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Last updated: Apr. 26, 2017
Know Your Tax Obligations
While many self-employed Canadians like to focus on tax deductions, it’s equally as important to know what you need to pay taxes on.
Not understanding business farming tax obligations could end up costing you. Failing to report all your farm business income comes with a 10% penalty on the amount not reported.
Click here to open the full Farmer’s Tax Calendar Infographic in a new window.
Income Tax
Most farmers in Canada operate unincorporated businesses or partnerships and need to pay personal income tax on their earnings, like any other self-employed business person.
There are many advantages to not being incorporated, such as having access to capital gains exemptions. It’s also easier to figure out how to report income.
On the other hand, incorporated farm businesses can take advantage of lower corporate tax rates and limited liabilities.
When it comes to reporting to the Canadian Revenue Agency, farming income includes money earned from:
- Soil Tilling
- Raising Poultry
- Racehorse Maintenance
- Raising and Showing Livestock
- Dairy Farming
- Tree Farming
- Fur Farming
- Fruit Farming
- Beekeeping
- Raising Fish
- Operating a Feedlot
Goods and Services Tax
The Federal GST is a 5% value-added tax applied to the supply of goods and services. The combined Harmonized Sales Tax (HST) is a blended value-added tax combination of the PST and GST.
Every province except Alberta has implemented either a provincial sales tax or the HST.
Farming businesses are required to collect the GST and send it to the government if the farms annual taxable sales are more than $30,000. But even here, some items are charged GST/HST while others are not.
Many farm-related items are considered to be zero-rates, which means they are taxable but at a rate of zero. GST is not paid when some items are purchased or sold either.
The following are not zero-rated:
- Crop-dusting Equipment
- Road-clearing Services
- Stud or Artificial Insemination Services
- Storage of Goods (Grain in an Elevator)
- Beeswax
- Maple Sugar Candy
- Fertilizer in Bulk
Fuel Tax
Farmers might spend a big portion of their day running equipment, but fuels used for farming are not exempt from GST/HST. Nor does the federal government provide a rebate of taxes on fuel. The federal excise tax on gasoline is 10 cents per litre and the tax on diesel is 4 cents per litre.
Capital Gains
If you sell a property and earn money from the sale, you realize a capital gain. If a property owner dies, the person who gets the proceeds from the sale is responsible for the capital gain (or loss). Should you realize a capital gain, a portion of this is subject to income tax.
FBC—Helping Canadian Farmers Prepare Their Taxes
Operating a farm is a lot different than running a business. That’s why Canadian farmers can deduct expenses other businesses cannot. Aside from the benefits of tax deductions though, there are many business expenses that Canadian farmers need to make.
Unfortunately, Canadian tax law can be confusing. It also changes on a yearly basis.
FBC can help make understating and preparing taxes a lot less stressful. FBC has worked exclusively with Canadian farmers and small business owners since 1952, helping them minimize their tax burden and maximize their assets.
FBC also understands that no two businesses are alike, that’s why we’re the only firm in Canada to offer an integrated tax services on a year-round Membership basis. For a fixed fee, Members get access to our tax planning, tax preparation, consultation, bookkeeping, and financial planning services.
For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.
Connect with your Local Farm Tax Specialist to learn more
