issue is 80% or more of the issue's total non-advertising content.

You can deduct 50% of the expense if your advertising in a periodical is directed at a Canadian market and the original editorial content in the issue is less than 80% of the issue's total non-advertising content.

You cannot deduct expenses for advertising directed mainly at a Canadian market when you advertise with a foreign broadcaster.

  Line 8523 – Meals and entertainment

The maximum amount you can claim for food, beverages and entertainment expenses is 50% of the least of the following amounts:

• the amount incurred for these expenses
• an amount that is reasonable in the circumstances

When you claim expenses on this line, you will have to calculate the allowable part you can claim for business use.

These limits also apply to the cost of your meals when you travel or go to a convention, conference, or similar event. Special rules can affect your claim for meals in these cases. For more information, see Convention expenses for business and professional.

These limits do not apply in any of these cases:

• Your business regularly provides food, beverages or entertainment to customers for compensation (for example, a restaurant, hotel or motel)
• You bill your client or customer for the meal and entertainment costs, and you show these costs on the bill
• You include the amount of meal and entertainment expenses in an employee's income or would include them if the employee did not work at a remote or special work location. In addition, the amount cannot be paid or payable for a conference, convention, seminar or similar event and the special work location must be at least 30 kilometres from the closest urban centre with a population of 40,000 or more, visit Statistics Canada
• You incur meal and entertainment expenses for an office party or similar event, and you invite all your employees from a particular location. The limit is six such events per year
• The meal and entertainment expenses you incur are for a fund-raising event that was mainly for the benefit of a registered charity
• You provide meals to an employee housed at a temporary work camp constructed or installed specifically to provide meals and accommodation to employees working at a construction site (note that the employee cannot be expected to return home daily)

Entertainment expenses include tickets and entrance fees to an entertainment or sporting event, gratuities, cover charges and room rentals such as hospitality suites.

For more information, see Interpretation Bulletin IT-518, Food, Beverages and Entertainment Expenses.

Expenses for food and beverages consumed by a long-haul truck driver during an eligible travel period are deductible at 80%.

An eligible travel period is a period of at least 24 continuous hours throughout which the driver is away from the municipality and metropolitan area that he or she resides and is driving a long-haul truck that transports goods to, or from a location that is beyond a radius of at least 160 kilometres from the residential location.

Self-employed foot and bicycle couriers and rickshaw drivers can deduct the cost of extra food and beverages they must consume in a normal working day (eight hours) because of the nature of their work. The daily flat rate that can be claimed is $23.

If you are claiming this deduction you should be prepared to provide logbooks showing the days worked and the hours worked on each of these days during the tax year. The Canada Revenue Agency (CRA) may also ask for dispatch slips or other documents to support the days worked during the tax year.

If you want to claim more than the flat-rate amount, the CRA will also need all following items:

• supporting receipts for all food and beverages claimed
• a document that clearly shows the extra amount of food and beverages required because of the nature of your work, and how this amount exceeds what the average person would consume in terms of both cost and quantity

Meals and entertainment expenses for fishers

Claim the total amount you paid for food you stocked on your boat to feed your crew when you fished offshore.

Often, inshore fishers do not stock food. Instead, they bring meals from home for their crew because the trips are short (leave home early in the morning and come back late in the afternoon). You can deduct the cost of these meals as long as the meals were a taxable benefit to your crew.

In some cases, you can deduct the cost of meals even though they were not taxable benefits. You can do this if your boat was at sea for 36 hours or more and the meals you provided for your crew were not taxable benefits. Also, if you gave meals to your sharespeople, generally the meals you provided for them are not taxable benefits because we do not consider sharespeople to be employees. The 50% rule applies to all self-employed sharespeople. However, they may be limited by the restriction noted above.

For more information about taxable benefits, see the T4130, Employers' Guide – Taxable Benefits and Allowances. Also see Interpretation Bulletin IT-91, Employment at Special Work Sites or Remote Work Locations.

 Line 8590 – Bad debts

You can generally deduct an amount for a bad debt if you meet the following conditions:

• you had already included the account receivable in income
• you had determined that an account receivable is a bad debt in the year

For more information, see Interpretation Bulletin IT-442, Bad Debts and Reserves for Doubtful Debts.

  Line 8690 – Insurance

You can deduct commercial insurance premiums that you pay for insurance on any buildings, machinery and equipment you use in your business.

Motor vehicle insurance costs are listed at line 9281.

The insurance costs related to business use of workspace in your home have to be claimed on line 9945.

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

Insurance expenses for fishers

Enter the premiums you paid to insure your fishing boat and equipment.

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 property for personal use and for your fishing business, you can deduct the business part of these costs. For more information, see Line 9281 – Motor vehicle expenses (not including CCA) and Line 9945 – Business-use-of-home expenses.

  Line 8710 – Interest and bank charges

You can deduct interest on money borrowed for business purposes or to acquire property for business purposes. This includes fishing businesses.

There are limits on:

• The interest you can deduct on money you borrow to buy a passenger vehicle or a zero-emission passenger vehicle (ZEPV). For more information, see Line 9281 – Motor vehicle expenses (not including CCA)
• 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
• The interest you paid on any real estate mortgage you had to earn fishing income. You can deduct the interest, 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

Fees, penalties or bonuses paid for a loan

You can deduct the fee you pay to reduce the interest rate on your loan. You can also deduct any penalty or bonus a financial institution charges you to pay off your loan before it is due. Treat the fee, penalty or bonus as prepaid interest and deduct it over the remaining original term of your loan.

