Helping clients who farm

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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.

Read: When giving away the farm makes sense

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.