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What to do
1. Claim income and deduct expenses
a If your client participates in AgriStability or AgriInvest in Alberta, Ontario, Prince Edward Island or Saskatchewan, use CRA’s guide RC4060 to fill out her income tax return.
› Complete Form T1163 Statement A. If your client owns more than one farm, also complete Form T1164 Statement B.
› Complete Form T1175 Farming – Calculation of Capital Cost Allowance.
› Enter gross income from Line 9959 of the T1163 on Line 168 of your client’s return, and net income from Line 9946 on Line 141.
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Why read this?
- Your client is a full-time farmer whose farm is not incorporated
- Your client will inherit a non-incorporated family farm
b If your client participates in AgriStability or AgriInvest in B.C., Manitoba, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Yukon, use Guide RC4408.
› Complete T1273 Statement A. If your client owns more than one farm, also complete T1274 Statement B.
› As with the other provinces, complete Form T1175.
› Enter gross income from Line 9959 of the T1273 on Line 168 of your client’s return, and net income from Line 9946 on Line 141.
c If your client doesn’t participate in AgriStability or AgriInvest, use CRA’s Guide T4003 to fill out her return.
› Complete Form T2042 Statement of Farming Activities.
› Enter gross farming income from Line 9659 of the T2042 on Line 168 of your client’s return and net income from Line 9946 on Line 141
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2. Transferring ownership
a If your client is selling the farm, land, buildings and shares of farming companies and partnerships qualify for a lifetime capital gains exemption of $813,600 in 2015.
› Your client, her parent or grandparent must have:
›› owned the property for at least two years;
›› continually used the property to farm or fish; and
›› earned more gross income from farming or fishing than from other sources.
What qualifies as farming?
- Growing crops
- Raising livestock
- Fur farming
- Fruit growing
- Keeping bees
- Training racehorses
- Christmas tree growing
- Operating a wild-game reserve
- Raising fish
- Operating a maple sugar bush
- Operating a nursery or greenhouse
Sources: KPMG’s Tax Planning for You and Your Family 2015; CRA.
› Complete Schedule 3 Capital Gains (Or Losses).
› Optional: If the buyer is paying your client over up to five years, complete Lines C and F of Form T23017 Summary of Reserves on Dispositions of Capital Property.
› Calculate the deduction by completing Form T657, Calculation of Capital Gains Deduction for 2014. The deduction is the least of your client’s:
›› annual gains limit;
›› cumulative gains limit;
›› net taxable capital gains reported in 2014 from the sale of farm, fishing or small business corporation shares sold after May 1, 2006; or
›› the maximum capital gains deduction available for 2014.
› List the deduction on Line 254 of the return.
b Your client has two options for transferring the farm to a child, grandchild, great-grandchild or dependant, says Bob Neufeld, partner at Krahn Friesen Neufeld Chartered Accountants in Winnipeg, Man.
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i Your client could transfer the farm at her own purchase cost. If the farm has since appreciated in value, that gain is deferred to a future sale and she wouldn’t have capital gains to report on her return, says Neufeld.
› Eligible property includes farmland; depreciable property, such as buildings; eligible capital property; or a share of capital stock in the family farm.
TIP
Send the return to CRA’s Winnipeg Tax Centre. It’s the only office that processes these forms.
› To qualify:
›› the recipient must be a Canadian resident;
›› the property must be in Canada; and
›› the property must be used regularly and on an ongoing basis in a farming business by your client, her spouse, common-law partner or children.
ii Your client could sell the farm to her child for a price between her cost and the market value of the farm in order to incur some capital gain. She could then write off up to $800,000 or $813,600 of that gain, and her child would have a higher cost base should he later sell the farm, says Neufeld.
› See 2a for details on filling out your client’s return.
Dealing with drought or flood
Read: Should clients contribute to RRSP or TFSA?
3. Filing the return
Your client has until June 15, 2015 to file her return if:
› she has self-employed farming income, or
› she is the spouse or common-law partner of someone who has self-employed farming income.
Any balance owing is still due April 30 of that year.
Sources: Bob Neufeld, CA, partner at Krahn Friesen Neufeld Chartered Accountants in Winnipeg, Man.; KPMG’s Tax Planning for You and Your Family 2015; CRA spokesperson Philippe Brideau.
Federal farming programs
› AgriInvest: Farmers can deposit income into an account that can offset lower income. Farmers’ contributions are based on allowable net sales, and the government contributes up to $15,000 a year.
› AgriStability: The program provides income support when farmers experience larger-than-usual losses. To collect, your client’s margin must drop by at least 30%, says Bob Neufeld, partner at Krahn Friesen Neufeld Chartered Accountants.
by Jessica Bruno, content editor of Advisor Group.
