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Farming Income and the AgriStability and AgriInvest Programs Guide - 2011

RC4060(E) Rev. 11

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For AgriStability and AgriInvest participants in Alberta, Ontario, Prince Edward Island and Saskatchewan.

Table of Contents




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Before You Start

This guide will help you complete Forms T1163, Statement A – AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals, and T1164, Statement B – AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Additional Farming Operations, found in the middle of this guide. These forms allow you to provide the information necessary to participate in the AgriStability and AgriInvest programs.
  • AgriStability - a margin‑based program that provides income support when a producer experiences larger income losses. Payments are based on a decline in your farm’s current year margin compared to an average historical margin.
  • AgriInvest - a savings account for producers that provides flexible coverage for small income declines and support investments that help mitigate risks or improve market income. Benefits are calculated on the basis of Allowable Net Sales (ANS).

You can choose to participate in AgriInvest only, AgriStability only, or both programs together, depending on the business risk management needs of your farm.

This guide contains important information and instructions on how to apply for the AgriStability and AgriInvest programs. To ensure your program benefits are calculated correctly, carefully review the instructions in the Income and Expense sections of this guide.

The information contained in this guide is accurate at the time of printing, but may be subject to change. This guide contains general information only and is not intended to be a substitute for legislation. Where a discrepancy exists between the information in this guide and the program authorities (the Growing Forward Agreement and related Program Guidelines) the program authorities will take precedence in all cases.

Is this guide for you?

This guide is for you if:

  • you want to participate in the AgriStability and/or AgriInvest programs for 2011 and you farm in Alberta, Ontario, Prince Edward Island or Saskatchewan;
  • you earned income as a self-employed farmer or partner of a farm partnership, or by renting land under a crop share arrangement; and
  • you are not a trust, a non-resident, a corporation, or a status Indian farming on a reserve. If you are one of these, contact the office that administers the AgriStability program for your province. You will find the addresses and telephone numbers listed below.

Do not use Form T1163 if:

  • you do not want to participate in the AgriStability or AgriInvest programs. In this case, request a copy of Guide T4003, Farming Income from CRA and file Form T2042, Statement of Farming Activities.
  • your farming operation is in a province other than Alberta, Ontario, Prince Edward Island or Saskatchewan. If you farm in British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, or the Yukon, you will need to complete Form T1273 to participate in the AgriStability and/or AgriInvest programs. Contact the federal Administration at 1‑866‑367‑8506 to obtain the forms you will need.

    Note
    Although AgriStability is delivered provincially in British Columbia, producers in this province will continue to use Form T1273 to participate. You can contact your administration to obtain the T1273.
  • if you farm in the province of Quebec do not use Form T1163. Instead, you must file Form T2042. For more information, contact the Quebec Administration at the following address.

    La Financière agricole du Québec
    Téléphone: 1-800-749-3646
    Web site: www.fadq.qc.ca

How to get more information about AgriStability and AgriInvest

For AgriStability:

AgriStability is delivered provincially in Alberta, Ontario, Prince Edward Island, and Saskatchewan. If you have questions about your participation in AgriStability or want to request copies of the forms and guides contact your provincial administration at one of the numbers listed below.

  • For Ontario, contact:

    Agricorp
    1 Stone Road West
    Box 3660, Stn. Central
    Guelph ON  N1H 8M4
    Telephone: 1-888-247-4999
    Fax: 519-826-4334
    Email: contact@agricorp.com
    Web site: www.agricorp.com
  • For Prince Edward Island, contact:

    P.E.I. Agricultural Insurance Corporation
    P.O. Box 2000
    Charlottetown PE  C1A 7N8
    Telephone: 902-620-3091
     Fax: 902-368-6677

For AgriInvest:

AgriInvest is delivered by the federal administration in all provinces (except Quebec). If you have questions about your participation in the AgriInvest program contact the federal administration at the address listed below.

  • Program Administration
    P.O. Box 3200
    Winnipeg MB  R3C 5R7
    Telephone: 1-866-367-8506
    Calling from outside of Canada : 204‑926‑9650

You can access the AgriInvest program Web site at AgriInvest program Web site.

Penalties

Include all your income when you calculate it for tax purposes. If you fail to report all your income, you may be subject to a penalty of 10% of the amount you failed to report after your first omission.

A different penalty may apply if you knowingly, or under circumstances amounting to gross negligence, participate in the making of a false statement or omission in your income tax and benefit return. In such a case, the penalty is 50% of the tax related to the omission or false statement (minimum $100).

Note
The term, income tax return, used in this guide has the same meaning as income tax and benefit return.

Forms and publications

Throughout the guide, we refer to other forms and publications. If you need any of these, go to Forms and publications. You may want to bookmark this address for easier access to our site later. You can also order forms and publications by calling 1-800-959-2221.

You will find the following forms in the middle of this guide:

Where to mail your forms

Do not use the envelope that came with your income tax return. Use the envelope in the middle of this guide to send your income tax return and Form T1163, Form T1164, and Form T1175 to the Winnipeg Tax Centre. This is the only place where these forms are processed.

Winnipeg Tax Centre
66 Stapon Road
Winnipeg MB R3C 3M2

Do not attach correspondence intended for the AgriStability program or the completed supplemental AgriStability program form to your Form T1163. Mail them separately to your provincial administration at one of the addresses.

Do not attach correspondence intended for the AgriIvest program to your income tax return. Complete Form RC322, AgriInvest Adjustment Form and submit it directly to the federal AgriInvest administration.

Do you need more information?

If you have questions about your participation in AgriStability:

  • contact your provincial administration at the address listed above.

If you have questions about your participation in the AgriInvest program:

  • contact the federal administration at the address above. AgriInvest is delivered by the federal administration in all provinces except Quebec.

If you have questions about reporting farm income for tax purposes:

  •  contact the CRA at 1-800-959-5525.

This guide explains the most common tax situations.

What’s new for 2011?

Commodity Code List

Significant changes have been made to the commodity listings in the Commodity Code List of this guide. The commodity code list is used for reporting your Commodity Sales and Purchases. To ensure you are using the most up to date codes, refer to the code list when filling out your form.

AgriStability and AgriInvest participants Farming in Saskatchewan

Beginning in 2011, participants farming in Saskatchewan will now use the T1163 and T1164 to apply for AgriStability and AgriInvest. You must also submit supplementary information to your provincial administration if you are applying for AgriStability. See How to get more information about AgriStability and AgriInvest for details on how to contact the administration in Saskatchewan.

Employment Insurance Benefits for Self‑Employed Persons

Self‑employed Canadians can now register to be eligible to receive Employment Insurance special benefits, which include maternity, parental, sickness and compassionate care benefits, beginning in January 2011.

For more information on eligibility and application, visit Service Canada. For more information on Employment Insurance premiums, read Employment Insurance (EI) Benefits for Self‑Employed Persons.

Chapter 1 - General Information

What is farming income?

Farming income includes income you earned from the following activities:

  • soil tilling;
  • livestock raising or showing;
  • racehorse maintenance;
  • poultry raising;
  • dairy farming;
  • fur farming;
  • tree farming;
  • fruit growing;
  • beekeeping;
  • cultivating crops in water or hydroponics;
  • Christmas tree growing;
  • operating a wild-game reserve;
  • operating a chicken hatchery;
  • operating a feedlot.

In certain circumstances, you may also earn farming income from:

  • raising fish;
  • market gardening;
  • operating a nursery or greenhouse; and
  • operating a maple sugar bush (includes the activity of maple sap transformation into maple products if this activity is considered incidental to the basic activities of a maple sugar bush, such as the extraction and the collection of maple sap, which are farming activities).

Note
Not all commodities that meet the definition of a farm product for income tax purposes are allowable for AgriStability or AgriInvest purposes. Income derived from wood sales, trees sold for reforestation, aquaculture, peat moss, and income generated by wild game reserves are not allowable for AgriStability or AgriInvest purposes. Hunt farms, which are distinguished from wild- game reserves, are eligible. For more information on hunt farms, see Farming income.

Farming income does not include income you earned from working as an employee in a farming business, or from trapping.

You were asking?

Q. When does a farming business start? Can I deduct the costs I incur before and during the start of my farming business?
A.

We look at each case on its own merits. Generally, we consider that a farming business starts whenever you begin some significant activity that is a regular part of the business, or that is necessary to get the business going.

For example, suppose you decide to buy enough poultry for resale to start your farming business. We would consider this to be the starting point of your business. You can usually deduct all of the expenses you have incurred up to that point to earn farming income. You could still deduct the expenses if, despite all your efforts, your business wound up. On the other hand, if you review several different types of farming activities in the hope of going into a farming business of some kind, we would not consider that your business has begun. In this case, you cannot deduct any of the costs you have incurred.

For more information about the start of a business, see Interpretation Bulletin IT-364, Commencement of Business Operations.

The law allows Statistics Canada to access business information collected by the Canada Revenue Agency (CRA). Statistics Canada can now share with provincial statistical agencies, for research and analysis purposes only, data concerning business activities carried out in the respective province.

How do you report your farming income?

You can earn farming income as a self-employed farmer or as a partner of a farm partnership. Most of the rules that apply to self-employed farmers also apply to partners. However, if you are a partner, you should read Reporting partnership income.

You report your farming income on a fiscal-period basis. A fiscal period is the time covered from the day your farming business starts its business year to the day your farming business ends its business year. For an existing business, the fiscal period is usually 12 months. A fiscal period cannot be longer than 12 months. However, it can be shorter than 12 months in some cases, such as when a new business starts or when a business stops.

Self-employed individuals generally have to use a December 31 year-end. If you are an eligible individual, you may be able to use an alternative method of reporting your business income that allows you to keep a fiscal period that does not end on December 31. To determine if you are eligible to have a fiscal year-end that is not December 31, see Guide RC4015, Reconciliation of Business Income for Tax Purposes, which includes Form T1139, Reconciliation of 2011 Business Income for Tax Purposes. It explains how to calculate the amount of farming income to report on your 2011 income tax return, and it also tells you if you have to file Form T1139 for 2011. In most cases, if you filed one for 2010, you will have to do so again for 2011.

Reporting methods

For tax purposes, you can report your farming income using the cash method or the accrual method of accounting.

When you use the cash method, you:

  • report income in the fiscal period you receive it; and
  • deduct expenses in the fiscal period you pay them.

For special rules on prepaid expenses, see Prepaid expenses.

If you use the cash method and receive a post-dated cheque as security for a debt, include the amount in income when the cheque is payable.

If you receive a post-dated cheque as an absolute payment for a debt, include the amount in income when you get the cheque. If the bank does not honour the cheque, you can adjust your income then.

Note
The above post-dated cheque rules apply to income-producing transactions such as the sale of grain. They do not apply to transactions involving capital property such as the sale of a tractor.

When you use the cash method, do not include inventory when you calculate your income. However, there are two exceptions to this rule. For more information, see Line 9941 - Optional inventory adjustment - current year, and Line 9942 - Mandatory inventory adjustment - current year.

For more information on the cash method for farming income, see Interpretation Bulletin IT-433, Farming or Fishing - Use of Cash Method.

When you use the accrual method, you:

  • report income in the fiscal period you earn it, no matter when you receive it; and
  • deduct expenses in the fiscal period you incur them, whether or not you pay them in that period.

When you calculate your income using the accrual method, the value of all inventories, such as livestock, crops, feed, and fertilizer, will form part of the calculation. Make a list of your inventory and count it at the end of your fiscal period. Keep this list as part of your business records.

You can use one of the following three methods to value your inventory:

Use the same method you used in past years to value your inventory. The value of your inventory at the start of your 2011 fiscal period is the same as the value at the end of your 2010 fiscal period. If this is your first year of business, you will not have an opening inventory at the start of your fiscal period.

For more information, see Interpretation Bulletin IT-473, Inventory Valuation.

Changing your method of reporting income

If you decide to change your method of reporting income from the accrual method to the cash method, use the cash method when you file your income tax return. Make sure you include a statement that shows each adjustment you had to make to your income and expenses because of the difference in methods.

If you decide to change from the cash method to the accrual method, you have to ask the Director of your tax services office for approval, in writing, before the deadline for filing your income tax return. In your letter, explain why you want to change methods.

Because there is a difference between the cash and accrual methods, the first time you complete your income tax return using the accrual method, file a statement showing each adjustment you had to make to your income and expenses.

For information on how to report income and expenses for both the AgriStability and AgriInvest programs, and for tax purposes, see Method of accounting.


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Business records

Keep a record of your daily income and expenses. We do not issue record books or suggest any particular type of book or set of books. There are many record books and bookkeeping systems available. For example, you can use a book that has columns and separate pages for income and expenses. Some provincial departments of agriculture provide bookkeeping records you can use.

Keep your books, along with your receipts, duplicate deposit slips, bank statements, and cancelled cheques. Keep separate records for each business you run. If you keep computerized records, make sure they are clear and easy to read.

Note
Do not send your records with your income tax return. However, you must keep them in case we ask to see them. If you do not keep the necessary information and you do not have any other proof, we may have to determine your income using other methods. We may also have to reduce the expenses you deducted.

Income records

Keep track of the gross income your farming business earns. Gross income is your total income before you deduct expenses. Your income records should show the date, amount, and source of the income. Record the income whether you received cash, property, or services.

You must be able to support all income entries with original documents. Original documents include such things as sales invoices, cash-register tapes, receipts, cash purchase tickets from the sale of grain, and cheque stubs from marketing boards.

Expense records

Always get receipts, invoices, or other vouchers when you buy goods or services. The receipts have to show:

  • the date of the purchase;
  • the name and address of the seller or supplier;
  • the name and address of the purchaser; and
  • a full description of the goods or services.

Keep a record of the properties you bought. This record should show who sold you the property, the cost, and the date you bought it. It will also help you calculate your capital cost allowance (CCA). Chapter 4 explains how to calculate CCA.

If you sell or trade a property, keep a record showing the date you sold or traded it and the amount you got from the sale or trade-in.

Time limits for keeping records

Depending on the situation, keep your books, records, and related vouchers for the following lengths of time:

  • if you file your income tax return on time, a minimum of six years after the end of the tax year to which they relate;
  • if you file your income tax return late, six years from the date you file that return; or
  • if you file an objection or appeal, keep them until either :
    • the issue is settled and the time for filing any further appeal expires, or
    • the six-year period mentioned above has expired, whichever is later.

These retention periods do not apply to certain records. For more information, see Information Circular 78-10, Books and Records Retention/Destruction.

If you want to destroy your books and records and related vouchers before the minimum six-year period is over, you must first get written permission from the director of your tax services office. To do this, either use Form T137, Request for Destruction of Records, or prepare your own written request.

For more information on keeping records, see Guide RC4409, Keeping Records, or go to Keeping Records.

Instalment payments

As a self-employed farmer, you may have to pay an annual instalment by December 31, 2012. If our records show that you may have to pay your tax by instalments, we will send you an Instalment Reminder in late November, showing the amount we suggest you pay.

For more information about instalment payments or instalment interest charges, get Pamphlet P110, Paying Your Income Tax by Instalments.

Important Dates to remember

February 29, 2012 - If you have employees, file your 2011 T4 Summary and T4A Summary forms. Also, give your employees their copies of the T4 and T4A slips.

March 31, 2012 - Most farm partnerships will file a partnership information return by March 31, 2012. However, there are exceptions. For more information, see T4068, Guide for the T5013 Partnership Information Return.

April 30, 2012 - Payment of any balance owing is due. You will have to file your 2011 income tax return by April 30, 2012, if the expenditures of your 2011 farming business are primarily connected with tax shelters.

June 15, 2012 - If you have farming business income or if you are the spouse or common-law partner of someone who does, you have until June 15, 2012, to file your 2011 income tax return, unless the expenditures of the business are primarily connected with tax shelters. However, you have to pay any balance owing by April 30, 2012, to avoid interest charges.

June 30, 2012 - Initial (non-penalty) deadline to submit the T1163 portion of your AgriStability application to the Winnipeg Tax Centre if you are applying from Ontario. The supplemental portion of your AgriStability application must be sent to your provincial administration by this deadline as well. Forms will be accepted after this date until September 30, 2012. However, any benefit you are entitled to will be reduced by $500 for each month (or each part of the month) late.

September 30, 2012 - Initial (non-penalty) deadline to submit the T1163 portion of your AgriStability application to the Winnipeg Tax Centre if you are applying from Alberta, Prince Edward Island, or Saskatchewan. The supplemental portion must be sent to your provincial administration by this deadline as well. Forms will be accepted after this date until December 31, 2012. However, any benefit you are entitled to will be reduced by $500 for each month (or part or the month) late.

Initial (non-penalty) deadline to submit your AgriInvest application to the Winnipeg Tax Centre. For more information, see Important Information for AgriStability and AgriInvest.

Final deadline (with penalty) to submit the T1163 portion of your AgriStability application to the Winnipeg Tax Centre if you are applying from Ontario. The supplemental portion must be sent directly to your provincial administration.

December 31, 2012 - Pay your 2012 instalment for income tax and Canada Pension Plan contributions.

Final deadline (with penalty) to submit the T1163 portion of your AgriStability application to the Winnipeg Tax Centre if you are applying from Alberta, Prince Edward Island, or Saskatchewan. The supplemental portion must be sent directly to your provincial administration.

Final deadline (with penalty) to submit your AgriInvest application to the Winnipeg Tax Centre. For more information, see Important Information for AgriStability and AgriInvest.

Important Information for AgriStability and AgriInvest

To participate in AgriStability, you must submit Form T1163 to the Winnipeg Tax Centre by the deadline established in your province. You must also submit supplementary information to your provincial administration. To determine the forms and deadlines that apply to you, refer to Important Dates to remember, or contact your provincial administration at one of the numbers.

If you received an Interim and/or Targeted Advance Payment for the 2011 program year, you must meet all of the above deadlines, or you will have to pay back the Interim and/or Targeted Advance Payment.

To participate in AgriInvest, you must submit Form T1163 to the Winnipeg Tax Centre by September 30, 2012. Late filed AgriInvest applications will be accepted until December 31, 2012. However, your maximum matchable deposit will be reduced by 5% for each month (or part of a month) your application is received after the initial deadline of September 30, 2012. For AgriInvest purposes, applications will not be accepted after December 31, 2012.

Note
If any of the dates mentioned above fall on a Saturday, Sunday, or statutory holiday, you have until the next business day to file your application.

It is your responsibility, even if a third party completes an application on your behalf, to ensure that your application is complete and has been sent to the Winnipeg Tax Centre (postmarked, faxed or e-filed) prior to the application deadline.

Employment Insurance (EI) Benefits for Self‑Employed Persons

Beginning in the year you register to participate in the measure, your EI premiums will be calculated on your income tax return for that year. For example, if you register in 2011 to participate in this program, premiums for 2011 will be calculated on your 2011 income tax return and will be payable by April 30, 2012.

Subsequently, if you pay your income tax by instalment, EI premiums may be included in your instalment payments.

When you register for the measure, EI premiums will be payable on your self employment income for the entire year, regardless of the date you register. For example, whether you register in April 2011 or December 2011, you will pay EI premiums on your self-employment income for the entire year of 2011.

EI premiums are payable on the amount of your earnings from self‑employment, up to an annual maximum amount. The annual maximum amount for 2011 is $44,200.

For more information, visit Service Canada.


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Goods and services tax/harmonized sales tax (GST/HST) registration

If your total gross revenue from your GST/HST taxable sales, including those taxed at the rate of 0% (zero rated), is more than $30,000 in a calendar quarter or in four consecutive calendar quarters, you have to register for GST/HST.