For example, if the term of your loan is five years and in the third year you pay a fee to reduce your interest rate, treat this fee as a prepaid expense and deduct it over the remaining term of the loan. For more information, see Prepaid expenses.

Fees deductible over five years

You can deduct certain fees you incur when you get a loan to buy or improve your business property. These fees include:

• application, appraisal, processing and insurance fees
• loan guarantee fees
• loan brokerage and finder's fees
• legal fees related to financing

You deduct these fees over a period of five years, regardless of the term of your loan. Deduct 20% (100% divided by five years equals 20%) in the current tax year and 20% in each of the next four years. The 20% limit is reduced proportionally for fiscal periods of less than 12 months.

If you repay the loan before the end of the five-year period, you can deduct the remaining financing fees then. The number of years for which you can deduct these fees is not related to the term of your loan.

Fees deductible in the year incurred

If you incur standby charges, guarantee fees, service fees or any other similar fees, you may be able to deduct them in full in the year you incur them. For more information, see Interpretation Bulletin IT-341, Expenses of Issuing or Selling Shares, Units in a Trust, Interests in a Partnership or Syndicate and Expenses of Borrowing Money.

Interest deductible on property no longer used for business purposes

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

Interest on loans made against insurance policies

You can deduct interest you paid on a loan made against an insurance policy, as long as the insurer didn't add the interest you paid to the adjusted cost base of the insurance policy. To claim the interest you paid for 2022, have the insurer verify the interest before June 16, 2023, on Form T2210, Verification of Policy Loan Interest by the Insurer.

Capitalizing interest

You can choose to capitalize interest on money you borrow for one of the following reasons:

• to buy depreciable property
• to buy a resource property
• for exploration and development

When you choose to capitalize interest, add the interest to the cost of the property or exploration and development costs instead of deducting the interest as an expense.

Interest related to workspace in your home

The interest related to business use of workspace in your home is at line 9945.

  Line 8760 – Business taxes, licences and memberships

You can deduct all annual licence fees and some business taxes you incur to run your business. Some examples of licence fees are: beverage licenses; business charges; trade licences; motor vehicle licenses; and motor vehicle registration permits. Some examples of business taxes that may be deductible are: municipal taxes; land transfer taxes; gross receipt tax; health and education tax; and hospital tax.

You can also deduct annual dues or fees to keep your membership in a trade or commercial association, as well as subscriptions to publications. You cannot deduct club membership dues (including initiation fees) if the main purpose of the club is dining, recreation or sporting activities.

Licences (business taxes and memberships) for fishers

Enter the total cost to renew your annual licences. If you bought a licence from another fisher, you can only deduct part of the cost each year. For details on depreciable property, see Chapter 4.

If you bought a fishing boat and the price included the cost of a licence, you need to know what part of the price was for the licence and what part was for the boat. Try to agree on these amounts with the seller. See the example, Tax treatment for fishing equipment.

  Line 8810 – 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 capital expenditures to acquire capital property such as calculators, filing cabinets, chairs and a desk. These are capital items.

 Line 8811 – Office stationery and supplies

You can deduct the cost of items the business used to provide goods or services for example, drugs and medication used by a veterinarian or cleaning supplies used by a plumber. If you run a daycare, these include household supplies that children use and food you buy to feed the children.

  Line 8860 – Professional fees (includes legal and accounting fees)

You can deduct the fees you incurred for external professional advice, services and consulting fees.

You can deduct accounting and legal fees for advice and help with keeping your records. You can also deduct expenses for preparing and filing your income tax and GST/HST returns.

You can deduct 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 (EI) premiums. However, the full amount of these deductible fees must first be reduced by any reimbursement of these fees that you have received. Report the difference on line 23200 of your tax return. If you received a refund in 2022 for the types of fees that you deducted in a previous year, report the amount you received at line 13000 of your 2022 tax return.

You cannot deduct legal expenses and other fees you incur to buy a capital property, such as a boat or fishing material. Instead, add these fees to the cost of the property. For more information on capital property, see Class 14.1 (5%).

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

 Line 8871 – Management and administration fees

You can deduct management and administration fees including bank charges incurred to run your business.

 Line 8910 – Rent

You can deduct rent incurred for property used in your business. For example, you can deduct rent for the land and building where your business is situated. The rent expense related to the business use of your home has to be claimed on line 9945 in Part 5.

 Line 8960 and  Line 8963 – Repairs and maintenance

You can deduct the cost of labour and materials for any minor repairs or maintenance done to property you use to earn income. You cannot deduct the value of your own labour.

You cannot deduct costs you incur for repairs that are capital in nature. However, you can claim CCA.

The maintenance and repairs related to business use of workspace in your home are claimed at line 9945 in Part 5.

Fishing boat

Enter the total amount you paid for the general repairs you needed to keep your fishing boat seaworthy. The structural improvements and additions you make to your fishing boat are capital expenditures. You have to add these expenditures to the cost of the boat. This will affect your CCA claim on the boat. For details on CCA, see Chapter 4.

