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Last updated: Jul. 6, 2023
There are many different tax breaks, grants, and income support programs available to farmers in Canada. The tax deductions and programs available differ depending on the type of farm you run, and since agribusinesses are often unique, it can be somewhat challenging to understand what deductions you can claim against your farming income.
Canadian farmers can deduct typical business expenses, such as utilities and maintenance costs. They are also entitled to claim tax deductions that other businesses cannot. This includes things such as veterinary costs, breeding fees, and the cost of fertilizers and lime.
Unfortunately, not all farmers are entitled to the same deductions and credits. The deductions that can be claimed depend on whether you’re engaged in full-time farming, part-time farming, or operating a hobby farm. Hobby farm regulations may differ from those related to full-time or part-time farming.
In order to separate hobby farms that are run for personal benefit from part- or full-time farms that are run for profit, the CRA follows specific criteria that define farming and farm business.
For the CRA’s purposes, farming activities include plowing, sowing and raising crops, raising or exhibiting livestock, raising poultry, dairy farming as well as fruit growing and beekeeping. These activities must have economic value and show potential for making a profit.
According to the CRA, a taxpayer claiming farm income must be “actively engaged in either the management or day-to-day activities of earning income from the business to be considered in the business of farming.”
In order to determine if a farm business exists, the CRA considers additional factors like gross revenue and income, or losses generated by the farm in the past. They will also compare your farm to other operations of a similar kind, size, and location.
The CRA wants to ensure a farm and its activities are being run as a commercial venture with the goal of making a profit.
Hobby Farm Regulations: What’s Considered Farming Income?
The Canada Revenue Agency is clear on what’s classified as farming income. When it’s time to prepare and file your taxes, farming income is considered any money that’s earned from the following activities:
- Tilling soil
- Raising poultry
- Maintaining racehorses
- Dairy farming
- Raising and/or showing livestock
- Fruit farming
- Beekeeping
- Raising fish
- Operating a feedlot
- Aquaculture
- Performing other related activities
Now that you understand some important aspects of hobby farm regulations, let’s take a closer look at some tax breaks that are available to those who operate a full-time farm, part-time farm, or hobby farm.
Tax Breaks for Full-Time Farms
Someone who relies on farming for a majority of their income is considered a full-time farmer. Full-time farmers can treat their farming operations like any other business. This means they can claim home expenses as long as they’re used for business purposes. This includes:
- Mortgage and/or rent
- Property taxes
- Utility costs
- Maintenance costs
- Capital cost allowance
- Telephone bills
- Home insurance
Full-time farmers can also deduct all their farm business expenses, from office supplies such as postage stamps or paper to livestock purchases, seeds, feed, fertilizer, pesticide, crop insurance, machinery, machinery rentals, and interest on loans.
In addition to the abovementioned tax deductions, full-time Canadian farms can report any losses that occurred during a given year. This doesn’t just include losses incurred from the farming operation—it may also include losses related to other businesses or part-time jobs you may have.
The best part? For full-time Canadian farmers, losses can be deducted from their income from all sources and carried back three years or carried forward up to 20 years.
When applying farm losses to previous years, the deducted amount cannot exceed the farm’s net income—rather, losses can only reduce it to zero.
Tax Breaks for Part-Time Farms
A farm is considered a part-time operation if there’s a reasonable expectation of profit. However, the operator’s main source of income cannot come from farming activities.
Like a full-time farmer, a part-time farmer can claim deductions for home office expenses and farming business expenses. Unlike full-time farmers, part-time farmers can only deduct a certain portion of these expenses.
Additionally, part-time farmers can only claim a portion of any farm losses. The maximum amount part-time farmers can claim in a given year is $17,500. These losses can be carried back three years or forward 20 years, and they can only be deducted against farming income.
Tax Breaks for Hobby Farms
Your agribusiness is considered a hobby farm if farming operations are run for personal reasons and not as a business. A hobby farm isn’t expected to be profitable, and any farming-related losses aren’t considered deductible.
Direct expenses are claimed against any income earned from the farm activities up to—but not exceeding—the income declared.
If you wish to eventually earn a livable income from your farm, it’s important to avoid being classified as a hobby farm by the Canada Revenue Agency.
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