If your gross revenue is equal to or less than $30,000, you do not have to register, but you can do so voluntarily. It may benefit you to register because GST/HST registrants are able to claim input tax credits.

Note
British Columbia, Nova Scotia, New Brunswick, Ontario, and Newfoundland and Labrador harmonized the GST with their provincial sales tax to create the HST.

For information about GST/HST taxable farm goods and services, zero-rated farm products, and zero-rated farm purchases, see GST/HST Rates. For more information on GST/HST, go to Goods and Services Tax/Harmonized Sales Tax (GST/HST).

Reporting partnership income

A partnership does not pay income tax on its income or file a tax return. Instead, each partner files an income tax return to report his or her share of the partnership's net income or loss. The partners have to do this whether the share of income was received in cash or as a credit to a capital account in the partnership.

For more information, see Interpretation Bulletin IT-90, What is a Partnership?.

Partnership information return

Partnerships that had six or more partners at any time in the fiscal period have to file a partnership information return. Partnerships with less than six partners will no longer automatically be exempt from filing a T5013 partnership information return; instead it will depend on certain financial thresholds and the type of partners. This administrative policy change shifts the CRA’s focus to the nature of a partnership and its financial activities rather than on the number of partners in the partnership. For more information, go to Partnership and information return filing requirements or see Guide T4068.

Partnerships also have to file a partnership information return if they invested in flow-through shares of a principal-business corporation that incurred Canadian resource expenses and renounced those expenses to the partnership.

If you are a partner of a partnership that has to file a partnership information return, you should get two copies of a T5013 slip, Statement of Partnership Income, or a T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses, from the partnership. If you do not receive this slip, contact the person who prepares the forms for the partnership.

For more information, see the T4068, Guide for the T5013 Partnership Information Return.

When you receive your T5013 slip, your T5013A slip, or a partnership financial statement, you will have to complete a Form T1163 or T1164 in the manner described in Chapter 3. Use a separate Form T1164 to deduct any business expense you incurred for which the partnership did not repay you. For more information, see Additional expenses (partnerships).

Once Form T1163 is completed, enter the gross income from the T1163 (or total gross income from the T1163 plus any gross income from T1164s) on line 168 of your income tax return. Enter your share of the net income from page 5 of Form T1163 (or total of your share of the net income from T1163 plus your share of any net income from T1164s) on line 141. Attach copy 2 of your T5013 or T5013A slips to your return.

Capital cost allowance (CCA)

As an individual partner, you cannot claim CCA on property owned by a partnership to which you belong. Only the partnership can claim CCA on the depreciable property the partnership owns. Any CCA calculated at the partnership level will, however, be allocated to you according to your share of the partnership interest. It will therefore reduce the net income allocated to you by the partnership.

From the capital cost of depreciable property, the partnership has to subtract the following amounts:

  • any investment tax credit allocated to the individual partners (we consider this allocation to be made at the end of the partnership's fiscal period); and
  • any type of government assistance.

For more information on CCA and the adjustments to capital cost, see Chapter 4.

Any capital gain or recapture from the sale of property the partnership owns is income of the partnership. Also, any capital or terminal loss from the sale of partnership-owned property is the loss of the partnership. For more information on capital gains and losses, see Chapter 7, and for more information on recapture and terminal losses, see Chapter 4.

Eligible capital expenditures

A partnership can own eligible capital property and deduct an annual allowance. Any income from the sale of eligible capital property the partnership owns is income of the partnership. For more information on eligible capital expenditures, see Chapter 5.

Investment tax credit

The investment tax credit (ITC) lets you subtract, from the taxes you owe, part of the cost of some types of property you acquired or expenditures you incurred. You may be able to claim this tax credit in 2011 if you bought qualifying property, incurred qualified expenditures, or were allocated renounced Canadian exploration expenses. You may also be able to claim the credit if you have unused ITCs from years before 2011. For more information about ITCs, see Form T2038(IND), Investment Tax Credit (Individuals).

Limited partnership

A limited partnership is a partnership that gives its partners limited responsibilities that are similar to those given to shareholders of a corporation.

A limited partner is generally someone whose liability as a partner is limited, as opposed to that of a general partner who has unlimited liability.

Goods and services tax/harmonized sales tax (GST/HST) rebate for partners

If you are an individual who is a member of a partnership, you may be able to get a rebate for the GST/HST you paid on certain expenses. The rebate is based on the GST/HST you paid on expenses you deducted from your share of the partnership income on your income tax return. For more information, see "Allowances," in Guide RC4091, GST/HST Rebate for Partners.

As an individual who is a member of a partnership, you may qualify for the GST/HST partner rebate if:

  • the partnership is a GST/HST registrant; and
  • you personally paid GST/HST on expenses that:
    • you did not incur on the account of the partnership; and
    • you deducted from your share of the partnership income on your income tax return.

We base the rebate on the amount of the expenses subject to GST/HST that you deduct on your income tax return. Examples of expenses subject to GST/HST are vehicle costs and certain business-use-of-home expenses. You can also get a GST/HST rebate for CCA you claim on certain types of property. For example, you can claim CCA for a vehicle you bought to earn partnership income if you paid GST/HST when you bought it.

For more information on the GST/HST rebate, see Guide RC4091, GST/HST Rebate for Partners, which includes Form GST370, Employee and Partner GST/HST Rebate Application.



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Chapter 2 - Your AgriInvest and AgriStability programs

Participating in the AgriInvest and AgriStability programs

As a program participant, you are responsible for knowing program deadlines and understanding program policies. Information on deadlines and policies can be found on the program Web sites or in the program handbooks.

Who is eligible?

AgriInvest

Generally, you are eligible to participate in AgriInvest if you meet all of the following criteria for the 2011 program year:

  • you file a 2011 Canadian income tax return reporting eligible farming business income (or loss). If you farm on a reserve, and you are exempt from filing an income tax return, contact your administration for a copy of the form and guide available for you; and
  • you met all program requirements by the established deadlines.

For more information on eligibility, see the program handbooks or visit the program Web sites.

AgriStability

Generally, you are eligible to participate in AgriStability if you meet all of the following criteria for the 2011 program year:

  • you file a 2011 Canadian income tax return reporting eligible farming business income (or loss). If you farm on a reserve, and you are exempt from filing an income tax return, contact your administration for a copy of the form and guide available for you;
  • you have completed a minimum of six consecutive months of farming activity;
  • you have completed a production cycle; and
  • you met all program requirements by the established deadlines.

For more information on eligibility, see the program handbooks or visit the program Web sites.

Note
The requirements to complete six consecutive months of farming activity and completing a production cycle may be waived if, in the opinion of the Administration, they could not be completed for reasons beyond your control.

Crop Share

Tenants in a crop share are eligible to apply for AgriStability and AgriInvest. Landlords are eligible if the arrangement constitutes a joint venture. For further information, see crop shares.

Participating in the programs

You can choose to participate in AgriInvest only, AgriStability only, or both programs together, depending on the business risk management needs of your farm.

AgriInvest

To participate in AgriInvest, submit Form T1163 (and T1164, if applicable), found in the middle of this guide, by the deadline. For information on program deadlines, see Important Dates to remember.

AgriInvest Benefit Calculations

The AgriInvest program is a voluntary program that provides coverage for small income declines and supports investments that help mitigate risks or improve market income. You can deposit money annually into an AgriInvest account and receive matching government contributions. You can withdraw funds when you need them. AgriInvest deposits are based on a percentage of your Allowable Net Sales (ANS). ANS is your total allowable Commodity Sales and Program Payments minus your total allowable Commodity Purchases and Repayment of Program Benefits.

Once the administration has calculated your ANS using the information on your form, you will receive a Deposit Notice outlining your deposit options.

AgriStability

To participate in AgriStability, submit Form T1163 (and T1164, if applicable), found in the middle of this guide, by the deadline established by your provincial administration. For information on program deadlines see Important Dates to remember.

In addition, you must submit supplementary information using the forms provided by your provincial administration. Contact your provincial administration to obtain copies of the necessary supplementary forms.

To be eligible, you must have already signed up for the program and paid your fee (using your annual Enrolment Notice), by the deadlines indicated on your Enrolment Notice.

AgriStability Benefit Calculations

AgriStability benefits are based on margins. A margin is the difference between your allowable income and your allowable expenses. Generally, an AgriStability payment is triggered when your margin in the program year declines more than 15% below your reference margin.

AgriStability Program Fee

AgriStability participants must pay an annual fee to participate in the program. The amount of the fee is $4.50 for every $1,000.00 of contribution reference margin protected (based on coverage of 85% of your margin). There is a minimum fee of $45.00.

AgriStability Administrative Cost Share (ACS)

In addition to the fee, there is an annual charge of $55.00 per AgriStability participant for administration costs payable to your administration. Contact your administration for information on how to pay your AgriStability ACS.

Do not send payments for the AgriStability or AgriInvest programs, or any monies related to the former CAIS program, with your income tax return. The CRA will credit any cheques you include with your income tax return to your income tax account.


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Form T1163, AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals

As a self employed farmer, you must give us a statement that accurately shows your farming activities for the year. We use Form T1163 for tax purposes as well as AgriStability and AgriInvest purposes. The form allows for the differences between reporting requirements for taxation purposes, and those used for AgriStability and AgriInvest purposes.

Deceased participant

If a deceased individual had farming income or losses, complete Form T1163 in the name of the deceased individual. Print "Estate" in the name and address area. Use the income and expenses that you are reporting on the individual's final income tax return for 2011.

Include a copy of the individual's death certificate and the probated will (or letters of administration) with the final income tax return.

If, in addition to the final income tax return, you file an optional return for the year of death for a deceased AgriStability and AgriInvest participant, such as a return of rights and things under subsection 70(2) of the Income Tax Act, the CRA will not forward the farming income and expense information from that optional return to your administration. Contact your administration directly to get the correct form to submit to them. They will combine the information from it with the information from the return that reported income to the date of death.

If a beneficiary continues the farming business, prepare an additional Form T1163 in the name of the surviving spouse or common-law partner. If a spousal or common-law partner trust has been established for the surviving spouse or common-law partner, contact your administration to get the correct form. Use the income and expenses from the surviving spouse or common-law partner's 2011 income tax return. Contact your administration for information about applying as a trust.


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Form T1164, Statement B - AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Additional Farming Operations

You may have more than one farming operation. You could have a sole proprietorship and be a partner of a partnership, or you could be a partner of more than one partnership. If you have more than one farming operation, complete Form T1163 for one operation and a separate Form T1164 for each additional operation. Do not use Form T2042, Statement of Farming Activities, if you are an AgriStability or AgriInvest participant.

Note
For each additional farming operation, you must complete both Form T1164 and a supplemental AgriStability program form.

Additional expenses (partnerships)

Complete Form T1164 if you have reported a partnership operation on Form T1163 and you want to deduct additional expenses for which the partnership did not reimburse you. For example, you may want to deduct the farming business part of allowable motor vehicle expenses or business-use-of-home expenses.

If you are using Form T1164 to deduct business-use-of-home expenses, follow these steps:

The amount you claim reduces your net income from farming on line 141 of your income tax return. However, you cannot use business-use-of-home expenses to create or increase a loss from farming.

Note
The instructions in the note in Area B at the bottom of Form T1175 do not apply if you are only claiming business-use-of-home expenses.

Completing the forms

By completing Form T1163 and Form T1164, you consent to allow the CRA to share information from your income tax return with the federal Minister of Agriculture and Agri-Food, and you authorize the Minister of Agriculture and Agri-Food to share the information with provincial ministers of agriculture and with the administrators of other federal/provincial farm programs. You also consent to allowing the Minister of Agriculture and Agri-Food to share any additional information that you provide as your application is processed.

The information will be used for the purposes of audit, analysis, evaluation, and special assistance payments. Please refer to the “Confidential Information and Participant Consent” on page 2 of Form T1163 for more information.

The Privacy Act provides individuals with the right to access their personal information held by the Government of Canada and, if necessary, to make any corrections to their information. Requests for access or corrections are to be made in writing and sent to the Access to Information and Privacy Coordinator at:

Agriculture and Agri-Food Canada
Room 264, 5th Floor,
1341 Baseline Road, Tower 4
Ottawa, ON  K1A 0C5
Tel: 613-773-1386
Fax: 613-773-1380

General inquiries regarding privacy of personal information may be made to the Office of the Privacy Commissioner at:

  • Office of the Privacy Commissioner (OPC)
    General Inquiries
    For all general inquiries, contact:
    Toll-free: 1-800-282-1376
    Phone: 613-947-1698
    Fax: 613-947-6850
    TTY: 613-992-9190
    Web site: www.privcom.gc.ca
  • OPC hours of service are from 8:30 a.m. to 4:30 p.m.

If you believe you have a complaint under the Privacy Act, submit it to the OPC in writing at the following address:

Office of the Privacy Commissioner
112 Kent Street
Place de Ville
Tower B, 3rd Floor
Ottawa ON  K1A 1H3

Include your full contact information in your letter, including your name, address and the telephone number where you can be reached, and provide as much detail as possible about your complaint.

The Office of the Privacy Commissioner does not process complaints via e-mail. Submit your complaint by mail.

Requesting an adjustment

If you would like to change the information you included on Form T1163 or T1164, you must send the amended information to both your provincial administration and the CRA.

If you are an AgriInvest participant, you should also send your amendment, using Form RC322 found in the middle of this guide, to the federal administration. This will ensure that all program and tax information is updated. For more information on program adjustments, contact your administration. You will find the addresses and telephone numbers.

The following text explains how to complete Form T1163. Some parts of the form are self-explanatory.

Name and phone number of participant

Enter your name and phone number.

Name and address of contact person

Complete this area if someone else (such as your spouse or common-law partner or accountant) has your consent to provide or ask for more information concerning the AgriStability and AgriInvest programs, on your behalf.

Enter complete contact person information, including first and last name of your contact person, their business name (if applicable) and their daytime phone number.

For AgriInvest purposes, you must provide complete contact person details each time you submit a form. To ensure the federal administration has the most current contact information, any contact person information you previously provided will be replaced with new information you include on this form. Contact person details will not be carried forward from a previous year. If you leave this area blank, we will contact you directly if we require additional information.

By providing a contact person’s name, you are authorizing both the AgriInvest and AgriStability programs to receive information from, and to disclose information to, the contact person, and to make changes to your applications as directed by the contact person.

For AgriStability purposes, contact your provincial administration if you want to add or change your AgriStability contact information.

Participant profile

Provide your Participant Identification Number (PIN), which can be found on your Enrolment Notice. If you participated previously in CAIS, this number will be the same as your CAIS PIN. If you cannot locate your PIN, contact your provincial administration.

You must provide your social insurance number (SIN) to participate in the AgriStability and/or AgriInvest programs.

Enter the industry code that best describes your farming activity. If more than 50% of your farming business involved one specific activity, choose the code that identifies that main activity. However, if your farming operation involved more than one type of farming activity and none of these makes up more than 50% of your farming business, choose the appropriate code from the combination farm list.

The following are lists of these codes for farming operations:

Livestock farm

112110    Beef cattle, including feedlots
112120   Dairy cattle and milk
112210   Hogs and pigs
112310    Chicken eggs (including hatching eggs)
112320    Broiler and other meat-type chickens
112330   Turkeys
112340   Poultry hatcheries
112391   Combination poultry and egg
112399   All other poultry and egg
112410   Sheep
112420   Goats
112510   Aquaculture (including animal aquaculture, and algae and seaweed farming)
112991   Livestock combination farming, and livestock farming with secondary crop farming
115210   Support activities for animal production (husbandry services)

Other animal specialties farm

112910   Apiculture beekeeping)
112920     Horses and other equines
112930        Fur-bearing animals and rabbits
112999    All other miscellaneous animals

Field-crop farm

111110    Soybeans
111120   Oilseed (including canola, flax, mustard, sunflowers)
111130   Pulse crops (such as dry field peas, beans, and lentils)
111140   Wheat
111150   Corn
111190   Cereals (such as barley, oats, rye, and growing wild rice)
111211   Potatoes (including sweet potatoes, yams)
111219   Other vegetables (except potatoes, sweet potatoes, yams) and melons
111330   Non-citrus fruit and tree nuts
111411   Mushrooms
111419   Other food crops grown under cover
111421   Nursery and tree production
111422   Floriculture
111910   Tobacco
111940    Hay
111993   Fruit and vegetable combination farming
111994   Production of maple syrup and maple products
111999   Miscellaneous crops, combination of crops, and combination of crops with secondary
                livestock farming (except maple syrup,algae and seaweed)
115110   Support activities for crop production (soil preparation, pruning, spraying, harvesting,
                fruit picking, crop clearing, sorting, grading) on contract

 

Province/territory of main farmstead

Enter the province/territory where all or the majority of the gross farming income was earned over the previous five years. For more information on determining the province of main farmstead and multi jurisdiction farms, see the program handbooks.

Production Cycle

Indicate whether you have completed a production cycle on at least one of the commodities you produce. If "No", you must have been prevented from completing a production cycle due to disaster circumstances in order to be eligible for AgriStability.

You do not need to complete a production cycle to be eligible for AgriInvest.

Federal public office holder or employee of Agriculture and Agri-food Canada (AAFC)

If the participant or any party involved in the preparation of this application is a current or former federal public office holder or employee of AAFC, you must answer “yes” to this question. If the participant is a partner in a partnership, indicate yes if one or more partners are current or former federal public office holders or employees of AAFC.

Identification

In this area of Form T1163, provide information only about your main farming operation (Operation #1). If you have more than one farming operation, complete Form T1164 for each additional one. Identify each one with successive operation numbers in the box at the top right-hand corner of each page.

Fiscal period

Enter the operation’s fiscal period. Report the year, month, and day of the beginning and end of the farming operation’s business year. The farming operation’s 2011 fiscal period must end in your 2011 tax year.

Method of accounting

You must use the same method of reporting (cash or accrual) for program purposes as you use for income tax purposes.

Enter:

  • code 1 if you are using the accrual method; or
  • code 2 if you are using the cash method.

Was your farming operation involved in any of the following?

In this area, check the applicable boxes if you carried on business as a member of a feeder association, or in a crop share arrangement as either a landlord or a tenant. For your main farming operation (Operation #1), enter this information on Form T1163. If you have more than one farming operation, complete Form T1164 for each additional one.



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Chapter 3 - Calculating Your Farming Income or Loss

This section of the form is used to calculate your allowable net sales (ANS) for the AgriInvest program. ANS is allowable commodity sales and program payments, less allowable purchases. For more information on ANS and the calculation of benefits under AgriInvest, visit the program Web site, or see the program handbook.

This section of the form is also used to calculate the cash portion of your program year margin for the AgriStability program. For more information on AgriStability margin calculations, contact your provincial administration at one of the numbers.

Use the Commodity List found at the back of this guide to report all income and expense items on Form T1163. Because codes can be added or removed each year from the code lists, it is important to check the lists when entering your information to ensure you are using a valid code.

If you use the accrual method of accounting, all changes in opening and closing commodity inventories must be allocated to the applicable commodity line code. Commodity sales are reduced by the amount of the opening inventory and increased by the amount of the closing inventory. If this year is your first year of farming, your opening inventory will be zero, so you will only add the closing inventory amount to commodity sales.

If you have more than one farming operation, you need to use a Form T1164 for each additional operation. The instructions in this chapter apply to both forms.