If you need more details about capital expenditures, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Engine

Enter the total amount you paid for all general engine repairs. You can also deduct the cost of an overhaul. However, if you replaced an engine, it is a capital expenditure. Therefore, add the expenditure to the cost of the boat. This will affect the CCA on the boat. For more information on CCA, see Chapter 4.

Electrical equipment

Deduct the amount you pay for repairs to a LORAN, sounder, radar, ship-to-shore radio, fish finder, and so on.

  Line 9060 – Salaries, wages and benefits (including employer's contributions)

You can deduct employees' gross salaries and other benefits you incurred. For more information, go to Fishers and employment insurance. Do not deduct salaries or drawings paid or payable to yourself or to a partner. For more information, see Part 9 – Details of equity.

The CPP is for all workers, including the self-employed. Employers, employees and most self-employed individuals have to contribute to the CPP. The CPP can provide basic benefits when you retire or if you become disabled. When you die, the CPP can provide benefits to your surviving spouse or common-law partner and your dependent children under the age of 25.

Quebec workers including the self-employed are covered under the QPP.

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.

You can also deduct any insurance premiums you pay for an employee for a sickness, an accident, a disability or an income insurance plan and deduct the salary you pay to your child, as long as you meet all these conditions:

• you pay the salary
• the work your child does is necessary for earning business, professional or fishing income
• the salary is reasonable when you consider your child's age, and the amount you pay is what you would pay someone else

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

Instead of cash, you can pay your child with a product from your business. When you do this, claim the value of the product as an expense and add to your gross sales an amount equal to the value of the product. Your child has to include the value of the product in his or her income.

You can also deduct the salary you pay to your spouse or common-law partner. When you pay your spouse or common-law partner a salary, use the same rules that apply to paying your child.

Report the salaries you pay to your children and spouse or common-law partner on T4 slips, the same as you would for other employees. You cannot claim as an expense the value of board and lodging you provide to your dependent children and your spouse or common-law partner.

For more information, see Guide RC4120, Employers' Guide – Filing the T4 Slip and Summary.

 Line 9062 – Crew shares

Enter the total amount of each crew member's share of the catch. You will find these amounts on the trip settlement sheets.

 Line 9136 – Fishing gear

Enter the amount you paid for gear. This includes knives, small assorted supplies, gloves and rubber or oilskin clothing you used in your fishing business.

 Line 9137 – Nets and traps

Nets and traps include lines, hooks, buoys, anchors and radar reflectors. Generally, you cannot deduct the entire cost of nets and traps you bought in the year. Instead, there are two methods you can use to deduct these costs.

Method 1 – Capital cost allowance method

Capitalize the cost of nets and traps and claim CCA. See Chapter 4 for details on CCA.

Method 2 – Inventory method

Include in inventory the cost of nets and traps and deduct the loss in value, as shown in the following example:

If you just started your fishing business, choose one of the two methods. If you have been running your fishing business for several years and each year you claim the cost of replacing nets and traps, you can keep on doing so. However, you can choose to change to either the CCA or the inventory method. If you choose to do this in 2022, the value of nets and traps on hand at the end of 2021 will be zero since you have deducted their value in previous years.

You can change from the inventory method to the CCA method. However, you cannot change from the CCA method to the inventory method.

 Line 9138 – Salt, bait and ice

Enter the amount you paid for bait, ice and salt used for your fishing business.

 Line 9180 – Property taxes

You can deduct property taxes you incurred for property used in your business. For example, you can deduct property taxes for the land and building where your business is situated. The property tax related to the business use of workspace in your home has to be claimed on line 9945 in Part 5.

 Line 9200 – Travel expenses

You can deduct travel expenses you incur to earn business and professional income. Travel expenses include public transportation fares, hotel accommodation and meals. If you run a daycare, you can also deduct on this line the cost of tickets you may have bought for field trips.

In most cases, the 50% limit applies to the cost of meals, beverages and entertainment when you travel. We discuss this limit in Line 8523 – Meals and entertainment.

 Line 9220 – Utilities

You can deduct expenses for telephone and utilities, such as gas, oil, electricity, water and cable, if you incurred the expenses to earn income.

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 your business. If you have a separate telephone for business calls only, you can deduct its basic monthly rate.

You can also deduct the percentage of air-time expenses for a cellphone you use to earn your business income.

The expenses for utilities that are related to the business use of workspace in your home have to be claimed on line 9945 in Part 5.

  Line 9224 – Fuel costs (except for motor vehicles)

You can deduct the cost of fuel used in your business, as well as for your fishing boat and equipment, (including gasoline, diesel and propane), motor oil and lubricants. For more information about claiming the fuel used in your motor vehicle, or if you used a car or truck for your fishing business, see Line 9281 – Motor vehicle expenses (not including CCA).

The cost of fuel related to the business use of workspace in your home has to be claimed on Line 9945 – Business-use-of-home expenses.

  Line 9270 – Other expenses

For a list of expenses you can claim on line 9270 on your T2125 or T2121, see Line 9790 or 9270 – Other expenses.

 Line 9275 – Delivery, freight and express

You can deduct the cost incurred in the year of delivery, freight and express that relates to your business.

  Line 9281 – Motor vehicle expenses (not including CCA)

You can deduct expenses you incur to run a motor vehicle you use to earn business or fishing income. Fill in "Chart A – Motor vehicle expenses" on your form. The chart will help you calculate the amount of motor vehicle expenses you can deduct. If you are a partner in a partnership and you incur motor vehicle expenses for the business through the use of your personal vehicle, you can claim those expenses related to the business on line 9943 in Part 5.

