Tax deductions for Canadian farmers

Last updated: May. 17, 2023 

Many of the tax standards that apply to Canadian business owners also apply to farmers and agricultural producers.

However, there are certain expenses, tax deductions, and write-offs that apply specifically to employment income earned through agricultural activities that will help lower your business tax bill. Let’s take a closer look at some of the available tax deductions in Canada. 

 

Expenses, Tax Deductions, and Write-Offs for Farmers in Canada

There are many tax deduction strategies available to farmers in Canada. From advertising costs to building repairs or maintenance and contract work, here are some of the tax deductions that farmers can claim this year: 

1. Advertising 

Farmers can deduct expenses spent on online advertising efforts and promotional materials such as business cards and pamphlets.

Sponsoring local sports teams and other branded donations can also be categorized as money spent on advertising as long as the materials include your branding and logo. This strategy offers numerous advantages and can even increase brand awareness. 

2. Bad debts

If a client owes you money, but you’re unable to collect it within a year, you may be able to claim it as a deduction. 

However, not all bad debt is eligible. The Canada Revenue Agency (CRA) will not let you claim bad debts related to a mortgage or that result from a conditional sales agreement. That’s why it’s imperative to speak with a tax professional to understand the available tax deductions in Canada. 

3. Building repairs and maintenance

Costs related to repairs carried out on your business property may be eligible for a tax deduction. This includes repairs made to fences and buildings used for farming. However, this excludes your farmhouse.

4. Electricity

You can deduct expenses for electricity used for your farm properties.

5. Business-use-of-home expenses

You can deduct expenses related to the business use of a workspace in your home. This includes part of your maintenance costs, such as cleaning materials, utilities, and home insurance, and part of your property taxes and mortgage interest.

To claim home office expenses and avoid unwanted scrutiny from the CRA, make sure you’ve correctly calculated the percentage of your home that’s used for your farm business and apply that percentage to the tax deduction.

For example, if you’re living in a 1,000-square-foot house and your workspace is 100 square feet, you’re using 10 percent of your home for business use. That means you can deduct 10 percent of your expenses.

6. Clearing, leveling, and draining land

You can deduct expenses related to the clearing of trees, roots, stones, and brush from your farmland, building an unpaved road, and installing land drainage.

7. Containers and twine

You can claim money spent on materials purchased to package, store, or ship farm produce or product as deductions. 

8. Crop insurance, Revenue Protection Program, and stabilization premiums

This includes premiums to participate in programs such as AgriStability, AgriInvest, AgriInsurance, and AgriRecovery.

9. Custom or contract work, including machine rentals

These deductions include costs related to hiring subcontractors or rental equipment used in earning farming income, such as aerators, dozers, plows, and so on. 

However, you must make sure that the fees paid for subcontractor work wouldn’t qualify as employee wages. If they do, you may be held responsible for unpaid employment premiums or taxes that are subject to penalties and interest.

10. Delivery, freight, and express

You can deduct costs for delivery and freight related to your farming business.

11. Depreciation expense (capital cost allowance)

If you acquire a depreciable property or asset for your farming business, such as a building, furniture, or equipment, and it’s valued at more than $500, you can deduct its cost over a period of several years. This yearly deduction is called a capital cost allowance (CCA). 

However, you must follow certain rules to claim this deduction: 

• You cannot deduct its full cost when calculating your net business income during the year you acquired the asset or property. You must deduct it over a period of multiple years.
  • For example, silos are considered a Class 8 property, which allows you to deduct 20 percent for your annual CCA. 
  • Tractors, trailers, and trucks are typically considered Class 10 properties, which allows for 30 percent CCA. 
• There are different rules and classes depending on the asset, its use, and its value. We recommend talking to a tax professional to determine the optimal application for this deduction.

12. Feed, supplements, straw, bedding, fertilizers, and lime

You can deduct expenses for these items as long as you purchased them for your farming business.

13. Gasoline, diesel fuel, and oil for machinery

You can deduct these expenses as long as you use them with your farming machinery.

14. Heating fuel and clearing fuel

You can deduct expenses related to heating farm buildings.

15. Insurance

You can deduct commercial insurance premiums paid for insurance on farm buildings and qualifying farm equipment. However, you must claim the insurance paid on your motor vehicle under motor vehicle expenses (see below).

16. Interest and bank charges

You can deduct interest you incurred on a loan utilized for your farming business or used to acquire property for your farming business.

You can deduct the fee you pay to reduce the interest rate on your loan along with any penalty a bank charges you to pay off your loan before it’s due.

You can’t deduct the principal of loan or mortgage payments or any money borrowed for personal purposes.

17. Livestock

You can deduct expenses related to purchasing livestock.

18. Machinery expenses

This includes expenses related to the upkeep of your machinery, including repairs, license insurance, gasoline, diesel fuels, and oil.

19. Motor vehicle expenses

If you use a personal motor vehicle to earn farming income, there may be available expenses you can claim. To claim this tax deduction, make sure you keep a record of mileage throughout the year.

20. Office expenses

This includes items such as pens, pencils, paper clips, and stationery. However, you can’t claim calculators, filing cabinets, chairs, or desks, which qualify as capital items.

21. Pesticides

You can deduct the cost of herbicides, insecticides, and fungicides used for your farming business.

22. Professional fees

You can deduct money spent on accounting, bookkeeping, tax preparation, finances, and legal fees.

23. Property taxes

You can claim taxes spent on property used in your farming business as deductions. 

24. Repairs, licences, and insurance (machinery)

You can deduct costs incurred on your machinery.

25. Rent (land, buildings, and pasture)

If you rent the land for your farming business, you can deduct the costs.

26. Salaries, wages, and benefits

Costs related to employees’ salaries and benefits may be eligible for tax deductions in Canada. 

If you’re self-employed or a sole proprietor, you cannot deduct your own salary or benefits. However, if your business is an incorporated farm business and you pay yourself a salary, you can include it in your tax deductions.

However, you shouldn’t include costs for subcontractor work in this category. They would be considered custom or contract work.

27. Seeds and plants

Costs related to seeds and plants used in your farming business may be eligible for tax deductions. 

28. Small tools

If tools used for your farming business cost less than $500, you can deduct their full cost. You can deduct tools that cost more than $500 over a period of years using capital cost allowance.

29. Veterinary fees, medicine, and breeding fees

You may deduct expenses related to medicine for your livestock and veterinary and breeding fees.

 

How Can I Track My Expenses and Tax Deductions?

Make sure you keep detailed records of all your farm business transactions to support your expense claims. You are required by law to keep receipts or other vouchers when making purchases related to your farm business.

It can be helpful to keep your records for at least six years after your last notice of assessment in case you’re audited by the CRA. 

If there’s no description on a receipt, make sure to write a note describing the item you purchased. If you’re missing receipts to back up your expense claims, the CRA could disallow them.

 

[Free Download] The Ultimate Guide to Tax Planning and Preparation

For Canadian farmers, contractors, and small business owners, tax planning and tax preparation aren’t once-a-year events. They require an ongoing strategy focused on meeting today’s goals and building wealth for the future.

To help you get started, we created the Ultimate Guide to Tax Planning and Preparation for the Canadian Farmer, Contractor, and Small Business Owner, a comprehensive resource that provides deeper insight into tax planning and preparation.

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