To ensure your benefits for AgriInvest and/or AgriStability are calculated correctly, read the following instructions carefully.

Farming income

To be eligible for coverage under AgriStability and AgriInvest programs, farming income must result from the sale of a commodity that is an agricultural product, either plant or animal, produced in a farming business. Some commodities that are considered agricultural commodities for tax purposes are not eligible for coverage under the AgriInvest and AgriStability programs. These include but are not limited to:

  • aquaculture;
  • trees sold for use in reforestation;
  • wood sales;
  • peat moss; and
  • income or expenses generated from wild game reserves.

Note
Hunt farms, which are distinguished from wild game reserves, are eligible. Sales and purchases of domesticated livestock in the operation of a hunt farm (where permitted by law) are allowable, provided the animals have had an appreciable gain. Exclude amounts related to any ancillary services (e.g., food, lodging, hospitality, etc.). If you operate a hunt farm, contact your administration for information on how to apply.

If you do not produce any eligible commodities on your farm, do not report your farming income on Form T1163. Instead, report your farming income to CRA using Form T2042.

If you produce both eligible and ineligible commodities on your farm:

  • report the income from ineligible commodities on line 9600; and
  • report income from eligible commodities using the appropriate commodity codes (found in this guide) on the Commodity Sales and Program Payment section of the form. Report eligible commodity sales based on the point of sale guidelines outlined below.

Producers with supply managed commodities should consult the AgriStability and AgriInvest handbook for treatment of these commodities under each program.

If you have questions about whether the commodity you produce is eligible for AgriInvest, contact the federal Administration at 1-866-367-8506. For AgriStability, contact your provincial administration.

Point of Sale Guidelines

Because AgriInvest benefits are based on allowable net sales (ANS), it is necessary to determine the point at which the sale occurs. For AgriInvest purposes, the point of sale is determined by the following criteria:

  • It is separate and identifiable from other producers' commodities;
  • You produce it on your farm;
  • You bear full direct risk for it; and
  • You have a separate billing or accounting transaction that clearly shows the commodity sales value and any deductions from that value.

The point of sale occurs when your commodity is no longer identifiable as your own, and you are no longer at risk for the value of the commodity.

If your commodity sales meet these points of sale criteria, report the code, name, and gross sale amount of each commodity on the form.

Example
You have seed potato sales of $50,000.
You report :
147  potatoes   $50,000

If you received a cheque for a commodity sale that is net of expenses that are recognized in the calculation of farming income (or loss), report the sale to include the full value of the commodity.

Example
Your receipt from the processor shows gross apple sales of $10,000, pack and sell costs of $1,500, leaving you a net cheque of $8,500. Report $10,000 as your gross apple sales, and $1,500 as an expense on line 9836 - "Commissions and levies".

If your commodity sales include amounts (recognized in calculating farming income or loss) that were incurred after the point of sale, you must adjust your sales to reflect the value of the commodity at the point of sale. Report any amounts incurred after the point of sale on line 575 - Point of Sale Adjustments. This will ensure that your allowable net sales (ANS) are calculated correctly.

Example
Your cash ticket from the elevator shows gross wheat sales of $7,000, freight charges of $1,500, and elevation charges of $300. Report the gross wheat sales of $7,000 as income. Report the freight charges of $1,500 and elevation charges of $300 as a point of sale adjustment on line 575 under Commodity Purchases and Repayment of Program Benefits (not under Allowable Expenses) because these expenses were incurred after you delivered your grain to the elevator (i.e., after the point of sale).

While point of sale adjustments are not a commodity purchase, you must report them in the Commodity Purchases and Repayment of Program Benefits section to ensure your allowable net sales (ANS) are calculated correctly for AgriInvest purposes.

Payment in kind

A payment in kind occurs when you receive or give goods or services instead of money. For instance, to pay someone for a business expense, you may give something you produced on your farm instead of money. When you do this, include the fair market value of the goods or services in income. Use the appropriate code for the commodity. Deduct the same amount as an expense.

Example
You owed your landlord $1,000 for rent. Instead of cash, you pay him by giving him $1,000 worth of seed. You add the fair market value of the seed crops ($1,000) that you gave the landlord to your income as a commodity sale. (We consider that you received rent in exchange for the seed.) Deduct the $1,000 on line 9811 as a rental expense.

If you received a payment in kind for a product you would normally have sold, include the fair market value of the product in income.

Gifts

In your income, include the fair market value of livestock or other items you gave away that you would normally have sold.

Once you give the livestock or other items away, you cannot deduct any more costs for raising or maintaining them.

Crop share

Tenants in a crop share are eligible to apply for AgriStability and AgriInvest.

Landlords are eligible to apply for AgriStability and AgriInvest if the crop share arrangement constitutes a joint venture.

For AgriStability program purposes, a crop share arrangement qualifies as a joint venture if the landlord’s share of the allowable expenses (as reported to CRA) reasonably approximates their share of the allowable related income.

For AgriInvest program purposes, a crop share arrangement qualifies as a joint venture if the landlord's share of eligible purchases reasonably approximates their share of the related allowable income.

Generally for AgriInvest and AgriStability eligible tenants and landlords must report only their respective shares of the allowable income and expenses.

Example 1
You are a tenant in a crop share and take 60% of the income. Report 60% of the gross sales amounts under Commodity Sales and Program Payments.

Example 2
You are a landlord where your crop share arrangement constitutes a joint venture, and you take 40% of the income and pay 40% of the allowable expenses. Report 40% of the gross sales amounts under Commodity Sales and Program Payments. Report your 40% share of expenses under Allowable Expenses.

However, if you are a tenant and for tax purposes your gross sales must include your landlord's share of the crop, you must report your landlord's share as a commodity purchase using the code for the commodity, under Commodity Purchases and Repayment of Program Benefits. This will ensure your program benefits are calculated correctly.

Example
You are a tenant in a crop share and sell the crop and then pay the landlord 40% of the income from the sale. Report 100% of the gross sales amount under Commodity Sales and Program Payments and 40% of that amount under Commodity Purchases and Repayment of Program Benefits.

Commodity futures

You can report an income transaction involving commodity futures as a commodity sale for AgriStability and AgriInvest purposes if the transaction involves a primary agricultural product that you produced on your farm and the transaction is considered a hedging strategy.

Report commodity futures as follows:

  • For futures transactions reported as a gross amount, report the income as a commodity sale using the code for the commodity. Report related purchases as a commodity purchase using the code for the commodity.
  • For futures transactions reported as a net amount, report the net gain as a commodity sale using the code for the commodity. Report the net loss as a commodity purchase using the code for the commodity.

Report income from futures transactions involving commodities that you did not produce or that were not considered a hedging strategy as other farming income on line 9600, "Other (specify)", and report losses as non-allowable expenses on line 9896, "Other (specify)"

Grains, oilseeds, and special crops

If you sold grain directly or through an agency, include in income all the amounts you received from these sales. For example, include any Canadian Wheat Board payments from the sale of wheat, durum wheat, and barley.

Storage and cash purchase tickets

When you delivered grain to a licensed public elevator or process elevator, you received a storage ticket, a cash purchase ticket, or a deferred cash purchase ticket.

If you received a storage ticket, a sale did not take place. Therefore, you do not have to include that amount in income.

However, if you received a cash purchase ticket, a sale did take place. Since we consider that you received a payment at the time you received the ticket, you have to include the amount in income.

If you received a deferred cash purchase ticket, you may be able to defer the income until a later fiscal period. You can do this if the ticket provides for payment after the end of the year in which you delivered the grain. This carry-over of income is only allowable in specific situations. For more information, see Interpretation Bulletin IT-184, Deferred Cash Purchase Tickets Issued for Grain.

Cash advances

Under the Agricultural Marketing Programs Act, you may be able to get cash advances for crops that someone stores in your name. We consider these advances to be loans. Do not include these payments in your income until the crops are sold. However, for the fiscal period in which the sale occurs, include the full amount from the sale of your crops in your income.

Tree Production

Allowable items

Allowable tree production (excluding the non allowable items listed below) must be generated through farming activity to be allowable under AgriStability and AgriInvest.

Farming activity includes the planting, nurturing and harvesting of trees, with significant attention paid to managing the growth, health, and quality of the trees. This activity can involve the regular seeding and harvesting of trees, shrubs, herbaceous perennials, or annuals, including ornamental, fruit, and Christmas trees.

These operations incur normal input and harvesting costs and the crop is considered an agricultural commodity. The income and expenses associated with these commodities is allowable, and they should be included as inventory on your AgriStability application.

Non allowable items

Income, expenses, and inventories related to the production and/or harvesting of trees for use as the following are non allowable under AgriStability and AgriInvest:

  • firewood;
  • construction material;
  • poles or posts;
  • fibre, pulp and paper; and
  • trees and seedlings destined for use in reforestation

Income from the above must be reported on line 9600 "Other (specify)," and will not be included in AgriStability and AgriInvest calculations, regardless of the activities used to produce them.

Woodlots

If you operated or regularly harvested a woodlot, include the sale of trees, lumber, logs, poles, or firewood in your income. This income is non allowable income for AgriStability and AgriInvest purposes, but it must be reported as a commodity sale, using commodity code 259.

From this income, you can deduct a type of capital cost allowance known as a depletion allowance. For more information, see Interpretation Bulletin IT-481, Timber Resource Property and Timber Limits.

If you earned the income by letting other people remove standing timber from your woodlot, the proceeds may be a capital receipt. A taxable capital gain or an allowable capital loss may result. For more information on capital gains and losses, see Chapter 7 and Guide T4037, Capital Gains.

For more information on the sale of wood, see Interpretation Bulletin IT-373, Woodlots.


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Livestock

Include any insurance payments you receive for losses of livestock in the sales column of Form T1163 or T1164, using the applicable livestock commodity code.

If your farming business was located in a prescribed drought region or a prescribed flood region in 2011, you may be able to defer including income from the sale of breeding animals in your taxable income. See Prescribed drought region (PDR) or prescribed flood region (PFR). These deferrals do not apply if you were a non-resident and were not carrying on a farming business through a fixed place of business in Canada at the end of the tax year. They also do not apply in the year of the farmer's death.

If you received a Bovine Spongiform Encephalopathy (BSE) Recovery Program payment, report the amount you received under program payment code 468.

Custom feedlot operator income

Custom feedlot operators feeding livestock are eligible for AgriInvest based on the value of allowable grain they produce and feed to custom-fed livestock.

If your custom feeding invoices are itemized:

  • report allowable feed and protein supplements as a prepared feed sale under Commodity Sales and Program Payments using code 243; and
  • report other charges itemized under Commodity Sales and Program Payments using line code 576.

If your custom feeding invoices are not itemized:

  • report the total amount invoiced as a prepared feed sale under Commodity Sales and Program Payments using code 246. 70% of this amount will be included in the calculation of your ANS, as an allowable commodity sale.

PMU Contract Cancellation Income

Income received from the buy out of PMU contracts will be allowable to the extent it is paid in lieu of the commodity income otherwise receivable under the contract. Penalty fees and other compensation that may be paid in addition to the amount in lieu of commodity income are non allowable.

Report amounts received for your Collection Agreement, Herd and Health payments, West Nile Reimbursement and Equine Placement Fund in allowable income code 322. Report amounts received for the Rancher payment, Business Planning Subsidy and capital costs on line 9600, "Other (specify)".

Canadian Food Inspection Agency (CFIA) - Destroying livestock

You have to include in income any payments you received under the Health of Animals Act for destroying animals. Include these amounts under the program payment codes 469, 479, 587, or 588 - CFIA payments. See more information on how to report your CFIA payment using the CFIA codes. You can choose to deduct all or part of the payment as an expense in the year. However, if you choose to do this, you have to include in your income for your next fiscal period the amount you deduct in your 2011 fiscal period. If you deferred payments in your 2010 fiscal period, you have to include the deferred amounts as income in this fiscal period.

Report the CFIA payment received as a commodity sale, using one of the program payment codes 469, 479, 587, or 588 - CFIA payments. For more in formation, see Income from program payments - Canadian Food Inspection Agency.

If you chose to deduct all or part of this payment as an expense in the year, then enter this amount under commodity purchases, using one of the codes from the chart PDR/PFR/CFIA deferred livestock codes. You must also use these codes in the next fiscal period to report this amount as income.

Prescribed drought region (PDR) or prescribed flood region (PFR)

In some cases, you may be able to defer the applicable income received from the sale of breeding animals in your 2011 fiscal period to a later fiscal period.

To be able to do this, you have to meet these two conditions:

  • your farming business was located in a PDR or PFR at some time during your 2011 fiscal period; and
  • you reduced, by sale or other means, the number of breeding animals in your breeding herd by at least 15%.

For a list of PDRs and PFRs, contact the CRA or Agriculture and Agri-Food Canada. You will find the addresses and telephone numbers in the government section of your telephone book.

The following are considered to be "breeding animals":

  • bovine cattle;
  • bison;
  • goats;
  • sheep;
  • deer, elk, and other similar grazing ungulates you keep for breeding; and
  • horses you breed to produce pregnant mare's urine (PMU) that you sell.

All your breeding animals must be older than 12 months.

To determine the size of your breeding herd at the end of your 2011 fiscal period, complete Part 1 and Part 2 of the following chart.

Breeding herd chart
Part 1
How many of your female bovine cattle over 12 months of age held at the end of your 2011 fiscal year have given birth?        A
How many of your female bovine cattle over 12 months of age held at the end of your 2011 fiscal year have never given birth?        B
Enter one half of the figure from line A        C
Enter either the figure from line B or line C, whichever is less        D
Part 2
How many breeding animals did you have at the end of your 2011 fiscal period?        E
Enter the figure from line B        F  
Enter the figure from line D        G
Line F minus line G        H
Number of breeding animals in your breeding herd at the end of your 2011 fiscal period: line E minus line H        I
If the figure from line I is not more than 85% of the number of animals in your breeding herd at the end of your 2010 fiscal year, you can defer part of the income received in 2011 from the sale of breeding animals.

Before you determine how much you can defer, you need to calculate a few amounts. First, determine your sales of breeding animals for your 2011 fiscal period minus any reserves you claimed for these sales.

A reserve is created when you sell property and do not receive the full proceeds at the time of the sale. Instead, the amount of proceeds is spread over a number of years, which allows you to defer reporting these proceeds to the year in which you receive them. For more information on reserves, see Interpretation Bulletin IT-154, Special Reserves.

After you have determined your sales of breeding animals, subtract from this amount the cost of breeding animals you bought in your 2011 fiscal period. The result is your net amount.

You then determine how much you can defer as follows:

  • if the figure on line I is more than 70% and not more than 85% of your breeding herd at the end of your 2010 fiscal period, you can defer up to 30% of the net sales; or
  • if the figure on line I is between 0% and 70% of your breeding herd at the end of your 2010 fiscal period, you can defer up to 90% of the net sales.

You do not have to defer all this income. You can include any part of it in your 2011 income. The deferred income must, however, be reported in the fiscal period that ends in:

  • the year beginning after the period or periods when the region stops being a PDR/PFR;
  • the year when the farmer dies; or
  • the first year when, at the end of that year, the farmer is a non-resident and has ceased to carry on business through a fixed place of business in Canada.

If you want, you can elect to report the deferred income in the year after you deferred it.

Report the income you received from the sale of breeding animals as a commodity sale using the code for the commodity (see Commodity List). Report the amount you are deferring as a purchase using one of the deferred livestock codes listed below. In the year that you declare the deferred income, report it under commodity sales using the same deferred livestock code you used before.

PDR/PFR/CFIA deferred livestock codes
Deferred bovine cattle 150
Deferred bison 151
Deferred goat 152
Deferred sheep 153
Deferred deer 154
Deferred elk 155
Deferred horse for PMU sales 156
Deferred other breeding animals 157

If your farming business was not in a PDR/PFR at any time during your 2011 fiscal period, you cannot defer the amount you received when you sold breeding animals. Also, you have to include in your 2011 income any unreported amounts you deferred in earlier years.

However, as long as your farming business was in a PDR/PFR at any time in your 2011 fiscal period, you do not have to include income you deferred in earlier years.

Income generated from the use of commodities

Generally you include income generated from the use of commodities with commodity sales. For example, report income from stud fees with horse sales.

However, income generated from pollination services should be reported using code 376.


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Insurance proceeds for allowable expense items

Use code 406 to report insurance proceeds you received for allowable expense items, such as fertilizers, chemicals, fuel, twine, etc.

Income from program payments

Treatment of program payment income is determined by the type of loss it has compensated you for.

For AgriInvest, your ANS will only include program payment income you received directly for the loss of an allowable commodity (e.g., AgriInsurance/production or crop insurance, hail insurance, private insurance for eligible commodities, or wildlife damage compensation). For AgriStability, your program year margin will only include payments which have compensated you for the same type of loss covered under AgriStability.

You should receive an AGR-1 slip, Statement of Farm-Support Payments, to identify your 2011 taxable farm-support payments. According to the Income Tax Regulations, you have to provide your social insurance number to organizations that issue farm-support payments.

If you received a payment found on Program Payment Code List A or B, report the program payment code, name, and amount under Commodity Sales and Program Payments.

If your program payments were recorded in your books net of expenses that are recognized in the calculation of farming income (or loss), adjust your income to include the full amount of the payment.

Example
You were entitled to a payment of $6,000 as proceeds from a hail insurance program for your wheat crop. The program deducted $2,000 in premiums, so the net cheque was for $4,000. Report $6,000 as a Crop/hail insurance program payment for grains, oilseeds, and special crops, as code 401. You would claim $2,000 for the allowable expense on line 9665, "Insurance premiums (AgriInsurance / production or crop insurance)."

You should receive an AGR-1 slip for all farm-support programs from which you received payments of more than $100. These include farm-support programs administered by the federal, provincial, territorial, and municipal governments, and by producer associations.

You have to include in income all taxable farm-support payments you received in your 2011 fiscal period, including amounts of $100 or less.

If your farm is operated as a partnership, only one partner should attach the AGR-1 slip to his or her income tax return. However, if your partnership has to file a partnership information return, you should file the AGR-1 slip with that return.

If the annual period of the AGR-1 slip is not the same as the fiscal period of your farming operation, report only the part of the farm-support payments that you earned during your normal fiscal period. For example, if your farming business has a fiscal period ending on June 30, 2011, and your AGR-1 slip shows income of $10,000 in box 14, but you earned only $6,000 of that income by June 30, 2011, you will include only $6,000 in your income for your 2011 fiscal period. You will include the remaining $4,000 in your next fiscal period. You should, however, include the AGR-1 slip issued for the 2011 calendar year with your 2011 income tax return.

Canadian Food Inspection Agency (CFIA)

Only the portion of CFIA payments that compensate producers for the loss of an allowable commodity will be included in the ANS calculation for AgriInvest.

Report the portion of amounts of CFIA payments that compensated you for the loss of an allowable commodity using code 469 – CFIA Payments – Allowable Commodities.

Report the portion of CFIA payments that compensated you for the loss of a supply managed commodity using code 479 – CFIA Payment for supply managed commodities.

Report the portion of CFIA payments that compensated you for the loss of a commodity that is non-allowable for AgriStability of AgriInvest using code 587 – CFIA payments – Non‑Allowable Commodities. For example, use this code if you received a CFIA payment to compensate you for the loss for trees destined for use in reforestation.

Report the portion of CFIA payments that compensated you for costs not directly related to a commodity loss, using code 588 – CFIA Payments – Other Amounts.