If you use your vehicle occasionally for business purposes, you can claim motor vehicle expenses on a per-trip basis. For example, if you are operating a daycare business, taking the children to a park or on an excursion may involve paying for fuel and parking.

If you regularly use your vehicle for business and personal trips, you can claim part of the total operating expenses for your vehicle as a business expense. You must keep accurate records that show the part of the total kilometres that you drove for your business.

 Expense lines specific to farming

Line 9661 – Containers and twine

Enter the total amount you paid for materials to package, contain or ship your farm produce or products. If you operated a nursery or greenhouse, deduct the cost of your containers and pots for the plants you sold.

Line 9662 – Fertilizers and lime

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

Line 9663 – Pesticides (herbicides, insecticides, fungicides)

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

Line 9664 – Seeds and plants

Enter the total amount you paid for seeds and plants. Do not include the cost of seeds and plants you used in your personal vegetable or flower garden.

Line 9711 – Feed, supplements, straw and bedding

Enter the total amount you paid for feed, supplements, straw and bedding you purchased for your farming business. You cannot deduct the value of the feed, straw or bedding you grew.

Line 9712 – Livestock purchased

Enter the amount you paid for all livestock you purchased.

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.

Machinery expenses

The expense of operating and maintaining your machinery is the total of line 9760 and line 9764 below.

Line 9760 – Repairs, licences and insurance

Enter the total amount of repair, licence fee and insurance premium expenses you incurred for your machinery. If you received insurance proceeds to help pay for repairs, see Line 9604 – Insurance proceeds.

Line 9764 – Gasoline, diesel fuel and oil

Enter the total amount you paid for fuel and lubricants for your machinery.

Line 9790 – Total other expenses

For a list of expenses you can claim on line 9790 on your T2042, see Line 9790 or 9270 – Other expenses.

Line 9795 – Building repairs and maintenance (includes fence repairs)

Deduct 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 on your CCA charts on Form T2042. CCA charts are explained in Chapter 4.

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

If you used your farmhouse for business reasons, see Line 9945 – Business-use-of-home expenses.

Line 9796 – Clearing, levelling and draining land

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 plowing of 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 of 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
• 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 T2042. For more information, see Chapter 4.

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 9797 – Crop insurance, Revenue Protection Program and stabilization premiums

Enter the amount of deductible premiums to the Crop Insurance Program. Do not include any premiums for private, business-related or motor vehicle insurance. For information on other types of insurance, see Line 9760 – Repairs, licences and insurance, Line 9804 – Insurance and Line 9819 – Motor vehicle expenses.

Line 9798 – Custom or contract work (includes machine rentals)

Enter the expenses you incurred for custom and contract work, and machinery rental. 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.

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 at Line 9945 – Business-use-of-home expenses.

Do not include on Form T2042 the electricity expense for a house you rented to someone else. This is a rental expense, which you enter on Form T776, Statement of Real Estate Rentals.

Line 9802 – Heating fuel and curing fuel

Enter the total amount you paid for natural gas, coal and oil to heat farm buildings. Enter 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 is 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 explained at Line 9945 – Business-use-of-home expenses.

Do not include the heating fuel expenses for a house you rented to someone else. This is a rental expense, which you enter on Form T776.

Line 9803 – Insurance program overpayment recapture

Enter the amount of any insurance program overpayment recapture you incurred. You should receive an AGR-1 slip, Statement of Farm-Support Payments, identifying the amount of the recapture in box 17.

Line 9804 – Insurance

Enter the amount of business-related insurance premiums you paid to insure your farm buildings, farm equipment (excluding machinery and motor vehicles), livestock and business interruption.

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-309, 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 Line 9945 – Business-use-of-home expenses and Line 9819 – Motor vehicle expenses.

Line 9805 – Interest and bank charges

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 or a zero-emission 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 deduct 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 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 Class 14.1 (5%).

Line 9809 – Professional fees (includes legal and accounting fees)

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

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

You can deduct accounting or legal fees you paid to have an objection or appeal prepared against an assessment for income tax, CPP or QPP contributions, or EI premiums. However, the full amount of these deductible fees must first be reduced by any reimbursement of these fees you have received. Report the difference on line 23200 of your income tax return. If you received a reimbursement in 2022 for the types of fees you deducted in a previous year, report the amount you received on line 13000 of your 2022 income tax return.

You cannot deduct legal and other fees you incur to buy capital property. Instead, add these fees to the cost of the property. For more information on capital property, see Class 14.1 (5%).

For more information, see Interpretation Bulletin IT-99, 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 deduct it unless you meet the conditions explained at Line 9945 – 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 and pasture)

You can deduct rent incurred for land, buildings and pasture used in your farming business.

If you farmed on a sharecrop basis and paid your landlord a share of the crop, you can do one of the following:

• Add to your income the fair market value (FMV) of the crops given to your landlord. Deduct the same amount as a rent expense
• Do not include the FMV in income and do not deduct the amount as a rent expense

Line 9814 – Salaries, wages and benefits (including employer's contributions)

You can deduct employees' gross salaries and other benefits you incurred. Do not deduct salaries or drawings paid or payable to yourself or a partner. For more information, see Part 9 – Details of equity.

