Last updated: May. 12, 2021
Most of the tax rules that apply to Canadian small business owners also apply to farmers and agricultural producers.
There are however some expenses, tax deductions and write-offs that apply specifically to income earned through agricultural activities that will help lower your tax bill.
Expenses, tax deductions and write-offs for Canadian farmers
Building repairs and maintenance
This includes repairs to fences and buildings used for farming (this excludes your farmhouse).
Business-use-of-home expenses
You can deduct expenses for the business use of a work space in your home. This includes part of your maintenance costs (cleaning materials, utilities, home insurance) along with part of your property taxes and mortgage interest.
To claim this expense and avoid scrutiny of the Canada Revenue Agency (CRA), make sure you’ve 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 work space is 100 square feet, you’re using 10 per cent of your home for business use. That means you can deduct 10 per cent of your expenses.
Capital Cost Allowance
If you acquire a depreciable property or asset for your farming business, such as a building, furniture, or equipment, and it is 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). There are a few rules you need to follow to claim it.
- You cannot deduct its full cost when you calculate your net business income for the year in which you acquired the asset or property. It must be deducted over a period of years.
- Silos for example are considered Class 8 property which allows you to deduct 20% for your annual CCA
- Tractors, trailers and trucks are typically considered Class 10 which allows for 30% CCA
- There are different rules and classes depending on the asset, its use and its value. We recommend talking to a tax specialist to determine the optimal application for this deduction.
LEARN MORE: Capital Cost Allowance for Farmers
Clearing, levelling and draining land
You can deduct expenses associated with clearing trees, roots, stones and brush from your farmland, building an unpaved road and installing land drainage.
Containers and twine
You can deduct expenses for materials you bought to package, contain or ship farm produce or products.
Crop insurance, Revenue Protection Program, and stabilization premiums
This includes premiums to participate in programs such as AgriStability, AgriInvest, AgriInsurance and AgriRecovery.
Custom or contract work (includes machine rentals)
This includes costs related to hiring subcontractors, rental equipment used in earning farming income (aerators, dozers, plows, etc.)
A word of caution: you must ensure that the fees you are paying for subcontractor work would not qualify as an employee wages as you may later find yourself on the hook for unpaid employment premiums, taxes and may be subject to penalties and interest.
LEARN MORE: Tax Differences Between and Employee and Self-Employed Contractor
Delivery, freight and express
Costs for delivery and freight related to your farming business can be deducted.
Electricity
You can deduct expenses for electricity related to your farm properties.
Feed, supplements, straw and bedding
You can deduct expenses for these items if they were purchased for your farming business.
Fertilizers and lime
If they were used for your farming business, you can deduct these expenses.
Heating fuel and curing fuel
You can deduct expenses related to heating farm buildings.
Insurance
You can deduct commercial insurance premiums you pay for insurance on farm buildings and qualifying farm equipment. The insurance you pay on your motor vehicle will be claimed under motor vehicle expenses (see below).
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 is due.
You can’t deduct the principal of loan or mortgage payments, or any money borrowed for personal purposes.
Livestock
You can deduct expenses related to purchasing livestock.
Machinery expenses
This includes expenses related to upkeep of your machinery including repairs, licenses insurance, gasoline, diesel fuels and oil.
Motor vehicle expenses
There are expenses you can deduct if you use a motor vehicle for farming income. To claim this deduction, make sure you keep a record of your mileage throughout the year.
LEARN MORE: How to keep a mileage log for vehicle expenses.
Office expenses
This includes small items like pens, pencils, paper clips and stationery. You can’t claim calculators, filing cabinets, chairs and desks, which qualify as capital items.
Pesticides
You can deduct the cost of herbicides, insecticides, and fungicides used for your farming business.
Professional fees
Fees for accounting, bookkeeping, tax preparation and finances can be deducted, along with legal fees.
Property taxes
This relates to property used in your farming business.
Repairs, licences and insurance (machinery)
You can deduct these costs as incurred for your machinery.
Rent (land, buildings and pasture)
If you rent the land for your farming business, you can expense the costs.
Salaries, wages and benefits
This refers to employees’ salaries and benefits.
If you are self-employed or a sole proprietor, you cannot deduct your own salary or benefits. However, if you are an incorporated farm business and pay yourself a salary, you can include it in your tax deductions.
Do not include costs for subcontractor work under this category. They would be included under “Custom or contract work”.
LEARN MORE: Salary or Dividends: Which one is right for me?
Seeds and plants
This relates to seeds and plants used in your farming business.
Small tools
If the tools cost less than $500, you can deduct their full cost. For tools that cost more than $500 you must deduct their cost over a period of years using Capital Cost Allowance.
Veterinary fees, medicine and breeding fees
You can deduct expenses related to medicine for your livestock, along with veterinary and breeding fees.
How do I keep track of expenses?
Make sure you keep records of all your farm business transactions to be able to support your expense claims. You are required by law to keep receipts or other vouchers when you purchase something for your farm business.
Keep your records for at least six years after your last Notice of Assessment, which is as far back as the CRA will ask to see them in case you are audited.
If there’s no description on a receipt, like with a cash register tape, write a note describing the item you purchased on the receipt. If you are missing receipts to back up your expense claims, the CRA could disallow them.
Free Guide: Tax Preparation Toolkit for Farmers and Agricultural Producers
We know you’re dreading it, but it’s got to be done – and with a little preparation, you can fulfill your tax obligations without any stress.
Our simple, easy-to-follow toolkit will help you get organized for tax season. Download your free tax preparation toolkit to learn what information and key documents you need to prepare so you’re ready for your tax filing deadline.
There’s even a printable checklist that lists all the documents you’ll need as a farmer, and tax write offs you shouldn’t miss out on. Get the prep out of the way so you can get back to the field. Download your toolkit today.
Book a free consultation with us
Do you have questions about farm tax deductions? Are you worried about CRA filing requirements for your farming business? FBC works with Canadian farmers and agricultural producers to minimize their income taxes and maximize their assets.
We offer tax planning, preparation and audit representation as well as bookkeeping and financial planning to cover your complete financial needs, all available year-round for one fee. Request a consultation online or by calling 1.800.265.1002