How to Report Payments from the AgriStability and AgriInvest programs

Payments received from the AgriInvest Kickstart program, and government contributions (Fund 2) from AgriInvest are considered investment income (box 18 of the AGR-1), and should not be reported on this form.

Payments from AgriStability are considered farming income (box 14 of the AGR-1).

If you received an AGR-1 slip with a positive amount in box 14, include it as income on "Line 9544, Business risk management (BRM) and disaster assistance program payments", of your Form T1163. The figure in box 14 represents taxable amounts paid out by the AgriStability program for government benefits.

If you received an AGR-1 slip with a negative amount showing in box 14, do not enter this amount on line 9544 of your Form T1163. You could have a negative amount in box 14 if you repaid an amount to the AgriStability program in a year after you got an AGR-1 slip reporting the amount you received. Since a negative figure is not considered income, enter the amount on "line 9896, Other (specify)". Make sure you attach the AGR-1 slip to support this deduction.


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Other farming income

The instructions for completing "Other farming income" apply to both Form T1163 and Form T1164.

Rental income

Except for leases explained under line 9613 you do not usually include rental income in your farming income. To determine your rental income, use Form T776, Statement of Real Estate Rentals. You will find this form in Guide T4036, Rental Income. Report the amount of your net rental income on line 126 of your income tax return.

However, for the AgriStability and AgriInvest programs, landlords are eligible if the crop share arrangement constitutes a joint venture.

For AgriStability program purposes, a crop share arrangement qualifies as a joint venture if the landlord’s share of the allowable expenses reasonably approximates their share in the allowable related income.

For AgriInvest program purposes, a crop share arrangement qualifies as a joint venture if the landlord’s share of eligible purchases reasonably approximates their share of the related allowable income.

If you are a landlord, see Crop share, for more information on how to report your income and expenses.

Line 9540 - Other program payments

Report any payments from programs that are not listed on Program Payment List A or B, or under 9544 (below).

If you received an overpayment from any programs on line 9540, report the amounts you repaid on line 9896, "Other (specify)".

Do not report AgriInsurance/production or crop insurance payments on line 9540.

Line 9544 - Business risk management (BRM) and disaster assistance program payments

Report any payments you received from the following federal or provincial BRM and disaster assistance programs.

  • CAIS payments and AgriStability, including Interim or Targeted Advance payments
  • Canadian Farm Income Program (CFIP) in Saskatchewan, Manitoba, Nova Scotia, Newfoundland and Labrador, New Brunswick, Prince Edward Island, and Quebec
  • Whole Farm Insurance Pilot (WFIP) Program in British Columbia
  • Ontario Whole Farm Relief Program (OWFRP) and the Ontario Farm Income Disaster Program (OFIDP) in Ontario

If you received an overpayment from any of the programs listed above, report any amounts you repaid on line 9896, "Other (specify)".

Do not report AgriInsurance (production or crop) payments on this line. Use the codes listed in Program Payment List A.

Line 9574 - Resales, rebates, GST/HST for allowable expenses

Report the total resales and rebates of allowable expenses, including GST/HST rebates, unless you have already reduced your expenses by these amounts.

Line 9575 - Resales, rebates, GST/HST for non-allowable expenses, and recapture of capital cost allowance (CCA)

Report the total resales and rebates for non-allowable expenses, including GST/HST rebates, unless you have already reduced your expenses by these amounts.

Recapture of capital cost allowance (CCA)

Include in your income the amount of any recapture of CCA you have from selling depreciable property such as tools and equipment.

Complete the chart "Calculation of capital cost allowance (CCA)" on Form T1175, Farming - Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses, to find out if you have to report any recapture of CCA. For more information, see Chapter 4.

Line 9601 - Agricultural contract work

Report the total of incidental farming income from such things as custom or contract work, harvesting, combining, crop dusting or spraying, seeding, drying, packing, cleaning, and treating seeds.

Do not include income received from renting farm machinery on this line. See Line 9614 - Machine rentals.

If you are a custom feeder, do not report your income on this line. For instructions on reporting your custom feeding income, see Custom feedlot operator income.

Line 9605 - Patronage dividends

Report the total of patronage dividends (other than those for consumer goods or services) received if you are an eligible members of agricultural co-operatives.

If you receive a patronage dividend in the form of "tax deferred co-operative shares", there is no need to immediately include it in income. Tax may be deferred until the shares are disposed of (or deemed disposed of). The balance could then be carried forward and sheltered later as actual (or deemed) proceeds of disposition.

Line 9607 - Interest

Report the total incidental interest earned on business accounts related to your farming business. Do not report interest on personal accounts and investments.

Line 9610 - Gravel

Report the total amounts you received from the sale of soil, sand, gravel, or stone. For some of these items, you can claim a depletion allowance.

Line 9611 - Trucking (farm-related only)

Report the total amounts you received for trucking related to your farming business.

Line 9612 - Resales of commodities purchased

Report your total sales of commodities that you did not produce, that is, commodities that you bought for resale. Report the corresponding purchases made in this fiscal period on line 9827, Purchases of commodities resold.

Line 9613 - Leases (gas, oil well, surface, etc.)

If you received payments for leasing your farmland for petroleum or natural gas exploration, these payments will be either income or a capital receipt.

Include in your income the yearly amounts for rental, severance, or inconvenience from a surface rental agreement.

The first payment from these agreements is often larger than the rest of the annual payments. However, the agreement may not specify how much of the first payment is for such things as damage to land, land improvements, severance, inconvenience, or the first year's rent. When this happens, in the year you received the first payment, include in income an amount that is equal to the annual payment you will receive in the following years. The rest of the first payment is a payment for property. This may result in either a capital gain or loss. For more information on capital gains, see Chapter 7.

Line 9614 - Machine rentals

Report the amounts you received from the rental of your farm machinery.

Line 9600 - Other (specify)

Report the total amount of all other types of farming income not listed on the form. Then list the items on the blank lines provided under it.

In this section, report all ineligible farming income. Ineligible income includes, but is not limited to, aquaculture, trees sold for use in reforestation, wood sales, peat moss, and income or expenses generated from wild game reserves.

The following paragraphs identify some of the other income items you can report on line 9600.

Insurance proceeds

If you received insurance proceeds as compensation for loss or damage to certain types of property, report the amount of insurance proceeds that did not relate to a specific commodity. For example, you may have insurance proceeds for damage to a building due to fire.

Report the total insurance proceeds on this line if you are being reimbursed for:

  • the cost of non-depreciable property that you previously deducted as a current expense; or
  • the cost of property that was a saleable item.

Print "insurance proceeds" on one of the lines below line 9600. If the insurance proceeds compensated you for damages to depreciable property and you used all of them to repair the property within a reasonable period of time, include the proceeds as income on this line and claim a deduction for the same amount in the "Expenses" area on page 3 of the form. Claim repairs to depreciable property that is machinery on line 9760 and repairs to motor vehicles on line 9819. If you did not spend all the insurance proceeds on repairs within a reasonable length of time, include the unexpended excess as proceeds of disposition. For more information, see Column 4 - Proceeds of disposition in the year.

Insurance proceeds that compensate you for replacement of lost or destroyed depreciable property are considered to be proceeds of disposition for that depreciable property.

Do not include this type of insurance proceeds on line 9600. For more information, see Chapter 4. For information on how insurance affects the adjusted cost base of capital property, see Chapter 7.

Do not include insurance proceeds from federal, provincial, or municipal government programs. For the codes to use for government insurance programs, see the Program Payment Lists.

Miscellaneous

You can deduct 100% of the cost of property such as small tools if they cost less than $500. If you did this and you later sold that property, you have to include in income the amount you received from the sale.

Include in your income prizes you won from fairs or exhibitions. For more information, see Interpretation Bulletin IT-213, Prizes From Lottery Schemes, Pool System Betting and Giveaway Contests.

Report resales and rebates of allowable expenses on line 9574.


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Summary of income

Enter totals A and B from the last lines of the two columns on page 3 of the form. Add the totals together to get your gross farming income. Gross farming income is your total farming income before you deduct expenses.

Expenses

Use page 4 of Form T1163 to report your farming expenses. If you have more than one farming operation, use a separate Form T1164 for each additional operation.

You cannot include expenses for your personal use of either of the following:

  • property of your farming business; or
  • partnership property or services.

In addition, you cannot include any of the following as part of your expenses:

  • the cost of saleable goods or services you, your family, or your partners and their families personally used or consumed, such as dairy products, eggs, fruit, vegetables, poultry, and meat;
  • donations to charities and political contributions;
  • interest and penalties you paid on your personal income tax; or
  • most life insurance premiums (see Line 9804 - Other insurance premiums).

For AgriStability program purposes, there are two types of expenses:

  • allowable expenses; and
  • non-allowable expenses.

Allowable expenses are the operating or input expenses you paid that directly relate to the production of your commodities. Non-allowable expenses include interest and capital-related expenses as well as costs that are not directly related to the production of your commodities.

For AgriInvest purposes, only purchases of allowable commodities are used in the calculation of the ANS.

Current or capital expenses

Renovations and expenses that extend the useful life of your property or improve it beyond its original condition are usually capital expenses. However, an increase in a property's market value because of an expense is not a major factor in deciding whether the expense is capital or current. To decide whether an amount is a current expense or a capital expense, consider your answers to the questions in the following chart.

Current or capital expenses
Criteria Capital expenses Current expenses
Does the expense provide a lasting benefit? A capital expense generally gives a lasting benefit or advantage. For example, the cost of putting vinyl siding on the exterior walls of a wooden house is a capital expense. A current expense is one that usually recurs after a short period. For example, the cost of painting the exterior of a wooden house is a current expense.
Does the expense maintain or improve the property? The cost of a repair that improves a property beyond its original condition is probably a capital expense. If you replace wooden steps with concrete steps, the cost is a capital expense. An expense that simply restores a property to its original condition is usually a current expense. For example, the cost of repairing wooden steps is a current expense.
Is the expense for a part of a property or for a separate asset? The cost of replacing a separate asset within that property is a capital expense. For example, the cost of buying a compressor for use in your business operation is a capital expense. This is the case because a compressor is a separate asset, and is not a part of the building. The cost of repairing a property by replacing one of its parts is usually a current expense. For instance, electrical wiring is part of a building. Therefore, an amount you spend to rewire is usually a current expense, as long as the rewiring does not improve the property beyond its original condition.
What is the value of the expense? (Use this test only if you cannot determine whether an expense is capital or current by considering the three previous tests.) Compare the cost of the expense to the value of the property. Generally, if the cost is of considerable value in relation to the property, it is a capital expense. This test is not a determining factor by itself. You might spend a large amount of money for maintenance and repairs to your property all at once. If this cost was for ordinary maintenance that was not done when it was necessary, it is a maintenance expense, and you deduct it as a current expense.
Is the expense for repairs to used property that you acquired to put it in suitable condition for use? The cost of repairing used property that you acquired to put it in a suitable condition for use in your business is considered a capital expense, even though in other circumstances it would be treated as a current operating expense. Where the repairs were for ordinary maintenance of a property that you already had in your business, the expense is usually current.
Is the expense for repairs made to an asset in order to sell it? The cost of repairs made in anticipation of the sale of a property or as a condition of sale is regarded as a capital expense. Where the repairs would have been made anyway, but a sale was negotiated during the course of the repairs or after their completion, the cost is regarded as current.

For more information, see Chapter 4 and Interpretation Bulletin IT-128, Capital Cost Allowance - Depreciable Property.

Eligible disability-related modifications made to a building

Outlays and expenses for eligible disability-related modifications made to a building can be considered current expenses. You do not have to add them to the capital cost of your building. You can also deduct expenses you paid to install or get disability-related devices and equipment. Eligible disability-related modifications include changes you make to accommodate wheelchairs.

Rebates, grants, or assistance

You should subtract from the applicable expense any rebate, grant, or assistance you have received.

If the rebate, grant, or assistance is for a depreciable asset, subtract the amount of the rebate from the property's capital cost before calculating the capital cost allowance. For more information, see Chapter 4. If the asset qualifies for the investment tax credit, this reduction to the capital cost will also affect your claim. For more information, see Form T2038(IND, Investment Tax Credit (Individuals).

If you cannot apply the rebate, grant, or assistance to reduce a particular expense or a property's capital cost, include the amount as income on line 9574 or 9575. Only include the amount that was not used to reduce the cost of a property or the amount of an outlay or expense.

GST/HST input tax credits

If you claim the GST/HST you paid on your farming business expenses as an input tax credit, reduce the amount of the business expenses you claim by the amount of the input tax credit. Do this when the GST/HST for which you are claiming the input tax credit was paid or became payable. Enter the net expense figure on the appropriate line of Form T1163 or T1164.

Input tax credits that you claim for the purchase of depreciable property used in your business will affect your claim for CCA. If you cannot apply the credit you received to reduce a particular expense or an asset's capital cost, include the amount as income on line 9574 or 9575 of Form T1163 or T1164.

For more information on how input tax credits affect your claim for CCA, see Column 2 - Undepreciated capital cost (UCC) at the start of the year.

Prepaid expenses

A prepaid expense is the cost of a service you paid for ahead of time. For example, insurance, property taxes, and rent would be prepaid expenses if you paid for them in one year, but did not receive the benefits until the next year.

If you use the accrual method to determine your farming income, you can deduct the part of the prepaid expense that applies to the year you receive the benefit.

If you use the cash method for reporting income, you cannot deduct a prepaid expense amount (other than for inventory) relating to a tax year that is two or more years after the year the expense is paid. However, you can deduct the part of an amount you paid in a previous year for benefits received in the current tax year. These amounts are deductible as long as you have not previously deducted them.

For example, if you paid $600 for a three-year lease in 2011, you can deduct $400 in 2011. This represents the part of the expense that applies to 2011 and 2012. On your 2013 income tax return, you could then deduct the balance of $200 for the part of the prepaid lease that applies to 2013.

Business-use-of-home expenses

You can deduct expenses for using a work space in your home for the farming business, if you meet one of these conditions:

  • the work space is your principal place of business; or
  • you use the space only to earn income from your farming business, and you use it on a regular and ongoing basis to meet your customers.

You can deduct a part of the following expenses:

  • heating;
  • home insurance;
  • electricity;
  • cleaning materials;
  • property taxes;
  • mortgage interest;
  • capital cost allowance.

To calculate the part you can deduct, use a reasonable basis, such as the area of the work space divided by the total area of your home.

The capital gain and recapture rules will apply if you deduct capital cost allowance on the business-use part of your home and you later sell your home. For more information on recapture and capital gains rules, see Chapters 4 and 7.

If you rent your home, you can deduct the part of the rent and any expenses you incur that relate to the work space.

Include your expenses for business-use-of-home on "line 9896, Other (specify)" of Form T1163 or T1164. For more information, see Additional expenses (partnerships) and Line 9934 - Adjustment to business-use-of-home expenses.

Example
Marjorie calculates that $85 of her household electrical expense is for her farming business use. The total electrical expenses for her farm outbuildings are $1,200. She enters $1,200 on line 9799 and $85 on line 9896.

For income tax purposes, you cannot use business-use-of-home expenses to create or increase a farming loss. Therefore, if you claimed business-use-of-home expenses and you report a farming loss on line 9944, you will have to adjust your loss for income tax purposes at line 9934. For more information on how to make this adjustment, see the instructions for line 9934.

Business-use-of-home expenses are non-allowable expenses for program purposes.


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Commodity purchases

Include feed, seed, plants, transplants, livestock, and marketable products. For example, if you are an apple producer replacing damaged or dead trees, report apple tree purchases using the code for apples. If you are buying trees to expand an orchard, this amount would be a capital expenditure and would not be reported as a commodity purchase. Do not include the cost of seeds and plants you used in your personal vegetable or flower garden.

Generally, you include expenses incurred from the use of commodities with the commodity purchases. For example, report Stud fees with horse purchases.

However, pollination fees should be reported using code 376.

If you made a payment in kind for a farming-business commodity purchase, deduct the value of the payment as a purchase. For more information, see Payment in kind.

If you are a tenant and your gross sales include your landlord's share of the crop, report your landlord's share as a corresponding commodity purchase.

If you have an expense for the purchase of water that is used in the production of your commodity and it has not been included in your municipal taxes, do not include this expense with the commodity purchases. Report this expense on line 9662, Fertilizers and Soil Supplements, even if the water was used for livestock.

Livestock owners and custom feedlot operators with prepared feed purchases

If your purchase invoices of prepared feed and protein supplements are itemized by ingredient:

  • report allowable commodities (such as grains, forage, oilseeds) and protein supplements as an allowable purchase using code 046; and
  • report other charges itemized separately (such as minerals and salts) as a commodity purchase using line code 570.

If your purchase invoices of prepared feed and protein supplements are not itemized by ingredient:

  • report total purchases as a commodity purchase using line code 571. 65% of this amount will be included in the calculation of your ANS, as an allowable commodity purchase.

Livestock owners with custom feeding expenses

If your purchase invoices are itemized by ingredient:

  • report allowable commodities (such as grains, forage, oilseeds) and protein supplements as an allowable purchase using code 577;
  • report other charges itemized separately (such as minerals and salts) as a commodity purchase using line code 572.

If your purchase invoices are not itemized by ingredient:

  • report total purchases as a commodity purchase using code 573. 70% of this amount will be included in the calculation of your ANS, as an allowable commodity purchase.

Ranch fur operators with prepared feed purchases

If your purchase invoices of prepared feed and protein supplements are itemized by ingredient:

  • report allowable commodities and protein supplements using line code 046;
  • report the remaining expenses as a commodity purchase using line code 310.

If your purchase invoices of prepared feed and protein supplements are not itemized by ingredient:

  • report total purchases as a commodity purchase using code 574. 20% of this amount will be included in the calculation of your ANS, as an allowable commodity.

Livestock insurance premiums

Report your premiums for private livestock insurance using Line 9953 - Private insurance premiums for allowable commodities.

Repayment of program benefits

Report the repayment of a program benefit as a purchase using the code for the program. You should receive an AGR-1 slip, Statement of Farm-Support Payments, identifying the amount of the repayment in box 17.

If you received an overpayment from any of the programs listed on lines 9540 and 9544, report amounts you repaid in the tax year on line "9896, Other (specify)".

AgriStability program - Allowable expenses

Line 9661 - Containers and twine

Report the total amount you paid for material to package, contain, or ship your farm produce or products. If you operated a nursery or greenhouse, report the cost of your containers and pots for the plants you sold.

Line 9662 - Fertilizers and soil supplements

Report the total amount you paid for fertilizers and lime you used in your farming business.

If you used soil supplements or other growth media, report the amounts you paid for them here. Examples of soil supplements include mulch, sawdust, and weed-mats.

Line 9663 - Pesticides and chemical treatments

Report the total amount you paid for herbicides, insecticides, rodenticides, and fungicides. Insecticides include chemicals for pest control purposes as well as any predators or parasites introduced for that use. Also report the total amount you paid for chemicals used in treating water, manure, or slurry, as well as those used in disinfecting equipment and facilities.

Report seed treatment expenses on this line if the treatment was itemized separately from the seed purchase on your original invoice. Otherwise, include the treatment as part of the commodity purchase.

Line 9665 - Insurance premiums (AgriInsurance/production or crop insurance)

Report the total amount of premiums paid for any crop insurance. Include premiums for hail insurance on this line. Do not include any premiums for private, business-related, or motor vehicle insurance. Do not include premiums for Alberta Spring Price Endorsement. For more information on other types of insurance premiums, see Line 9804 - Other insurance premiums.