As the employer, you must deduct your part of CPP or QPP contributions and EI premiums. You can also deduct workers' compensation amounts payable on employees' remuneration and 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.

You can also deduct any insurance premiums you pay for an employee for a sickness, an accident, a disability or an income insurance plan.

You can deduct the salary you pay to your child, as long as you meet all these conditions:

• you pay the salary
• the work your child does is necessary for earning farming income
• the salary is reasonable when you consider your child's age, and the amount you pay is what you would pay someone else

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

Instead of cash, you may pay your child with a product from your business. When you do this, claim the value of the product as an expense and add to your gross sales an amount equal to the value of the product. Your child has to include the value of the product in his or her income.

You can also deduct the salary you pay to your spouse or common-law partner by using the same rules that apply to paying your child.

Report the salaries you pay to your children and spouse or common-law partner on T4 slips, the same as you would for other employees. However, you cannot claim the value of board and lodging you provide to your dependent children and spouse or common-law partner as an expense.

For more information, see Guide RC4120, Employers' Guide – Filing the T4 Slip and Summary.

Line 9819 – Motor vehicle expenses (not including CCA)

You can deduct expenses you incur to run a motor vehicle you use to earn farming income. Fill in "Chart A – Motor vehicle expenses" of Form T2042. The chart will help you calculate the amount of motor vehicle expenses you can deduct. If you are a partner in a business partnership and you incur motor vehicle expenses for the business through the use of your personal vehicle, you can claim those business related expenses on Line 9943 – Other amounts deductible from your share of net partnership income (loss) of Form T2042.

Line 9820 – Small tools

If a tool costs you less than $500, you can deduct its full cost. If it costs you $500 or more, add the cost to your CCA schedule as Class 8 property.

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 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 4.

Line 9937 – Mandatory inventory adjustment included in the previous year

If you included an amount for the mandatory inventory adjustment (MIA) on line 9942 in your 2021 fiscal period, deduct the amount as an expense in your 2022 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 – Mandatory inventory adjustment included in the current year.

Line 9938 – Optional inventory adjustment included in the previous year

If you included an amount for the optional inventory adjustment (OIA) on line 9941 in your 2021 fiscal period, deduct the amount as an expense in your 2022 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 OIA, see Line 9941 – Optional inventory adjustment included in the current year.

 Fishing expenses – Specific information

Fishing boat owners

As a fishing boat owner, you can deduct all the expenses you had for each trip. This includes the expenses to calculate the crewshares.

You can also deduct other expenses you paid to earn fishing income, as well as CCA on property you owned and used to earn fishing income. We explain CCA in Chapter 4.

Captains of fishing boats

As the captain of a fishing boat, you can deduct expenses for which the owner did not pay or reimburse you. These expenses include the cost of personal navigation aids and rubber gear. You can also deduct motor vehicle expenses you paid to transport crew members and to get supplies and parts to use on the boat. You may be able to deduct business-use-of-home expenses and the cost of travel between your home and the fishing boat if you meet certain conditions. For more information, see Line 9281 – Motor vehicle expenses (not including CCA) and Line 9945 – Business-use-of-home expenses.

Sharespeople

As a sharesperson who receives a share of the catch, your income is the amount you received after you deducted all trip expenses from the sale of the catch. Therefore, you can only deduct the expenses you paid for rubber gear, gloves and knives you used on the fishing boat. You cannot deduct the cost to travel between your home and the fishing boat since we consider these expenses to be personal.

Use of a fishing boat mainly for personal use

You may have used a fishing boat mainly for personal use, but sometimes caught a small amount of fish to sell. In this case, you can deduct expenses and CCA. However, the amount you deduct cannot be more than your income from the catch.

Grants, credits and rebates

Subtract, from the applicable expense, any grant, credit or rebate you received. Enter the net figure on the appropriate line of Form T2121. For more information, see Grants, subsidies and rebates.

GST/HST input tax credits and exempt goods and services

GST/HST registrants may claim an input tax credit for the GST/HST they paid or owe for expenses used to provide taxable property and services at the rates of 0%, 5%, 13% or 15%.

If you claim the GST/HST you paid or owe on your expenses as an input tax credit, reduce the amounts of the business expenses you show on Form T2125, Form T2042 or Form T2121 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, whichever is earlier. Enter the net expense figure on the proper line on the form.

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 8230 – Other income of Form T2125, Line 9570 – Rebates of Form T2042 or line Grants, credits and rebates of Form T2121.

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

Some purchases of property and services are exempt from GST/HST. Because you do not pay GST/HST on these purchases, there is no input tax credit to claim. Examples of exempt purchases of property and services include:

• commercial fishing licences
• insurance services sold by insurance companies, agents or brokers
• most services provided by financial institutions, such as arranging loans or mortgages
• most health, medical and dental services

Since you don't pay GST/HST on zero-rated purchases, there is no input tax credit to claim for these purchases. For examples of zero-rated property and services, see GST/HST for farmers and fishers.

For more information on claiming the input tax credits and the percentage of use in commercial activity, see GST/HST Memorandum 8.1, General Eligibility Rules, and GST/HST Memorandum 8.2, General Restrictions and Limitations.