Line 9713 - Veterinary fees, medicine, and breeding fees

Report the total amount you paid for medicine for your animals, and for veterinary and breeding fees. Examples of such fees include the cost of artificial insemination, embryo transplants, disease testing, and castration. If you used disposable veterinary supplies for your farming business, enter these costs here.

Line 9714 - Minerals and salts

Report purchases of minerals, salts, vitamins, and premixes (which are mainly minerals and vitamins). Do not report purchased feed on this line.

Line 9764 - Machinery (gasoline, diesel fuel, oil)

Report the total amount you paid for fuel and lubricants for your machinery used in your farming operation.

Line 9799 - Electricity

Only the part of your electricity costs that relates to your farming business is deductible. To determine the part you can deduct, keep a separate record of the amounts that apply to the farmhouse and other farm properties. For example, the business part of your electricity expense will depend on how much electricity you used for the barns and shops.

Since the electricity for the farmhouse is a personal expense, you cannot deduct it unless you meet the conditions we explain in Business-use-of-home expenses. Include your expenses for business-use-of-home on "line 9896, Other (specify)".

Do not include the electricity expense for a house that you rented to someone else. This is a rental expense, which you enter on Form T776, Statement of Real Estate Rentals. You can get this form in Guide T4036, Rental Income.

Line 9801 - Freight and shipping

Report the amount you paid for shipping farm inputs to your operating site and shipping farm produce to market. Also include amounts you paid for the disposal of carcasses on this line.

Do not include costs you incurred when trucking for someone else on this line. These are non-allowable expenses for AgriStability, and should be reported on "line 9798, Agricultural contract work".

Do not include freight and shipping incurred after the point of sale on this line. These amounts must be reported on "line 575 - Point of Sale Adjustments" in order to calculate your AgriInvest benefits correctly.

Line 9802 - Heating fuel

Report the total amount you paid for natural gas, coal, and oil to heat farm buildings. Also enter your expenses for fuel used for curing tobacco, crop drying, or greenhouses.

You can deduct only the part of these costs that relates to your farming business. To determine the part you can deduct, keep a separate record of the amounts you paid for the farmhouse and other farm properties. For example, the business part of your heating fuel expense will depend on how much heating fuel you used for the barns and shops.

Since heating fuel for the farmhouse is a personal expense, you cannot deduct it unless you meet the conditions we explain in Business-use-of-home expenses. Include your expenses for business-use-of-home on "line 9896, Other (specify)".

Do not include heating fuel expenses for a house that you rented to someone else. This is a rental expense, which you enter on Form T776, Statement of Real Estate Rentals. You can get this form in Guide T4036, Rental Income.

Line 9815 - Arm's length salaries

Report the amount of gross wages you paid to your employees. Include the cost of board for hired help. Do not include salaries paid to related persons (see the definition below). If you paid salaries to related persons, see Line 9816 - Non-arm's length salaries.

Related persons are:

  • individuals connected by blood relationship, marriage or common-law partnership, or adoption;
  • a corporation; and
    • an individual, group of persons, or entity that controls the corporation;
    • an individual, group of persons, or entity of a related group that controls the corporation; or
    • any individual related to a person described above.

Salaries or drawings paid to yourself are not deductible for tax purposes. As the employer, also include in this total your share of Canada Pension Plan or Quebec Pension Plan contributions and Employment Insurance premiums. Do not deduct the amounts you withheld from your employees' remuneration, since you already deducted them in the amount you claimed as wages.

You may have paid wages in kind to your employees. For example, you may have paid your employees by giving them livestock or grain instead of cash. If you did this:

  • your employees include in their income the value of the livestock or grain; and
  • you include the same amount in your gross sales for the year and deduct it as a wage expense.

Keep a detailed record of the amounts you paid to each employee and the employee's name, address, and social insurance number.

Line 9822 - Storage/drying

Report the amount you paid for storing and drying commodities. Examples of such costs include amounts paid for storage and drying services, air treatment expenses, and the purchase of germination inhibitors and other preservative agents. Electricity and heating fuel costs incurred in storage and drying commodities should be entered on lines "9799, Electricity," and "9802, Heating fuel," respectively.

Line 9836 - Commissions and levies

Report the amount you paid in commissions and levies incurred in the sale, purchase, or marketing of commodities. Also include amounts paid in levies to marketing boards, except those due as a result of penalties or fines you incurred. Do not include commissions paid to salespeople contracted to market your product.

Producers marketing fruits or vegetables through a co-op should enter any pack-and-sell expenses here. Do not include pack and sell expenses that were incurred after the point of sale. These amounts must be recorded on "line 575, Point of Sale Adjustments", in order to calculate your AgriInvest benefits correctly.

Line 9953 - Private insurance premiums for allowable commodities

Report the total amount of private insurance premiums paid for allowable commodities such as livestock.

Do not include premiums for hail insurance on this line. They should be reported on line 9665, Insurance premiums (AgriInsurance/production or crop insurance).

Do not include any premiums for private (for non - allowable commodities or items), business-related or motor vehicle insurance. For more information on other types of insurance premiums, see Line 9804 - Other insurance premiums.

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AgriStability program - Non-allowable expenses

Line 9760 - Machinery (repairs, licences, insurance)

Report the total amount of repair, licence fee, and insurance premium expenses you incurred for your machinery. If you received insurance proceeds to help pay for repairs, see Insurance proceeds.

Line 9765 - Machinery lease/rental

Report the expenses you incurred for leasing machinery used to earn your farming income.

If you lease a passenger vehicle, see line 9829, Motor vehicle interest and leasing costs.

If you entered a lease agreement after April 26, 1989, you can choose to treat your lease payments as combined payments of principal and interest. However, you and the person from whom you are leasing have to agree to treat the payments this way.

In this case, we consider that:

  • you have bought the machinery rather than leased it; and
  • you have borrowed an amount equal to the fair market value (FMV) of the leased machinery.

You can deduct the interest part of the payment as an expense. You can also claim capital cost allowance (CCA) on the machinery. For more information on CCA, see Chapter 4. You can make this choice as long as the machinery qualifies and the total fair market value (FMV) of all the machinery that is subject to the lease is more than $25,000. For example, a combine that you lease with a FMV of $35,000 qualifies. However, office furniture and automobiles often do not.

To treat your lease this way, attach one of the following forms with your income tax return for the year you make the lease agreement:

Both of these forms explain which property qualifies for this treatment.

Line 9792 - Advertising and promotion costs

Report the expenses you incurred for advertising and promoting your farm products.

Producers marketing fruits or vegetables through a co-op should not enter any pack and sell expenses here. For more information on how to report your pack and sell expenses, see line 9836 - Commissions and levies.

Line 9795 - Building and fence repairs

Report the amounts for repairs to fences and all buildings you used for farming, except your farmhouse. Do not include the value of your own labour. If the repairs improved a fence or building beyond its original condition, the costs are capital expenditures. Add them to the cost of the asset or building on your capital cost allowance (CCA) charts on Form T1175, Farming - Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses. We explain the CCA charts in Chapter 4.

For more information on capital expenditures, see Interpretation Bulletin IT-128, Capital Cost Allowance - Depreciable Property.

Note
You may have received insurance proceeds to pay for the repairs. If the insurance proceeds compensated you for damages to depreciable property such as buildings or fences, and you used all of them to repair the property within a reasonable period of time, you can claim a deduction for the amount spent on repairs on line 9795. You will, however, also have to include the insurance proceeds as income on line 9600. If you did not spend all the insurance proceeds on repairs within a reasonable length of time, include the remainder as proceeds of disposition in column 4 of Area A, "Calculation of capital cost allowance (CCA)," on Form T1175. For more information, see Column 4 - Proceeds of disposition in the year.

Line 9796 - Land clearing and draining

Report the total amount for the expenses listed below. In most cases, you can deduct the costs for:

  • clearing the land of brush, trees, roots, stones, and so on;
  • first ploughing the land for farm use;
  • building an unpaved road; and
  • installing land drainage.

You do not have to deduct all the costs in the year you paid them. If you paid all the costs, you can deduct any part of them in the year you paid them. You can carry forward any part of the costs you did not deduct to another year.

However, if you rented land to someone else, you cannot deduct the above costs. Instead, add the costs to:

  • the cost of the land; or
  • the cost of the building if you plan on building on the land right away.

If you installed a tile, plastic, or concrete land drainage system, the cost can be included in class 8 of your CCA charts on Form T776, Statement of Real Estate Rentals, available in Guide T4036, Rental Income.

For more information, see Interpretation Bulletin IT-485, Cost of Clearing or Levelling Land.

You cannot deduct the cost of a paved road. Instead, you have to add this cost to class 17 on your CCA charts on Form T1175. For more information, see Chapter 4.

You can deduct most of the cost to drill or dig water wells in the year you did the work. However, you have to add some of the costs to class 8 on your CCA charts. The costs you add are those you incurred to purchase and install:

  • the casing and cribwork for the well; and
  • the system that distributes water, including the pump and pipes.

You can deduct amounts you paid to have public utilities brought to your farm as long as the installations remain the property of the utility.

You can deduct amounts you paid under the Canada Co-operative Associations Act to build a distribution system under a gas service contract.

Line 9798 - Agricultural contract work

Report the total amount of expenses you incurred for custom and contract work, other than custom feeding, in your farming business. For example, you could have had a contract with someone who:

  • cleaned, sorted, graded, and sprayed the eggs your hens produced, or
  • had facilities to age the cheese you produced, or
  • did your harvesting, combining, crop dusting, or contract seed cleaning.

If you are a custom feedlot operator, do not report your custom feeding expenses on this line. For instruction on reporting your custom feeding expenses, Livestock owners and custom feedlot operators with prepared feed purchases.

For program purposes, agricultural contract work is a non‑allowable expense. However, if you have contract work receipts that are itemized, report the amounts of the contract work that pertain to the allowable portions, (such as fuel, fertilizer) on the appropriate lines as allowable expenses. Report any amounts that are non‑allowable on line 9798.

Line 9804 - Other insurance premiums

Report the total amount of business-related insurance premiums you paid to insure your farm buildings, farm equipment (excluding machinery and motor vehicles), and business interruption. Include premiums for Alberta Spring Price Endorsement on this line. Do not include any premiums for hail insurance or livestock on this line.

In most cases, you cannot deduct your life insurance premiums. However, if you use your life insurance policy as collateral for a loan related to your farming business, you may be able to deduct a limited part of the premiums you paid. For more information, see Interpretation Bulletin IT-309, Premiums on Life Insurance Used as Collateral.

In most cases, you cannot deduct the amounts you paid to insure personal property such as your home or car. However, if you used the personal property for your farming business, you can deduct the business part of these costs. For more information, see Business-use-of-home expenses and line 9819, Motor vehicle expenses.

Premiums to private health services plans

You can deduct premiums paid to a private health services plan (PHSP) if you meet the following conditions:

  • your net income from self-employment (excluding losses and PHSP deductions) for the current or previous year is more than 50% of your total income*, or your income from sources other than self-employment** is $10,000 or less, for the current or previous year;
  • you are actively engaged in your farming business on a regular and continuous basis either individually or as a partner; and
  • the premiums are paid or payable to insure yourself, your spouse or common-law partner, or any member of your household.

* For the purposes of this claim, calculate your total income as follows:

  • the amount from line 150 of your 2010 or 2011 income tax return, whichever applies, before you deduct any amounts for PHSPs; minus
  • the amounts you entered on lines 207, 212, 217, 221, 229, 231, and 232 on your 2010 or 2011 income tax return, whichever applies.

** For the purposes of this claim, calculate your income from sources other than self-employment as follows:

  • the amount from line 150 of your 2010 or 2011 income tax return, whichever applies, before you deduct any amounts for PHSPs; minus
  • the amounts you entered on lines 135, 137, 139, 141, 143 (excluding business losses which reduced the amount on those lines), 207, 212, 217, 221, 229, 231, and 232 on your 2010 or 2011 income tax return, whichever applies.

You cannot claim a deduction for PHSP premiums if another person deducted the amount, or if you or anyone else claimed the premiums as a medical expense. For your premiums to be deductible, your PHSP coverage has to be paid or payable under a contract with one of the following:

  • an insurance company;
  • a trust company;
  • a person or partnership in the business of administering PHSPs;
  • a tax-exempt trade union of which you or the majority of your employees are members; or
  • a tax-exempt business organization or a tax-exempt professional organization of which you are a member.

For more information on PHSPs, see Interpretation Bulletin IT-339, Meaning of Private Health Services Plan (1988 and subsequent taxation years).


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Definitions

For the purposes of this claim, the following definitions apply:

  • Qualified employees are arm's length, full-time employees who have had three month's service since they last became employed with a business carried on by you, with a business in which you are a majority interest partner, or with a business carried on by a corporation affiliated with you. Temporary or seasonal workers are not qualified employees.
  • Arm's length employees are, generally, employees who are not related to you and who are not carrying on your business with you, (for example, as your partners). For more information, see Non-arm's length transaction.
  • Insurable persons are people to whom coverage is extended and who are:
    • qualified employees;
    • people who would be qualified employees if they had worked for you for three months; or
    • people carrying on your business (including yourself and your partners).

How to calculate your maximum deduction for PHSPs

The following sections explain how to calculate your maximum PHSP deduction based on whether you had employees, and whether you insured them throughout the year or part of the year. Find the section that describes your situation.

If you did not have any employees throughout 2011

Your PHSP deduction is restricted by a dollar limit on an annual basis. The limit is a maximum of:

  • $1,500 for yourself;
  • $1,500 for your spouse or common-law partner and household members 18 years of age or older at the start of the period when they were insured; and
  • $750 for household members under the age of 18 at the start of the period.

The maximum deduction is also limited by the number of days the person was insured. Calculate your allowable maximum for the year by using the following formula:

  A ÷ 365 × (B + C) , where:

A is the number of days during the period of the year when you insured yourself and household members, if applicable, but insured less than 50% of your employees;
B equals $1,500 × the number of household members 18 and over who were insured during that period;
C equals $750 × the number of household members under 18 who were insured during that period.


Example 1
Edwin was a sole proprietor who ran his farm alone in 2011. He had no employees and did not insure any of his household members. Edwin paid $2,000 for PHSP coverage in 2011. In his case, the coverage lasted from July 1 to December 31, 2011, a total of 184 days. Edwin's maximum allowable PHSP deduction is calculated as follows:

184 ÷ 365  × $1,500 = $756

Even though Edwin paid $2,000 in premiums in 2011, he can only deduct $756, because the annual limit is $1,500 and he was only insured for about half of the year. If he had been insured for the entire year, his deduction limit would be $1,500.

Example 2
Bruce was a sole proprietor who ran his farm alone in 2011. He had no employees. From January 1 to December 31, he insured himself, his wife, and his two sons. Bruce paid $1,800 to insure himself, $1,800 to insure his wife, and $1,000 for each of his sons. One of his sons was 15 years old and the other turned 18 on September 1. Bruce's PHSP deduction is limited to the following amounts:

  • for himself - $1,500;
  • for his wife - $1,500;
  • for his 15-year-old son - $750;
  • for the son who turned 18 - $750. This limit applies because he did not turn 18 until after the insured period began.

If you had employees throughout 2011

If you had at least one qualified employee throughout all of 2011, and at least 50% of the insurable persons in your business were qualified employees, your claim for PHSP premiums is limited in a different way. Your limit is based on the lowest cost of equivalent coverage for each of your qualified employees.

Use the following steps to calculate your maximum allowable claim for the PHSP premiums paid or payable for yourself, your spouse or common-law partner, and your household members.

For each of your qualified employees, use the following formula:

X × Y = Z, where:

X equals the amount you would pay to provide yourself, your spouse or common-law partner, and your household members with coverage equivalent to that provided to a particular employee, his or her spouse or common-law partner, and household members;
Y equals the percentage of the premium you pay for that particular employee;
Z equals your limit based on that particular employee.

Example
You have one qualified employee. To provide yourself with coverage equivalent to his, you pay a premium of $1,800. You pay 60% of your employee's premium. Your deduction limit for yourself is $1,080, calculated as follows:

$1,800 (amount X) × 60% (amount Y) = $1,080 (amount Z)

The maximum you can claim is $1,080, if you have only one qualified employee.

If you had more than one qualified employee, you have to do the X × Y = Z calculation for each employee. Your limit is then the least amount you calculate for each and every employee.

Example

You have three qualified employees, Jack, Jill, and Sue. The following table shows how much you would pay for coverage equivalent to each of theirs, and the percentage of each employee's premium that you pay.

Name of
employee

Cost of
equivalent
coverage for
yourself

 Percentage of
the employee's
premium
you pay
Jack $1,500 20%
Jill $1,800 50%
Sue $1,400 40%

You have to do the following three calculations.

For Jack: $1,500 (X) x 20% (Y) = $300 (Z)
For Jill:  $1,800 (X) x 50% (Y) = $900 (Z)
For Sue:  $1,400 (X) x 40% (Y) = $560 (Z)

Your limit is $300, the lowest of the amounts you calculated for the three employees.

Note
If you have a qualified employee with no coverage, you cannot claim your PHSP premiums as a deduction from self-employment income. You may, however, be able to claim them as medical expenses.

If you had employees throughout 2011 but the number of arm's length employees you insured was less than 50% of all the insurable persons in your business, your maximum allowable deduction is the lesser of the following two amounts:

Amount 1

Determine this amount by using the following formula:

 A  ÷ 365 × (B + C) , where:

A is the number of days during the period of the year when you insured yourself and household members, if applicable, but insured less than 50% of your employees;
B equals $1,500 × the number of household members 18 and over insured during that period;
C equals $750 × the number of household members under 18 insured during that period.

Amount 2

If you had at least one qualified employee, amount 2 is the lowest cost of equivalent coverage for each qualified employee, calculated by using the X x Y = Z formula. If you did not have at least one qualified employee, the limit in amount 1 will apply.

If you had employees for part of the year

For the part of the year when you had at least one qualified employee and your insurable arm's length employees represented at least 50% of all the insurable persons in your business, calculate your limit for that period the same way as in the previous section called If you had employees throughout 2011.

For the remainder of the year when you had no employees or when your insurable arm's length employees represented less than 50% of all the insurable persons in your business, your deduction limit for that remaining period is the lesser of the following two amounts:

Amount 1

  A ÷ 365 × (B + C) , where:

A is the number of days during the period of the year when you insured yourself and household members, if applicable, but insured less than 50% of your employees;
B equals $1,500 × the number of household members 18 and over who were insured during that period;
C equals $750 × the number of household members under 18 who were insured during that period.

Amount 2

If you had at least one qualified employee, amount 2 is the lowest cost of equivalent coverage for each qualified employee, calculated by using the X × Y = Z formula. If you did not have at least one qualified employee, the limit in amount 1 will apply.

Undeducted premiums

If you deduct only a part of your PHSP premium on line 9804, and you paid the premium in the year, you can include the undeducted balance in the calculation of your non-refundable medical expense tax credit. For more information, see "Line 330" in your General Income Tax and Benefit Guide.

Line 9805 - Interest (real estate, mortgage, other)

Report the total amount of interest you paid on money you borrowed to earn farming income, such as interest on a loan you used to buy a baler. However, do not include the interest on money you borrowed to buy a passenger vehicle used in your farming business. Include this amount under Line 9829 - Motor vehicle interest and leasing costs.

You may be able to deduct interest expenses for a property that you used for your farming business, even if you have stopped using the property for such purposes because you are no longer in the farming business. For more information, call 1-800-959-5525.

You can deduct interest you paid on any real estate mortgage you incurred to earn farming income, but do not deduct the principal part of loan or mortgage payments. Do not deduct interest on money you borrowed for personal purposes or to pay overdue income taxes.


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Line 9807 - Memberships/subscription fees

Report the amount of annual dues or fees you paid to keep your membership in a trade or commercial farming association. You cannot deduct club membership dues (including initiation fees) if the main purpose of the club is dining, recreation, or sporting activities.

You can also deduct fees for subscriptions to farming publications you use in your farming business.

If you received an AGR-1 slip with a positive amount in box 14, and the amount of your AgriStability program payment does not have your Administrative Cost Share (ACS) or your program fee already deducted, enter the amount you paid for your ACS and fee on this line.

Line 9808 - Office expenses

Report the amount of office expenses, such as stationery, invoices, receipt and accounting books, and any other office supplies.

Line 9809 - Legal and accounting fees

In most cases, you can deduct legal fees you incurred for your farming business. Also, you can deduct any accounting or bookkeeping fees you paid to have someone maintain your books and records, and to prepare your income tax return and GST/HST returns.

If you paid accounting and legal fees to file an appeal against an assessment or decision under the Income Tax Act, the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP), the Employment Insurance Act, or the Unemployment Insurance Act, do not deduct them here. Deduct them on line 232 of your income tax return instead. However, you have to subtract any reimbursement you received from the fees and enter only the result on line 232. If you received a reimbursement in 2011 for these types of fees, which you deducted in a previous year, report the amount of the reimbursement on line 130 of your income tax return.

Do not deduct any legal or other fees you incurred to buy property, such as land, buildings, and equipment. Add these fees to the adjusted cost base of the property if the property is used in your farming business.

For more information, see Interpretation Bulletin IT-99, Legal and Accounting Fees.

Line 9810 - Property taxes

Report the total amount of land, municipal, and realty taxes you paid for property used in your farming business. Since the municipal tax for the farmhouse is a personal expense, you cannot deduct it unless you meet the conditions we explain in Business-use-of-home expenses.

If you are repaying a loan for land drainage through your property tax payments to your township, you cannot include the amount you repaid as part of your property tax expense.

Line 9811 - Rent (land, buildings, pastures)

Report the total amount of rent expense you paid for land, buildings, and pastures you used for your farming business.

  • If you farmed on a crop-share basis and paid your landlord a share of the crop, add the fair market value of the crops you gave your landlord to your income as a commodity sale. This amount should represent what you would have paid in cash to your landlord for rent. Deduct the same amount as a commodity purchase.

Line 9816 - Non-arm's length salaries

Keep a detailed record of the amounts you paid to each related person. For a definition of related persons, see Line 9815 - Arm's length salaries. As the employer, include your share of Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, Employment Insurance premiums, and provincial parental insurance plan (PPIP) premiums. Do not deduct the amounts you withheld from remuneration, since you already deducted them in the amount you claimed as wages. Do not include the cost of board.

The terms "salaries" and "wages" are used interchangeably in the description of this non-allowable expense.

You can deduct the wages you paid to your child, as long as you meet all of these conditions:

  • you paid the wages by cheque, in cash or in kind;
  • the work your child did was necessary for you to earn farm income;
  • the wages were reasonable when you consider your child's age; and
  • the amount you paid is what you would have paid someone else to do the same work.

Keep documents to support the wages you paid to your child. If you paid your child by cheque, keep the cancelled cheque. If you paid cash, have your child sign a receipt.

If you paid wages in kind to non-arm's length employees (including your spouse or children), report such wages in the same manner that is described in line 9815, Arm's length salaries.

You can deduct wages you paid to your spouse or common-law partner, as long as that person is not a partner in your business and you follow the same rules that apply to wages paid to your child. If you were a partner of a farm partnership that employed your or your partner's spouse or common-law partner, the farm partnership can deduct that person's wages if it incurred the expense to earn farming income and the wages were reasonable.

Line 9819 - Motor vehicle expenses

Business use of a motor vehicle

If you used your motor vehicle for personal and business reasons, you can deduct the part of your expenses that was for farming-business use. Farming-business use includes things such as trips to pick up parts and farm supplies, or to deliver grain. If you did not live on your farm, the travel between the farm and your home is not considered business travel.

Keep a record of the total kilometres you drive and the kilometres you drive for farming-business use. Also, keep track of what it costs you to run and maintain the motor vehicle for your fiscal period.

Do not include any of the following:

  • interest on the money you borrow for a motor vehicle;
  • leasing costs for a motor vehicle; or
  • the capital cost allowance (CCA).

For more information on interest and leasing costs, see line 9829. For more information on CCA, see Chapter 4.

The kind of vehicle you own may affect the expenses you can deduct. For income tax purposes, there are two definitions for vehicles:

  • motor vehicles; and
  • passenger vehicles

A motor vehicle is an automotive vehicle designed or adapted for use on highways or streets. A motor vehicle does not include a trolley bus or a vehicle designed or adapted to be operated only on rails.

A passenger vehicle is a motor vehicle designed or adapted primarily to carry people on highways and streets. It seats a driver and no more than eight passengers. Most cars, station wagons, vans, and some pick up trucks are passenger vehicles. They are subject to the limits for CCA, interest, and leasing. A passenger vehicle does not include:

  • an ambulance;
  • clearly marked police and fire emergency response vehicles;
  • a motor vehicle you bought to use more than 50% as a taxi, a bus used in the business of transporting passengers, or a hearse used in a funeral business;
  • a motor vehicle you bought to sell, rent, or lease in a motor vehicle sales, rental, or leasing business;
  • a motor vehicle (except a hearse) you bought to use in a funeral business to transport passengers;
  • a van, pick-up truck, or similar vehicle that seats no more than the driver and two passengers and that, in the tax year you bought or leased it, was used more than 50% to transport goods and equipment to earn income;
  • a van, pick-up truck, or similar vehicle that, in the tax year you bought or leased it, was used 90% or more to transport goods, equipment, or passengers to earn income;
  • a pick-up truck that, in the tax year you bought or leased it, was used more than 50% to transport goods, equipment, or passengers while earning or producing income at a remote work location or at a special work site that is at least 30 kilometres from the nearest community having a population of at least 40,000 persons; and
  • a clearly marked emergency medical service vehicle used to carry paramedics and their emergency medical equipment.

To help you determine what type of vehicle you have, see the following chart. The chart does not cover every situation, but it gives some of the main definitions for vehicles bought or leased, and used to earn business income.

Vehicle definitions
Type of vehicle Seating (includes driver) Business use in year bought or leased Vehicle definition
Coupe, sedan, station wagon, sports car, or luxury car 1 to 9 1% to 100% passenger
Pick up truck used to transport goods or equipment 1 to 3 more than 50% motor
Pick-up truck (other than above) 1 to 3 1% to 100% passenger
Pick-up truck with extended cab used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Pick-up truck with extended cab
(other than above)		 4 to 9 1% to 100% passenger
Sport-utility used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Sport-utility (other than above) 4 to 9 1% to 100% passenger
Van or minivan used to transport goods or equipment 1 to 3 more than 50% motor
Van or minivan (other than above) 1 to 3 1% to 100% passenger
Van or minivan used to transport goods, equipment, or passengers 4 to 9 90% or more motor
Van or minivan (other than above) 4 to 9 1% to 100% passenger

Example
Murray's farming business has a December 31 year-end. He owns a truck that is not a passenger vehicle. He uses the truck to pick up supplies and equipment. Murray kept the following records for his 2011 fiscal period:

Farming-business kilometres 27,000 km
Total kilometres 30,000 km
Expenses:    
Gasoline and oil $ 3,500  
Repairs and maintenance 500  
Insurance 1,000  
Licence and registration fees 100  
Total expenses for the truck $ 5,100  

This is how Murray determines the motor vehicle expenses he can deduct in his 2011 fiscal period:

27,000 (farming-business kilometres) ÷ 30,000 (total kilometres)  x  $5,100  =  $4,590

Murray enters $4,590 on line 9819 of the form as motor vehicle expenses in his 2011 fiscal period. He calculates and deducts the interest on the loan to buy his truck separately on line 9829.

Note
You may have received insurance proceeds to pay for the cost of repairs. If the insurance proceeds compensated you for damages to a motor vehicle for which you claimed CCA, and you used all of them to repair the vehicle within a reasonable period of time, claim a deduction for the amount spent on repairs on line 9819. You will, however, also have to include the insurance proceeds as income on line 9600. If you did not spend all the insurance proceeds on repairs within a reasonable length of time, include the remainder as proceeds of disposition in column 4 of Area A, "Calculation of capital cost allowance (CCA)" on Form T1175, Farming - Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses. For more information, see Column 4 - Proceeds of disposition in the year.

For more information on motor vehicle expenses, see Interpretation Bulletin IT-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Simplified logbook for motor vehicle expense provisions

Following a Federal initiative to reduce paper burden on businesses, you can choose to maintain a full logbook for one complete year to establish the business use of a vehicle in a base year.

After one complete year of keeping a logbook (starting in 2009 or thereafter) to establish a base year, a three month sample logbook can be used to extrapolate business use for the entire year, providing the usage is within the same range (within 10%) of the results of the base year. Businesses will need to demonstrate that the use of the vehicle in the base year remains representative of its normal use.

For more information about the sample logbook policy, go to Documenting the use of a vehicle.


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More than one vehicle

If you used more than one motor vehicle for your farming business, keep a separate record that shows the total kilometres and farming-business kilometres you drove and the cost to run and maintain each vehicle. Calculate each vehicle's expenses separately.

Line 9820 - Small tools

If a tool costs you less than $500, deduct its full cost. If it costs $500 or more, add the cost to your CCA charts on Form T1175 as class 8 property. For more information, see Chapter 4.

Note
Small tools that cost less than $500 are fully deductible in the year you buy them. You can claim them as an expense on line 9820 or claim capital cost allowance (CCA) by including them in class 12 (with a rate of 100%). Either method is acceptable, but do not claim the amount twice. For information on CCA, see Chapter 4.

Line 9821 - Soil testing

Report the amount of expenses you incurred for testing soil samples.

Line 9823 - Licences/permits

Report the total of annual licence and permit fees that you incurred to run your business.

Line 9824 - Telephone

Do not deduct the basic monthly rate of your home telephone. However, you can deduct any long-distance telephone calls you made on your home telephone for farming-business purposes.

If you have a separate telephone to use in your business and you use it for business calls only, you can deduct its basic monthly rate.

Line 9825 - Quota rental (tobacco, dairy)

Report the amount of expenses you incurred for quota rentals in the fiscal year.

Line 9826 - Gravel

Report the amount of expenses you incurred for gravel used to earn farming income in the fiscal year.

Line 9827 - Purchases of commodities resold

Report purchases of commodities that you bought for resale and then sold. Report the corresponding sales of commodities purchased for resale on line 9612, Resales of commodities purchased.

Report purchases of commodities that you bought for resale but have not sold yet.

Line 9829 - Motor vehicle interest and leasing costs

Report the leasing costs for your motor vehicle or the interest on the money you borrowed for a motor vehicle.

If you used a passenger vehicle to earn farming income, there is a limit on the amount of interest you can deduct. Whether you use the cash or accrual method to determine your income, complete the following chart to calculate the interest you can deduct. If you used your passenger vehicle for both personal and farming-business use, complete the chart before you determine how much interest you can deduct as an expense.

Interest chart
Enter the total interest you paid (cash method) or that is payable
(accrual method) in your fiscal year		 $            A
$10 * × _____ number of days in your fiscal year for which interest was paid or payable $   B
Your available interest expense is either A or B, whichever amount is less $    
*For passenger vehicles bought:
  • from September 1, 1989, to December 31, 1996, and from 2001 to 2011, use $10; and
  • from 1997 to 2000, use $8.33

Example
Heather's farming business has a December 31 year-end. On January 1, 2011, she bought a new passenger vehicle that she uses for both personal and business use. She borrowed money to buy the vehicle, and the interest she paid in her 2011 fiscal period was $2,200.

Since the car Heather bought is a passenger vehicle, there is a limit on the interest she can deduct. Heather's available interest is either of these two amounts, whichever is less:

  • $2,200 (the total interest she paid in her 2011 fiscal period); and
  • $3,650 ($10 x  365 days).

Heather drove 20,000 kilometres on farming business out of the total 25,000 kilometres she drove in her 2011 fiscal period. Here is how Heather determines the motor vehicle interest expenses she can deduct for her 2011 fiscal period:

20,000 (farming-business kilometres) ÷ 25,000 (total kilometres)  x  $2,200  =  $1,760

Heather enters $1,760 on line 9829, as motor vehicle interest for her 2011 fiscal period.

When you use a passenger vehicle to earn farming business income, there is a limit on the amount of the leasing costs you can deduct. To calculate your eligible leasing costs, complete the chart Eligible leasing costs for passenger vehicles.

The lease agreement for your passenger vehicle may include items such as insurance, maintenance, and taxes. In this case, include them as part of the lease charges on line A when you complete the chart.

Note
Generally, leases include taxes such as GST and PST, or HST. Include them on line A. If you pay for items such as insurance and maintenance separately, do not include them in the amount on line A. Claim them separately on the appropriate line on Form T1163.

On July 1, 2010, the HST rate for Nova Scotia increased from 13% to 15%. As a result, a resident of Nova Scotia who is making lease payments in 2010 that are calculated on a monthly basis, will need to complete the chart twice; one for payments made before July 1, 2010, and the second for payments made after June 30, 2010. You will then add the two results together to determine your eligible leasing costs for the year.

The following example will show you how to calculate your eligible leasing costs.

Example
On July 1, 2011, Meadow started leasing a car that is a passenger vehicle. She used the car to earn farming income. Her business has a December 31 fiscal year end. The PST rate for her province is 8% and GST is 5%. Meadow entered the following for 2011:

Monthly lease payment $ 500  
Lease payments for 2011 $ 3,000  
Manufacturer's suggested list price $ 33,000  
Number of days in 2011 she leased the car   184  
GST and PST on $30,000 $ 3,900  
GST and PST on $35,294 $ 4,588  
GST and PST on $800 $ 104  
Total lease charges incurred in Meadow's 2011 fiscal period for the vehicle $ 3,000 1
Total lease payments deducted in fiscal periods before 2011 for the vehicle $ 0 2
Total number of days the vehicle was leased in 2011 and previous fiscal periods   184 3
Manufacturer's list price $ 33,000 4
The amount on line 4 or
   $39,882 ($35,294 + $4,588), whichever is more
   $39,882 x 85%		 $ 33,900 5
($904 x 184) ÷ 30 $ 5,545 6
($33,900 x $3,000) ÷ $33,900 $ 3,000 7

Meadow's eligible leasing cost is either line 6 or 7, whichever amount is less. In this case, her allowable claim is $3,000.



Eligible leasing costs for passenger vehicles 
Total lease charges incurred in your 2011 fiscal period for the vehicle $           1
Total lease payments deducted before your 2011 fiscal period for the vehicle $        2
Total number of days the vehicle was leased in your 2011 and previous fiscal periods          3
Manufacturer's list price $        4
The amount on line 4 or ($35,294 + GST and PST, or $35,294 + HST), ______x 85% = $        5
[($800 + GST and PST, or $800 + HST) x  line 3] ÷ 30 ______- line 2: ______ = $        6
[($30,000 + GST and PST, or $30,000 + HST) x  line 1] ÷ line 5 $        7
Eligible leasing cost: Line 6 or line 7, whichever is less $         

If you entered into a lease agreement for a passenger vehicle before January 1, 2001, make these changes to the chart:

Fiscal year you entered into lease agreement After 1990 and before 1997 1997 1998 and 1999 2000
  • when calculating line 5, replace $35,294 with:
 $28,235 $29,412 $30,588 $31,765
  • when calculating line 6, replace $800 with:
 $650 $550 $650 $700
  • when calculating line 7, replace $30,000 with:
 $24,000 $25,000 $26,000 $27,000

* Use a GST rate of 5% or the HST rate applicable to your province.

Repayments and imputed interest

When you lease a passenger vehicle, you may have a repayment owing to you, or you may have imputed interest. If this is the case, you will not be able to use the chart.

Imputed interest is interest that would be owing to you if interest were paid on the money you deposited to lease a passenger vehicle. Calculate imputed interest for leasing costs on a passenger vehicle only if all the following apply:

  • you made one or more deposits for the leased passenger vehicle;
  • the deposit is, or the deposits are, refundable; and
  • the total of the deposits is more than $1,000.

For more information, see Interpretation Bulletin IT-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Joint ownership of a passenger vehicle

If you and someone else owned or leased the same passenger vehicle, the limits on CCA, interest, and leasing costs still apply. The amount you can deduct as joint owners cannot be more than the amount one person owning or leasing the passenger vehicle could deduct. Each of you has to claim expenses in proportion to your share of the passenger vehicle. Your share is based on the part of the purchase price or lease costs that you paid.

Line 9935 - Allowance on eligible capital property

We explain how to determine this allowance in Chapter 5.

Line 9936 - Capital cost allowance

Report the amount of capital cost allowance (CCA) you calculate on all the eligible assets used in your farming operation. To calculate your CCA claim, use the charts on Form T1175, Farming - Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses. For information on how to complete these charts, see Chapter 4.

Line 9937 - Mandatory inventory adjustment - previous year

If you included an amount for the mandatory inventory adjustment (MIA) on line 9942 in your 2010 fiscal period, deduct the amount as an expense on line 9937 in your 2011 fiscal period. Do not include the accrual inventories from your financial statements on this line. For information on the accrual method, see the following:

Line 9938 - Optional inventory adjustment - previous year

If you included an amount for the optional inventory adjustment (OIA) on line 9941 in your 2010 fiscal period, deduct the amount as an expense on line 9938 in your 2011 fiscal period. For more information on OIA, see the explanation for line 9941.

Do not include accrual inventories from your financial statements on this line. For information on the accrual method, see the following:

Line 9896 - Other (specify)

The expenses listed on the form are only the most common ones. If you have other farming expenses, non-allowable for program purposes that are not listed on the form, enter the total amount on line 9896. Then list the items on the blank lines provided under line 9896. You can find more information about other expenses in Guide T4002, Business and Professional Income.

You may have received an overpayment from one of the programs identified on lines 9540 and 9544. Use line 9896 to report any overpayments that you repaid.

Summary of expenses

Copy totals C, D, and E from the bottom of each of the three tables on page 4 of the form. Add them to get your total expenses.


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Summary of income and expenses

Line 9959 - Gross farming income

Report your gross farming income from line 9959 to line 168 of your income tax return. If you also completed Form T1164, add the totals from line 9959 on your Form T1163 and all your T1164 forms. Enter the result on line 168 of your income tax return.

Line 9969 - Net income (loss) before adjustments

If you are a partner of a partnership, this amount is the net farming-business income of the partnership. If the amount is negative, enter the amount in brackets.

Line 9940 - Other deductions

You can enter any business-use-of-home expenses that you are carrying forward from a previous fiscal period, as long as you meet one of the following conditions:

  • the work space is your principal place of business; or
  • you use the space only to earn your farming-business income, and you use it on a regular, ongoing basis to meet your customers.

For more information, see line 9934.