For more information on GST/HST, see Guide RC4022, General Information for GST/HST Registrants, GST/HST Memorandum 4.4, Agriculture and Fishing, and GST/HST Info Sheet GI-049, Fishing Equipment and Products.

Eligible registrants can file their GST/HST returns online by using GST/HST NETFILE or the "File a return" service in My Business Account. For information about GST/HST, go to GST/HST for businesses.

Keeping motor vehicle records

You can deduct motor vehicle expenses only when they are reasonable and you have receipts to support them. To get the full benefit of your claim for each vehicle, keep a record of the total kilometres you drive and the kilometres you drive to earn income. For each trip, list the date, destination, purpose and number of kilometres you drive. Record the odometer reading of each vehicle at the start and end of the fiscal period.

If you change motor vehicles during the fiscal period, record the dates of the changes and the odometer readings when you buy, sell or trade the vehicles.

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.

What type of vehicle do you own?

The kind of vehicle you own can affect the expenses you can deduct. For income tax purposes, you should know the definitions of motor vehicles, zero-emission vehicles, passenger vehicles and zero-emission passenger vehicles.

If you own a passenger vehicle or a ZEPV, or you lease a passenger vehicle or a vehicle that would otherwise qualify as a ZEPV, there may be a limit on the amounts you can deduct for CCA, interest and leasing costs. We explain the CCA limits in Chapter 4. You will find the limits on interest and leasing costs later in this section.

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.

Deductible expenses

The types of expenses you may be able to claim on line 9281 of Form T2125 or Form T2121, or line 9819 of Form T2042 include:

• licence and registration fees
• fuel and oil costs
• electricity costs for zero-emission vehicles
• insurance
• interest on money borrowed to buy a motor vehicle
• maintenance and repairs
• leasing costs

You can also claim CCA, but you enter that amount on line 9936. For more information about CCA, see Chapter 4.

Business use of a motor vehicle or passenger vehicle (including zero-emission vehicles and zero-emission passenger vehicles)

If you use a motor vehicle or passenger vehicle for business and personal use, you can deduct only the part of the expenses you paid to earn income. However, you can deduct the full amount of parking fees related to your business activities and supplementary business insurance for your motor vehicle or passenger vehicle.

To support the amount you can deduct, keep a record of the total kilometres you drive and the kilometres you drive to earn income.

 Farming business use includes trips to pick up parts or farm supplies, and to deliver grain. If you did not live on your farm, the travel between the farm and your home is not considered business travel.

 Fishing business use includes trips to pick up parts or boat supplies, and to deliver fish to markets. It also includes driving to and from the fishing boat if your home is your main place of business.

Joint ownership of a passenger vehicle or a zero-emission passenger vehicle

If you and another person own or lease a passenger vehicle or zero-emission 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.

More than one vehicle

If you use more than one motor vehicle or passenger 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-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Interest

You can deduct interest on the money you borrow to buy a motor vehicle, zero-emission vehicle, passenger vehicle or a zero-emission passenger vehicle you use to earn business, professional, farming or fishing income. Include the interest as an expense when you calculate your allowable motor vehicle expenses.

When you use a passenger vehicle or a zero-emission passenger vehicle to earn income, there is a limit on the amount of interest you can deduct. To calculate the interest you can deduct, fill in "Chart B – Available interest expense for passenger vehicles and zero-emission passenger vehicles" of your form.

Leasing costs for a passenger vehicle (or a vehicle that would qualify as a zero-emission passenger vehicle if you owned it)

You can deduct costs you incur to lease a passenger vehicle you use to earn income. Include these amounts on:

• line 9281 for business and professional expenses
• line 9819 for farming expenses
• line 9281 for fishing expenses

When you use a passenger vehicle to earn farming or fishing income, there is a limit on the amount of the leasing costs you can deduct. To calculate your eligible leasing costs, fill in "Chart C – Eligible leasing cost for passenger vehicles" of your form.

If the lease agreement for your passenger vehicle includes such items as insurance, maintenance and taxes, include them as part of the lease charges on amount 20 of Chart C.

For your 2022 fiscal period, use the GST rate of 5% or the applicable HST rate of your specific province to fill in Chart C.

The following example shows how to calculate the eligible leasing costs. Use Chart C of your form to help you understand the following example. In this chart, we use prescribed amounts. Prescribed means it is written in the law.

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-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Line 9790 or 9270 – Other expenses

 For business and professional expenses, use line 9270 on Form T2125.

 For farming expenses, use line 9790 on Form T2042.

 For fishing expenses, use line 9270 on Form T2121.

There are expenses you can incur to earn income other than those listed on Form T2125, Form T2042 or Form T2121. We cover some of them in the following sections. Enter on this line the total of other expenses you incurred to earn income, as long as you did not include them on a previous line. You have to list these expenses on the form.

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

Payment in kind

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

If you made a payment in kind for a business expense, include the FMV of the good or service in income. Deduct the same amount as an expense.

Leasing costs

Deduct the lease payments you incurred in the year for property used in your business.

 If you are a business person or a professional and lease a passenger vehicle, see Line 9281 – Motor vehicle expenses (not including CCA).

 If you are a farmer and lease a passenger vehicle, see Line 9819 – Motor vehicle expenses.

 If you are a fisher and lease a passenger vehicle, see Line 9281 – Motor vehicle expenses (not including CCA).

If you entered into a lease agreement, you can elect to treat your lease payments as combined payments of principal and interest. However, you and the person from whom you are leasing have to agree to treat the payments this way. In this case, we consider that you:

• bought the property rather than leased it
• borrowed an amount equal to the FMV of the leased property

You can deduct the interest part of the payment as an expense. You can also claim CCA on the property.

You can make this choice as long as the property qualified and the total FMV of all the property leased is more than $25,000. For example, a combine or fishing boat, leased with a FMV of $35,000 qualifies. However, office furniture and vehicles often do not qualify.

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

• Form T2145, Election in Respect of the Leasing of Property
• Form T2146, Election in Respect of Assigned Leases or Subleased Property

 Convention expenses for business and professional

You can deduct the cost of attending up to two conventions a year. The conventions have to meet the following conditions:

• relate to your business or professional activity
• be held by a business or professional organization within the geographical area where the organization normally conducts its business

This second limit may not apply if an organization from another country sponsors the convention and the convention relates to your business or professional activity.

Sometimes convention fees include the cost of food, beverages or entertainment. The convention organizer may not show these amounts separately on your bill. In this case, subtract $50 from the total convention fee for each day the organizer provides food, beverages or entertainment.

You can deduct this daily $50 amount as a meal and entertainment expense. The 50% limit applies to the daily $50 amount.

Food, beverages or entertainment do not include incidental items such as coffee and doughnuts available at convention meetings or receptions.

For more information, see Interpretation Bulletin IT-131, Convention expenses.

Computer and other equipment leasing costs

If you lease computers, cellular telephones, fax machines and other equipment, you can deduct the percentage of the lease costs that reasonably relates to earning your business income. You can also deduct the percentage of air-time expenses for a cellular telephone that reasonably relates to earning your self-employment income.

If you buy a computer, cellular telephone, fax machine or other such equipment, you cannot deduct the cost. You can deduct CCA and interest you paid on money you borrowed to buy this equipment that reasonably relates to earning your business income. For more information on CCA, see Chapter 4.

Allowable reserves

You can deduct an amount for a reserve, contingent account or a sinking fund as long as the federal Income Tax Act allows it and the amount is reasonable. You can find more information about allowable reserves in the following publications:

• Interpretation Bulletin IT-154, Special reserves
• Interpretation Bulletin IT-442, Bad Debts and Reserves for Doubtful Debts
• Guide T4037, Capital Gains, and Form T2017, Summary of Reserves on Dispositions of Capital Property
• Guide T4011, Preparing Returns for Deceased Persons

Premiums to a private health services plan

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

• you are actively engaged in your 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
• in the year or previous tax year, one of the following applies:
  • your net income from self-employment (excluding losses and PHSP deductions) is more than 50% of your total income^{Footnote 1}
  • your income from sources other than self-employment^{Footnote 2} is $10,000 or less

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-339, 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.
• 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 for part of the year. Find the section that describes your situation.

If you did not have any employees throughout 2022

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 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 18 and over insured during that period
• C equals $750 × the number of household members under the age of 18 insured during that period

If you had employees throughout 2022

If you had at least one qualified employee throughout all of 2022, 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.

If you had employees throughout 2022 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 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, 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 formula of If you had employees throughout 2022.

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 part of your PHSP premium at line 9804 for farming or line 9270 for fishing, and you paid the premium in the year, you can include the undeducted balance when you calculate your non-refundable medical expense tax credit. For more information, see "Line 33099" in your Federal Income Tax and Benefit Guide.

Line 9936 – Capital cost allowance (CCA)

If you use a property you own such as a building, a motor vehicle, furniture or equipment in your business, you might be able to claim CCA. Enter the amount of CCA you calculated on the charts found on your form. For more information on how to fill in these charts, see Chapter 4.

 Line 9898 – Total farm expenses

Enter the total of lines 9790 and 9936. Enter the business part only.

Line 9899 or 9369 – Net income (loss) before adjustments

 For business and professional income, use line 9369 on Form T2125.

 For farming income, use line 9899 on Form T2042.

 For fishing income, use line 9369 on Form T2121.

Enter the gross income minus the total expenses. If you have a loss, enter the amount in brackets. If you are a partner in a partnership, this amount is the net income (or loss) of all partners.

 Inventory adjustments included in 2022 for farmers

Line 9941 – Optional inventory adjustment included in the current year

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

By making the OIA, you can include in your income an amount up to the FMV of your inventory minus the MIA. You can only make the OIA if you use the cash method. For the meaning of inventory and FMV, see Line 9942 – Mandatory inventory adjustment included in the current year.

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 2022 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 included in the current year

The 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 2022 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 9899 of Form T2042
• You bought inventory and still have it at the end of your 2022 fiscal period. This does not refer only to inventory you bought in 2022. It includes inventory you had previously bought and still owned at the end of your 2022 fiscal period

Your MIA is the lesser of these amounts:

• the net loss before adjustments on line 9899
• the value of the purchased inventory you still have at the end of your 2022 fiscal period

To calculate your MIA, fill in charts 1, 2, 3 and 4. Once you have completed 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 the MIA you added to your net loss in your 2022 fiscal period.

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 either:

• 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 crop 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 in How to calculate the mandatory inventory adjustment (MIA). Keep these charts as part of your records.