Line 9941 - Optional inventory adjustment- current year

If you want to include an inventory amount in income, read this section. By making the optional inventory adjustment (OIA), you can include in your income an amount up to the fair market value of your inventory minus the mandatory inventory adjustment (MIA). You can only make the OIA if you use the cash method. For the definitions of inventory and fair market value, see line 9942.

For the OIA, unlike for the MIA, the inventory does not have to be purchased inventory. It is all the inventory you still have at the end of your 2011 fiscal period.

Report the amount of your OIA on line 9941. You must deduct this amount as an expense in your next fiscal period.

Line 9942 - Mandatory inventory adjustment - current year

The mandatory inventory adjustment (MIA) decreases your net loss if you held inventory at the end of your fiscal period. Read this section even if you do not have to make the MIA. This section will show you how to determine the value of the farm inventory you bought and still have at the end of your 2011 fiscal period. You will need to know this value if you have to make the MIA this year or in the future.

You have to make the MIA if all of the following apply:

  • you use the cash method to report your income. Do not include accrual inventories from your financial statements on line 9942. For information on the accrual method, see the following:
  • you have a net loss on line 9969 of the form; and
  • you bought inventory and still have it at the end of your 2011 fiscal period. This does not refer only to inventory that you bought in 2011. It includes inventory that you had previously bought and still owned at the end of your 2011 fiscal period.

Your MIA is one of these two amounts, whichever is less:

  • the net loss before adjustments on line 9969; or
  • the value of the purchased inventory you still have at the end of your 2011 fiscal period.

To calculate your MIA, complete charts 1, 2, 3, and 4 in this section. Once you have completed Chart 4, enter the amount on line 9942. For more information, see Interpretation Bulletin IT-526, Farming - Cash Method Inventory Adjustments.

In your next fiscal period, you will deduct from your farming income the MIA you add to your net loss in your 2011 fiscal period.

Note
If you bought a specified animal (as defined below) in a non-arm's length transaction, we consider that you bought the animal in the same year and at the same price for which the seller bought it. We define non-arm's length transaction.


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Definitions

To value your inventory, you need to know the meaning of the following terms:

Inventory is a group of items that a business holds and intends either to consume or sell to its customers.

Farm inventory is tangible property that is:

  • held for sale, such as harvested grain;
  • used in the production of saleable goods, such as seed or feed; or
  • in the process of being produced, such as standing crops or feeder livestock.

Seed that you have already planted and fertilizer or chemicals that you have already applied are no longer part of your inventory items. They are included in the value of the standing crops that may be included in the OIA.

Purchased inventory is inventory you have bought and paid for.

Specified animals are horses. You may also choose to treat cattle you registered under the Animal Pedigree Act as specified animals. To make this choice, put a note on your income tax return saying you want to treat the animal this way. If you treat an animal on a return as a specified animal, we will continue to treat it this way until you sell it.

Cash cost is the amount you paid to buy your inventory.

Fair market value is generally the highest dollar value you can get for your property in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who are dealing at arm's length with each other. We define non-arm's length transaction.

Valuing your purchased inventory

To value your purchased inventory, read the text that follows and the example of how to complete the MIA charts. There are blank charts for you to use. Keep these charts as part of your records. Except for specified animals, you have to value any purchased inventory you bought before or during your 2011 fiscal period at one of these two amounts, whichever is less:

  • the cash cost; or
  • the fair market value.

To determine which amount is less, separately compare each item or group of items in the inventory.

Value at one of the following amounts the specified animals you bought in your 2011 fiscal period and still have at the end of this period:

  • the cash cost;
  • 70% of the cash cost; or
  • any amount between these two amounts.

Value at one of the following amounts the specified animals you bought before your 2011 fiscal period and still have at the end of this period:

  • the cash cost;
  • 70% of:
    • the value of the specified animals for MIA purposes as determined at the end of your 2010 fiscal period; plus
    • any amounts you paid in your 2011 fiscal period toward the purchase price; or
  • any amount between these two amounts.

Example
Doug started his farming business in 1996 and uses the cash method to report his income. His year-end is December 31. Doug shows a net loss of $55,000 on line 9969. Doug has purchased inventory at the end of his 2011 fiscal period. This means he has to decrease his net loss by the MIA. Doug made a chart for the cash cost of his livestock that is purchased inventory at the end of his 2011 fiscal period.

Livestock
Year of
purchase		 Cost of
purchase		 Amount Doug paid
by the end of his
2011 fiscal period
2011 $30,000  $25,000 
2010 $26,000  $26,000*
2009 $22,000  $22,000 
2008 $20,000  $20,000 
* For livestock bought in his 2010 fiscal period, Doug paid $19,000 in 2010 and $7,000 in 2011.

Doug's other inventory is fertilizer, seed, and fuel. The cash cost is the same as the fair market value for this inventory. Its value is as follows:

  • Bought in his 2011 fiscal period
   $ 15,000
  • Bought in his 2010 fiscal period
   $  6,000
  • Bought in his 2009 fiscal period
   $  5,000

At the end of his 2008 fiscal period, Doug did not have any other inventory that he bought before his 2008 fiscal period. Doug has registered his livestock under the Animal Pedigree Act. He wants to treat these animals as specified animals. Doug completes Chart 1 as follows:

Chart 1
Cash cost of purchased inventory
Doug enters the amount he paid by the end of his 2011 fiscal period for the specified animals he bought:
Fiscal period Cash cost
  • in his 2011 fiscal period
 $ 25,000 A
  • in his 2010 fiscal period
 $ 26,000 B
  • in his 2009 fiscal period
 $ 22,000 C
  • in his 2008 fiscal period
 $ 20,000 D
  • before his 2008 fiscal period
 $ 0 E
Doug enters the amount he paid by the end of his 2011 fiscal period
for all other inventory he bought:
  • in his 2011 fiscal period
 $ 15,000 F
  • in his 2010 fiscal period
 $ 6,000 G
  • in his 2009 fiscal period
 $ 5,000 H
  • in his 2008 fiscal period
 $ 0 I
  • before his 2008 fiscal period
 $ 0 J

Doug now knows the cash cost of his purchased inventory, including his specified animals. He uses these amounts to calculate the value of his purchased inventory at the end of his 2011 fiscal period. To do this, he completes Charts 2, 3, and 4 as follows:

Chart 2
Value of purchased inventory for specified animals
The small letters in front of each line match the paragraphs at the end of this chart. These paragraphs explain how Doug calculates the number on each line.
Inventory bought in his 2011 fiscal period
Doug enters an amount that is not more than the amount on line A, but not less than 70% of this amount.		 a) $ 20,000 K
Inventory bought in his 2010 fiscal period
Doug enters an amount that is not more than the amount on line B, but not less than 70% of the total of the value at the end of his 2010 fiscal period, plus any amounts he paid in his 2011 fiscal period toward the purchase price.		 b) $ 14,210 L
Inventory bought in his 2009 fiscal period
Doug enters an amount that is not more than the amount on line C, but not less than 70% of the total of the value at the end of his 2010 fiscal period, plus any amounts he paid in his 2011 fiscal period toward the purchase price.		 c) $ 7,546 M
Inventory bought in his 2008 fiscal period
Doug enters an amount that is not more than the amount on line D, but not less than 70% of the total of the value at the end of his 2010 fiscal period, plus any amounts he paid in his 2011 fiscal period toward the purchase price.		 d) $ 4,802 N
Inventory bought before his 2008 fiscal period e) $ 0 O

a) Doug chose $20,000, which is between the cash cost of $25,000 and $17,500 (70% of the cash cost).
b) Doug chose to value the inventory he bought in his 2010 fiscal period at 70% of the cash cost. Therefore, the value of this inventory at the end of his 2010 fiscal period was $13,300 ($19,000 x 70%). Remember, Doug paid $19,000 for these specified animals in 2010. He paid $7,000 in 2011.

For his 2011 fiscal period, Doug chose to value the inventory he bought in his 2010 fiscal period at 70% of the total of the value at the end of the 2010 fiscal period plus any amounts he paid in his 2011 fiscal period toward the purchase price. Therefore, the amount he enters on line L is $14,210 [70% x ($13,300 + $7,000)]. He could choose any amount between the cash cost of $26,000 and the lowest acceptable inventory value of $14,210.
c)

Doug chose to value the inventory he bought in his 2009 fiscal period at 70% of the cash cost. Therefore, the value of this inventory at the end of his 2009 fiscal period was $15,400 ($22,000 x 70%).

For his 2010 fiscal period, Doug chose to value the inventory he bought in his 2009 fiscal period at 70% of the total of the value at the end of his 2009 fiscal period. Therefore, the value of this inventory at the end of his 2010 fiscal period was $10,780 ($15,400 x 70%).

For his 2011 fiscal period, Doug chose to value the inventory he bought in his 2009 fiscal period at 70% of the total of the value at the end of his 2010 fiscal period. Therefore, the amount he enters on line M is $7,546 ($10,780 x 70%). He could choose any amount between the cash cost of $22,000 and the lowest acceptable inventory value of $7,546.

d)

Doug chose to value the inventory he bought in his 2008 fiscal period at 70% of the cash cost. Therefore, the value of this inventory at the end of his 2008 fiscal period was $14,000 ($20,000 x 70%).

For his 2009 fiscal period, Doug chose to value the inventory he bought in his 2008 fiscal period at 70% of the total of the value at the end of his 2008 fiscal period. Therefore, the value of this inventory at the end of his 2009 fiscal period was $9,800 ($14,000 x 70%).

For his 2010 fiscal period, Doug chose to value the inventory he bought in his 2008 fiscal period at 70% of the total of the value at the end of his 2009 fiscal period. Therefore, the value of this inventory at the end of his 2010 fiscal period was $6,860 ($9,800 × 70%).

For his 2011 fiscal period, Doug chose to value the inventory he bought in his 2008 fiscal period at 70% of the total of the value at the end of his 2010 fiscal period. Therefore, the amount he enters on line N is $4,802 ($6,860 x 70%). He could choose any amount between the cash cost of $20,000 and the lowest acceptable inventory value of $4,802.
e) Doug had not purchased any specified animals before his 2008 fiscal period.


Chart 3
Value of purchased inventory for all other inventory
Inventory bought in his 2011 fiscal period
Doug enters the amount on line F or the fair market value, whichever is less.		 $ 15,000 P
Inventory bought in his 2010 fiscal period
Doug enters the amount on line G or the fair market value, whichever is less.		 $ 6,000 Q
Inventory bought in his 2009 fiscal period
Doug enters the amount on line H or the fair market value, whichever is less.		 $ 5,000 R
Inventory bought in his 2008 fiscal period
Doug enters the amount on line I or the fair market value, whichever is less.		 $ 0 S
Inventory bought before his 2008 fiscal period
Doug enters the amount on line J or the fair market value, whichever is less.		 $ 0 T

Chart 4
Calculation of MIA
Doug enters the amount of his net loss from line 9969 $ 55,000 U
Doug enters the value of his inventory from charts 2 and 3:  
  • the amount on line K
 $ 20,000  
  • the amount on line L
 $ 14,210  
  • the amount on line M
 $ 7,546  
  • the amount on line N
 $ 4,802  
  • the amount on line O
 $ 0  
  • the amount on line P
 $ 15,000  
  • the amount on line Q
 $ 6,000  
  • the amount on line R
 $ 5,000  
  • the amount on line S
 $ 0  
  • the amount on line T
 $ 0  
Total value of inventory $ 72,558 $ 72,558 V
MIA - Doug enters the amount on line U or line V, whichever is less. $ 55,000 W

The MIA that Doug uses for his 2011 fiscal period will be the same amount he deducts from his farming income when he calculates his income for his next fiscal period.

Enter the figure from line W of Chart 4 on line 9942 of Form T1163.

Partnership information - Your share of line a

Show your share of the amount from line a. In the chart Partnership information, enter the following information:

  • their AgriStability and AgriInvest Participant Identification Number (PIN), if they have one, and
  • the name and address of each partner;
  • each partner’s percentage of the partnership.

Line 9974 – GST/HST rebate for partners received in the year

If you received a GST/HST rebate for partners, report the amount of the rebate that relates to eligible expenses other than CCA on line 9974, in the section "Summary of income and expenses," of Forms T1163 or T1164 in the year you receive it.

In the chart Partnership information, show the full names of the other partners, as well their percentages of ownership shares in the partnership.

Line 9934 - Adjustment to business-use-of-home expenses

If you have claimed business-use-of-home expenses (including a carry forward from a previous year claimed on line 9940) in arriving at your net income (loss), and the amount on line 9944 is negative (a loss), you must make an adjustment on line 9934. Enter one of the following amounts, whichever is less:

  • the expenses you claimed from the business use of your home, including current-year expenses and any expenses you are carrying forward from previous years; or
  • the amount of your loss on line 9944.

This does not mean that you cannot use your claim for business-use-of-home expenses. In a future year, you can use any expense you could not deduct in your 2010 fiscal period, as long as you meet one of these conditions:

  • the work space is your principal place of business; or
  • you use the space only to earn your farming business income, and you use it on a regular and ongoing basis to meet your customers.

Use the chart on Form T1175 to calculate your allowable claim for business-use-of-home expenses. In Area B, be sure to include any part of the CCA that you claimed for the business use of your home.

For more information, see Interpretation Bulletin IT-514, Work Space in Home Expenses.

Line 9946 - Net farming income or (loss)

Report your net farming income or loss from line 9946 on line 141 of your income tax return if:

Note
If you have more than one farming operation or additional expenses that apply to partnerships, add the amounts from line 9946 of Form T1163 and Form T1164. Enter the total of these amounts on line 141 of your income tax return.

If you have a loss, enter the amount in brackets. For more information about losses, see Chapter 6

You may have to adjust the figure from line 9946 before entering it on your return if your fiscal year-end is not December 31, 2011. See Guide RC4015, Reconciliation of Business Income for Tax Purposes, to calculate the amount of farming income to report on your 2011 return. The guide includes Form T1139. You may have filed Form T1139 with your 2010 return. If so, you probably have to complete the same form for 2011.

Partnership information chart

Complete the chart if you are a partner of a partnership. Start with your own name on the first line and then add the names of the other partners.

AgriStability/AgriInvest Participant Identification Number (PIN)

Enter the PIN (if available) for each individual, corporate or co‑operative partner, including yourself. If your partner did not participate in AgriStability or AgriInvest, but previously participated in CAIS or the Net Income Stabilization Account (NISA), this number will be the same as their PIN in either of those programs.

Partners' names

Report the first and last names of each individual, starting with your own. If a corporation, or co-operative is a partner, report the name of the corporation or co-operative. If another partnership is a partner, report the names of the partners in that partnership.

Percentage (%) share

Report each partner's percentage share based on the allocation of partnership net income/loss reported to us unless one of the following conditions is met:

  • interest has been paid on the partners' capital; or
  • salaries have been paid to partners.

In these cases, exclude these amounts when you determine the partner's percentage share.

If another partnership is a partner, determine the beneficial ownership of each individual partner. (See the following example).

Example
The Fred and Mary Smith Partnership (a 50/50 partnership) owns 60% of the Sunny Skies Partnership. Therefore, Fred and Mary Smith would each have a 30% beneficial ownership in the Sunny Skies Partnership.



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Chapter 4 - Capital Cost Allowance (CCA)

What is CCA?

You might acquire a depreciable property, such as a building, machinery, or equipment, to use in your farming business. You cannot deduct the cost of the property when you calculate your net farming income for the year. However, since these properties may wear out or become outdated over time, you can deduct their cost over a period of several years. The deduction for this is called capital cost allowance (CCA).

Definitions

To calculate your CCA claim, you will need to know the meaning of the following terms.

Available for use

You can claim CCA on a depreciable property only when it becomes available for use.

Property, other than a building, usually becomes available for use on the earliest of the following dates:

  • the date you first use the property to earn income;
  • the second tax year after the year you acquire the property;
  • the time just before you dispose of the property; or
  • the date the property is delivered or made available to you. It must be capable of producing a saleable product or service, or of performing the function for which you acquired it.

Example
If you buy a tractor and the seller delivers it to you in 2011, but it was not in working order until 2012, you cannot claim CCA on it until 2012. However, if you buy a tractor and the seller delivers it to you in working order in 2011, but you did not use it until 2012; you can still claim CCA in 2011 because it was available for use.

A building, or part of a building, usually becomes available for use on the earliest of the following dates:

  • the date you begin using 90% or more of the building for the purpose you acquired it;
  • the date the construction is completed;
  • the second tax year after the year you acquire the building; or
  • the time just before you dispose of the building.

We consider any construction, renovation, or alteration to a particular building to be a separate building for the purposes of applying the available-for-use rules.

Capital cost

This is the amount on which you first claim CCA. The capital cost of a depreciable property is usually the total of:

  • the purchase price not including the cost of land, which is not depreciable (see Land);
  • the part of your legal, accounting, engineering, installation, and other fees that relates to the purchase or construction of the depreciable property (not including the part that applies to land);
  • the cost of any additions or improvements you made to the depreciable property after you acquired it, provided you have not claimed these costs as a current expense; and
  • soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating, or altering the building, provided you have not claimed these costs as a current expense.

Depreciable property

Depreciable property is any property on which you can claim CCA. You usually group depreciable properties into classes. For example, diggers, drills, and tools that cost $500 or more belong to class 8. You have to base your CCA claim on a rate assigned to each class of property.

For the most common classes of depreciable properties you could use in your farming operation, see Classes of depreciable property and the Capital Cost Allowance (CCA) Rates chart.

Fair market value (FMV)

Fair market value is generally the highest dollar value that you can get for your property in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who are dealing at arm's length with each other.

Non-arm's length transaction

A non-arm's length transaction includes a transaction between parties who are related, such as members of a family. An example of a non-arm's length transaction would be the sale of property between a husband and wife, or a parent and child. For more information, see Interpretation Bulletin IT-419, Meaning of Arm's Length.

Proceeds of disposition

Your proceeds of disposition are usually the amount you receive, or that we consider you to have received, when you dispose of your depreciable property. This could include compensation you receive for depreciable property that has been destroyed, expropriated, damaged, or stolen. For more information about proceeds of disposition, see Interpretation Bulletins IT-220, Capital Cost Allowance - Proceeds of Disposition of Depreciable Property, and its Special Release, and IT-285, Capital Cost Allowance - General Comments.

Undepreciated capital cost (UCC)

The UCC is generally the amount left after you deduct CCA from the capital cost of a depreciable property. The CCA you claim each year reduces the UCC of the property each year.

How much CCA can you claim?

Base your CCA claim on your fiscal period, not the calendar year. The amount of CCA you can claim depends on the type of property you own, and the date you acquired it. You group the depreciable property you own into classes. A different rate of CCA applies to each class.

We explain the most common classes of depreciable property in Classes of depreciable property. We list most of the classes of depreciable property and the rates for each class in the chart Capital Cost Allowance (CCA) Rates.

Other things you should know about CCA:

You were asking?

Q. If I start a farming business on June 1, 2011, how do I determine my CCA claim to December 31, 2011?
A. Since the period is shorter than 365 days, you have to prorate your CCA claim. Calculate your CCA using the rules we discuss in this chapter. However, base your CCA claim on the number of days in your fiscal period compared to 365 days.

In your case, your fiscal period is 214 days. Suppose you calculate your CCA to be $3,500. The amount of CCA you can claim is $2,052 ($3,500 x 214 ÷ 365).