Except for specified animals, you have to value any purchased inventory you acquired before or during your 2022 fiscal period at the lesser of these amounts:

• the cash cost
• the FMV

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 2022 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 2022 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 2021 fiscal period; plus
  • any amounts you paid in your 2022 fiscal period toward the purchase price
• any amount between these two amounts

Part 5 – Your net income (loss)

Your share of net income (loss) before adjustments

 On Form T2125 for business and professional income, enter your share of line 9369 on amount 5A.

 On Form T2042 for farming income, enter your share of amount 4C on amount 5A.

 On Form T2121 for fishing income, enter your share of line 9369 on amount 5A.

This is the amount left after you subtract the amounts that the other partners are responsible for reporting. On the "Details of other partners" chart, indicate the full names and addresses of the other partners, as well as a breakdown of their shares of the income and their percentages of the partnership. You can also get this amount from your T5013 slip.

Canadian Journalism Labour Tax Credit

As the Canadian Journalism Labour Tax Credit is considered to be government assistance received by you in the year and is taxable to you, include the amount allocated to you by the partnership (box 236 of your T5013 slip) at amount 5B of Form T2125.

Line 9951 – Return of fuel charge proceeds to farmers tax credit allocated to you in the year

This credit is considered to be government assistance that you received in the year and is taxable to you. Include in your income the amount of the credit allocated to you by the partnership (amount 5C of your Form T2043) in the same tax year in which you claimed the credit.

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

If you received a GST/HST rebate for partners, report the amount of the rebate that relates to eligible expenses other than CCA on line 9974 of your form in the year you receive the rebate.

 For business and professional income, enter the total of amount 5A, amount 5B and line 9974 at amount 5C.

 For farming income, enter the total of amount 5A, line 9951 and line 9974 at amount 5B.

 For fishing income, enter the total of amount 5A and line 9974 at amount 5B.

Line 9943 – Other amounts deductible from your share of net partnership income (loss)

If you are a partner in a partnership and you incur motor vehicle expenses for the business using your personal vehicle, you can claim those expenses on this line. The expenses must not have been claimed anywhere else on the form.

Claim this amount only if the partnership did not repay you for these expenses. The limits discussed earlier in this chapter also apply to these expenses.

Fill in the "Other amounts deductible from your share of net partnership income (loss)" chart of your form. List the other amounts you can deduct from your share of the partnership's net income or loss.

Line 9945 – Business-use-of-home expenses

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

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

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. 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.

If you use part of your home for both your business and personal living, calculate how many hours in the day you use the rooms for your business, and then divide that amount by 24 hours. Multiply the result by the business part of your total home expenses. This will give you the household cost you can deduct. If you run the business for only part of the week or year, reduce your claim accordingly.

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

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 these rules, see Chapters 4 and 6, as well as Guide T4037, Capital Gains.

If you rent your home, you can deduct the part of the rent and any expenses you incur that relate to the work space.

The amount you can deduct for business-use-of-home expenses cannot be more than your net income from the business before you deduct these expenses. In other words, you cannot use these expenses to increase or create a business loss.

You can deduct the lesser of the following amounts:

• any amount you carry forward from your 2021 fiscal period plus the business-use-of-home expenses you incur in 2022
• the net income (loss) at:
  • amount e of Form T2125 for business and professional
  • amount f of Form T2042 for farming
  • amount e of Form T2121 for fishing

In your next fiscal period you can use any expense you could not deduct in 2022, as long as you meet one of the previous two conditions. The same rules apply.

You can use the "Calculating business-use-of-home expenses" chart of your form to calculate your allowable claim for business-use-of-home expenses. Enter on line 9945 your share of amount 7P. The expenses you claim on line 9945 cannot be claimed anywhere else on the form.

Line 9946 – Your net income (loss)

Enter your net income or loss on this line of your form. Enter it also on the appropriate lines of your return:

• line 13500, Business income
• line 13700, Professional income
• line 13900, Commission income
• line 14100, Farming income
• line 14300, Fishing income

If you have a loss, enter the amount in brackets. For more information about losses, see Chapter 5.

Part 8 – Details of other partners

If you are a partner in a partnership that does not have to file a partnership information return (see Chapter 1 for these requirements), fill in the "Details of other partners" chart of your form. If you are a partner in a partnership that must file a partnership information return, you do not need to fill in the chart.

Part 9 – Details of equity

If you are a partner in a partnership that must file a partnership information return, do not fill in this section.

Line 9931 – Total business liabilities

A liability is a debt or an obligation of a business. Total business liabilities are the total of all amounts your business owes at the end of its fiscal period.

Total business liabilities include:

• accounts payable
• notes payable
• income taxes and taxes payable
• unpaid salaries, wages and benefits
• interest payable
• deferred or unearned revenues
• loans payable
• mortgages payable
• any other outstanding balance related to the business

Line 9932 – Drawings in the current year

A drawing is any withdrawal of cash (including salaries) or other assets, or services of a business by the proprietor or partners. This includes transactions by the proprietor or partners (or family members), like withdrawing cash for non-business use and using business assets and services for personal use. Include the cost or value of the personal use of business assets or services in your drawings for the year.

Line 9933 – Capital contributions in the current year

A capital contribution is cash or other assets you added to the business during its fiscal period. This includes personal funds you added to the business account, business debts you paid with personal funds, and personal assets you transferred to the business.