Top of Page

Form T1175, Farming - Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses

Area A - Calculation of capital cost allowance (CCA)

Use Area A on Form T1175 to calculate your CCA deduction. Add lines (i) and (ii) of the chart, and enter the result on line 9936 of Form T1163 or Form T1164. If any part of the CCA is for business-use-of-home expenses, enter that part in Area B of Form T1175. For more information, see Area B - Business-use-of-home expenses.

If you acquired or disposed of buildings or equipment during the year, you will need to complete Area C, D, E, or F (whichever applies) before you complete Area A. Even if you are not claiming a deduction for CCA for your 2011 fiscal period, you should complete these areas to show any additions or disposals during the year. For details on how to complete all these areas, see the following sections.

Column 1 - Class number

If this is the first year you are claiming CCA, see Classes of depreciable property for the most common classes of depreciable properties you could use in your farming operation, and Capital Cost Allowance (CCA) Rates.

If you claimed CCA last year, you can get the class numbers from last year's Form T1175. Generally, if you own several properties in the same CCA class, you combine the capital cost of all these properties in one class. You then enter the total in Area A.

Column 2 - Undepreciated capital cost (UCC) at the start of the year

If this is the first year you are claiming CCA, skip this column. Otherwise, enter in this column the UCC for each class at the end of last year. If you completed Area A on Form T1175 last year, you will find these amounts in column 10.

You may have received a GST/HST input tax credit in 2010 for a passenger vehicle you used less than 90% of the time in your business. In this case, subtract the amount of the credit from your beginning UCC for your 2011 fiscal period. For more information, see Grants, subsidies, and rebates.

Subtract any investment tax credit you claimed or were refunded in 2010 from your UCC at the start of your 2011 fiscal period. Also, subtract any 2010 investment tax credit you carried back to a year before 2010.

Note
In 2011, you may be claiming, carrying back, or getting a refund of an investment tax credit. If you still have depreciable property in the class, you have to adjust the UCC of the class to which the property belongs in 2012. To do this, subtract the amount of the investment tax credit from the UCC at the beginning of 2012. If there is no property left in the class, report the amount of the investment tax credit as other income on line 9600, in 2012.

Column 3 - Cost of additions in the year

If you acquire or make improvements to depreciable property in the year, we generally consider the improvements to be additions to the class in which the property belongs. For an explanation to this rule, see Class 3 (5%).

Enter the details of your 2011 additions on your form as follows:

  • complete Area C or Area D (whichever applies) on page 2 of Form T1175; and
  • for each class, enter in column 3 of Area A the corresponding amount from column 5 in Area C and Area D.

When completing Area C and Area D (see below), enter in column 4 the part of the property that you use personally, separately from the part you use for business. For example, if you use 25% of the building in which you live for your farming business, your personal portion is the other 75%.

Do not include the value of your own labour in the cost of a property you build or improve. Include the cost of surveying or valuing a property you acquire in the capital cost of the property. Remember that a property usually has to be available for use before you can claim CCA.

Note
If you received insurance proceeds to reimburse you for the loss or destruction of depreciable property, enter the amount you spent to replace the property in column 3 of Area A, and also in column 3 of Area C or D, whichever applies. Include the amount of insurance proceeds as proceeds of disposition in column 4 of Area A and also in column 3 of Area E or F, whichever applies. For more information, see Insurance proceeds.

If you replace lost or destroyed property, special rules for replacement property may apply. The replacement property must be acquired within two years of the end of the taxation year in which it was lost or destroyed. For more information, see Interpretation Bulletins IT-259, Exchange of Property, and IT-491, Former Business Property, and its Special Release.

Area C - Details of equipment additions in the year

List the details of all equipment, machinery, or motor vehicles you acquired or improved in 2011. Group the equipment into the applicable classes, and put each class on a separate line. Enter on line 9925 the total business portion of the cost of the equipment.

Area D - Details of building additions in the year

List the details of all buildings you acquired or improved in 2011. Group the buildings into the applicable classes, and put each class on a separate line. Enter on line 9927 the total business portion of the cost of the buildings. The cost includes the purchase price of the building, plus any related expenses that you should add to the capital cost of the building, such as legal fees, land transfer taxes, and mortgage fees.

To find out if any special situations apply in your case when you acquire property, you should also see Special situations.

Land

Land is not depreciable property. Therefore, you cannot claim CCA on its cost. If you acquire a farm property that includes both land and a building, enter in column 3 of Area D only the cost of the building. To work out the building's capital cost, you have to split any fees that relate to the purchase of the property between the land and the building. Related fees may include legal and accounting fees.

Calculate the part of the related fees you can include in the capital cost of the building as follows:

building value ÷ total purchase price  x  legal, accounting,
or other fees		 = the part of the fees you can include in the building's cost

You do not have to split a fee if it relates specifically to the land or the building. In this case, you would add the amount of the fee to the cost to which it relates, either the land or the building.

Column 4 - Proceeds of disposition in the year

If you disposed of a depreciable property during your 2011 fiscal period:

  • complete Area E and Area F on page 2 of Form T1175, if they apply; and
  • for each class, enter in column 4 of Area A, the corresponding amount from column 5 of Area E and Area F.

When completing Area E and Area F, enter in column 3 one of the following amounts, whichever is less:

Note
If you received insurance proceeds to reimburse you for the loss or destruction of depreciable property, include the amount of insurance proceeds as proceeds of disposition in column 4 of Area A and in column 3 of Area E or F, whichever applies. Enter the amount you spent to replace the property in column 3 of Area A, and in column 3 of Area C or D, whichever applies. For more information, see Insurance proceeds.

If you replace lost or destroyed property, special rules for replacement property may apply. The replacement property must be acquired within two years of the end of the taxation year in which it was lost or destroyed. For more information, see Interpretation Bulletins IT-259, Exchange of Property, and  IT-491, Former Business Property, and its Special Release.

If you dispose of a depreciable property for more than its cost, you will have a capital gain. For more information on capital gains, see Chapter 7. You cannot have a capital loss when you sell depreciable property. However, you may have a terminal loss. For more information on terminal losses, see Column 5 - UCC after additions and dispositions.

Note
When completing Area E and Area F (see below), enter in column 4 the part of the property that you use personally, separately from the part you use for business. For example, if you use 25% of the building in which you live for your farming business, your personal portion is the other 75%.

For more information, see Interpretation Bulletin IT-220, Capital Cost Allowance - Proceeds of Disposition of Depreciable Property, and its Special Release.

Area E - Details of equipment dispositions in the year

In this area, list the details of all equipment, machinery, or motor vehicles you disposed of in 2011. Group the properties into the applicable classes, and put each class on a separate line. Enter on line 9926 the total business portion of the proceeds of disposition of the equipment, machinery, and motor vehicles.

Area F - Details of building dispositions in the year

In this area, list the details of all buildings you disposed of in 2011. Group the buildings into the applicable classes, and put each class on a separate line. Enter on line 9928 the total business portion of the proceeds of disposition of the buildings.

Column 5 - UCC after additions and dispositions

You cannot claim CCA when the amount in column 5 is:

  • negative (see "Recapture of CCA" below); or
  • positive, and you do not have any property left in that class at the end of your 2011 fiscal period (see Terminal loss).

In either case, enter "0" in column 10.

Recapture of CCA

If the amount in column 5 is negative, you have a recapture of CCA. Include your recapture on line 9600 on page 3 of Form T1163 or T1164. A recapture of CCA can occur, for example, when you get a government grant, or claim an investment tax credit.

It can also happen if the proceeds from the sale of depreciable property are more than the total of:

  • the UCC of the class at the beginning of the year; and
  • the capital cost of any additions during the year.

In some cases, you may be able to postpone a recapture of CCA. For example, you may sell a property and replace it with a similar one, someone may expropriate your property, or you may transfer property to a corporation, a partnership, or your child.

Terminal loss

If the amount in column 5 is positive, and you no longer own any property in that class, you may have a terminal loss. More precisely, you may have a terminal loss when, at the end of your fiscal period, you have no more property in the class, but you still have an amount that you have not deducted as CCA. You can usually subtract this terminal loss from your gross farming income in the fiscal period you disposed of the depreciable property. Include your terminal loss on line 9896 on page 3 of Form T1163 or T1164.

For more information on recapture of CCA and terminal loss, see Interpretation Bulletin IT-478, Capital Cost Allowance - Recapture and Terminal Loss.

Note
The rules for recapture of CCA and for terminal loss do not apply to passenger vehicles in class 10.1. To calculate your CCA claim, see Column 7 - Base amount for CCA.

Column 6 - Adjustment for current-year additions

In the year you acquire or make additions to a property, you can usually claim CCA on only one-half of your net additions (the amount in column 3 minus the amount in column 4). We call this the half-year rule.

Calculate your CCA claim only on the net adjusted amount. Do not reduce the cost of the additions in column 3, or the CCA rate in column 8. For example, if you acquired a property in 2011 for $30,000, you would base your CCA claim on $15,000 ($30,000 x 50%).

If you acquired and disposed of depreciable property of the same class in 2011, the calculation in column 6 restricts your CCA claim. Calculate the CCA you can claim as follows:

  • Determine which of the following amounts is less:
    • the proceeds of disposition of your property, minus any related costs or expenses; or
    • the capital cost.
  • Subtract the above amount from the capital cost of your addition.
  • Enter 50% of the result in column 6. If the result is negative, enter "0".

In some cases, you do not make an adjustment in column 6. For example, in a non-arm's length transaction, you may buy depreciable property that the seller continuously owned from the day that is at least 364 days before the end of your 2011 fiscal period to the day the property was purchased. However, if you transfer personal property, such as a car or a personal computer into your business, the half-year rule applies to the particular property transferred.

Some properties are not subject to the half-year rule. Examples of these are the properties in classes 13, 14, 23, 24, 27, 29,  34, or 52, as well as some of those in class 12, such as small tools that cost less than $500.

Note
If you claimed small tools that cost less than $500 as an expense on line 9820, do not claim them again as class 12 CCA.

The half-year rule does not apply when the available-for-use rule denies a CCA claim until the second tax year after the year you acquired the property.

For more information on the half-year rule, see Interpretation Bulletin IT-285, Capital Cost Allowance - General Comments.

Column 7 - Base amount for CCA

Base your CCA claim on this amount.

For a class 10.1 vehicle you disposed of in your 2011 fiscal period, you may be able to claim 50% of the CCA that would be allowed if you still owned the vehicle at the end of your 2011 fiscal period. This is known as the half-year rule on sale.

You can use the half-year rule on sale if, at the end of your 2010 fiscal period, you owned the class 10.1 vehicle you disposed of in 2011. If this applies to you, in column 7 enter 50% of the amount in column 2.

Column 8 - Rate (%)

Enter the rate in this column for each class of property in Area A of Form T1175. For a list of rates, see Capital Cost Allowance (CCA) Rates. For more information on certain kinds of property, see Classes of depreciable property.

Column 9 - CCA for the year

In column 9, enter the CCA you would like to deduct for 2011. The CCA you can deduct cannot be more than the amount you get when you multiply the amount in column 7 by the rate in column 8. You can deduct any amount up to the maximum.

If this is your first year of business, you may have to prorate your CCA claim. See You were asking?.

For Part XI assets, add the amounts in column 9 and enter the total on line (i). For Part XVII assets, add the amounts in column 6 and enter the total on line (ii). Enter the total of lines (i) and (ii), minus any CCA for business-use-of-home expenses, on line 9936 of Form T1163 or T1164. Enter any CCA for business-use-of-home expenses in Area B of Form T1175. For more information, see Area B - Business-use-of-home expenses.

To find out how to calculate your CCA claim if you are using the property for both business and personal use, see Personal use of property.

Column 10 - UCC at the end of the year

This is the UCC at the end of your 2011 fiscal period. It is the amount you will enter in column 2 when you calculate your CCA claim next year.

Enter "0" in column 10 if you have a terminal loss or a recapture of CCA. There will not be an amount in column 10 for a class 10.1 passenger vehicle you dispose of in the year.

The example at the end of this chapter sums up CCA.

Classes of depreciable property

The following are the most common classes of depreciable farm property and the rates that apply to each class.

Buildings - Classes 1, 3, and 6

A building may belong to Class 1, Class 3, or Class 6, depending on what the building is made of and the date you acquired it. You also include in these classes the parts that make up the building, such as:

  • electrical wiring;
  • lighting fixtures;
  • plumbing;
  • sprinkler systems;
  • heating equipment
  • air-conditioning equipment (other than window units);
  • elevators;
  • escalators.

Note
Most land is not depreciable property. Therefore, when you acquire farm property, include in Area A and Area F only the cost that relates to the building.

Class 1 (4%)

Class 1 includes most buildings acquired after 1987, unless they specifically belong in another class. Class 1 also includes the cost of certain additions or alterations you made after 1987 to a Class 3 building. For more information, see Class 3 (5%) below.

The CCA rate for eligible non-residential buildings acquired by a taxpayer after March 18, 2007, used for the manufacturing or processing in Canada of goods for sale or lease, includes an additional allowance of 6% for a total rate of 10%. The CCA rate for other eligible non-residential buildings includes an additional allowance of 2% for a total rate of 6%. To be eligible for one of the additional allowances, you must elect to place a building in a separate class. To make the election, attach a letter to your return for the tax year in which you acquired it. If you do not file an election to put it in a separate class, the current rate of 4% will apply.

This applies to buildings acquired after March 18, 2007, (including a new building, if any portion of it is acquired after March 18, 2007, where the building was under construction on March 19, 2007) that have not been used or acquired for use before March 19, 2007.

To be eligible for the 6% additional allowance, at least 90% of a building (measured by square footage) must be used for the designated purpose at the end of the tax year. Manufacturing and processing buildings that do not meet the 90% use test will be eligible for the additional 2% allowance if at least 90% of the building is used for non-residential purposes at the end of the tax year.

Class 3 (5%)

Most buildings acquired before 1988 were added to Class 3 or Class 6. If you acquired a building before 1990 that does not fall into Class 6, you can include it in Class 3 if one of the following applies:

  • you acquired the building under the terms of a written agreement entered into before June 18, 1987; or
  • the building was under construction by you, or for you, on June 18, 1987.

Do not transfer to Class 1 any property you previously included in Class 3. However, there is a limit to how much you can include in Class 3 for the cost of any additions or alterations made after 1987 to a Class 3 building. This limit is one of the following amounts, whichever is less:

  • $500,000; and
  • 25% of the building's capital cost (including the cost of additions or alterations to the building included in Class 3, Class 6, or Class 20 before 1988).

Include the cost of any additions or alterations over this limit in Class 1.

Class 6 (10%)

Include a building in Class 6 if you acquired it before 1988 and it is made of frame, log, stucco on frame, galvanized iron, or corrugated iron. If you acquired the building after 1987, it has to be made of frame, log, stucco on frame, galvanized iron, or any corrugated metal.

In addition, one of the following conditions has to apply:

  • the building is used for farming or fishing; or
  • the building has no footings or other base supports below ground level.

If either of the above conditions applies, you also add to Class 6 the full cost of all additions and alterations to the building.

If neither of the above conditions applies, include the building in Class 6 if one of the following conditions applies:

  • you acquired the building before 1979;
  • you entered into an agreement before 1979 to acquire the building, and footings or other base supports were started before 1979; or
  • you started construction of the building before 1979 (or it was started under the terms of a written agreement you entered into before 1979), and footings or other base supports of the building were started before 1979.

For additions or alterations to such a building:

  • Add to Class 6:
    • all additions made before 1979; and
    • only the first $100,000 of additions or alterations made after 1978.
  • Add to Class 3:
    • the part of the cost of all additions or alterations above $100,000 made after 1978 and before 1988; and
    • the part of the cost of additions or alterations above $100,000 made after 1987, but only up to $500,000 or 25% of the cost of the building, whichever is less.
  • Add to Class 1 any additions or alterations above these limits.

For more information, see Interpretation Bulletin IT-79, Capital Cost Allowance - Buildings or Other Structures.

Class 8 - (20%)

Class 8 with a CCA rate of 20% includes certain property that is not included in another class. Examples are furniture, appliances, tools costing $200 or more ($500 or more under proposed changes), some fixtures, machinery, outdoor advertising signs, refrigeration equipment, and other equipment you use in business.

Photocopiers and electronic communications equipment, such as fax machines and electronic telephone equipment are also included in Class 8. Also include data network infrastructure equipment and systems software for that equipment acquired before March 23, 2004. If acquired after March 22, 2004, include it in Class 46. Read Class 46 (30%).

Note
If this equipment cost $1,000 or more, you can elect to have it included in a separate class. The CCA rate will not change but a separate CCA deduction can now be calculated for a five year period. When all the property in the class is disposed of, the UCC is fully deductible as a terminal loss. Any UCC balance remaining in the separate class at the end of the fifth year has to be transferred back to the general class in which it would otherwise belong. To make an election, attach a letter to your income tax return for the tax year in which you acquired the property. For more information on terminal losses, see Column 5 - UCC after additions and dispositions.

Include buildings that you use to store fresh fruit or vegetables by or for the person or persons by whom they were grown, at a controlled temperature in Class 8 instead of Class 1, Class 3, or Class 6. Also include in Class 8 any buildings that you use to store silage.

Small tools - Class 12 (100%)

Under proposed changes, the cost limit for access to the Class 12 (100%) treatment will increase to $500 from $200 for tools acquired on or after May 2, 2006.

Most small tools in Class 12 are not subject to the half‑year rule. They are fully deductible in the year of purchase. If the tool costs $500 or more, include it in Class 8 with a CCA rate of 20%.

Class 12 tools that are subject to the half‑year rule include dies, jigs, patterns, moulds or lasts, and the cutting or shaping part of a machine. For more information, see Interpretation Bulletin IT‑285, Capital Cost Allowance – General Comments.

Include in Class 12 with a CCA rate of 100% computer software that is not systems software. Software in Class 12 is subject to the half‑year rule.

Class 45 (45%)

Include general purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data processing equipment, in Class 45 with a CCA rate of 45% if you acquired them after March 22, 2004, and before March 19, 2007.

Note
If you acquired the equipment or software before 2005 and made the separate Class 8 election, the property does not qualify for the 45% rate.

Class 46 (30%)

Include in Class 46 with a CCA rate of 30% data network infrastructure equipment and systems software for that equipment if acquired after March 22, 2004. If acquired before March 23, 2004, include it in Class 8. Read Class 8 - (20 %).

Class 50 (55%)

Include in Class 50 with a CCA rate of 55% property acquired after March 18, 2007, that is general purpose electronic data processing equipment and systems software for that equipment, including ancillary data processing equipment, but not including property that is included in Class 52 or that is principally or is used principally as:

a) electronic process control or monitor equipment;
b) electronic communications control equipment;
c) systems software for equipment referred to in a) or b); or
d) data handling equipment (other than data handling equipment that is ancillary to general purpose electronic data processing equipment).

Class 52 (100%)

Include in Class 52 with a CCA rate of 100% (with no half year rule) general purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data processing equipment if acquired after January 27, 2009, and before February 2011, but not including property that is principally or is used principally as:

a) electronic process control or monitor equipment;
b) electronic communications control equipment;
c) systems software for equipment referred to in a) or b); or
d) data handling equipment (other than equipment that is ancillary to general purpose electronic data processing equipment).

To qualify for this rate the asset must also:

  • be situated in Canada;
  • have not been used, or acquired for use, for any purpose before it is acquired by the taxpayer; and
  • be acquired by the taxpayer:
    • for use in a business carried on by the taxpayer in Canada or for the purposes of earning income from property situated in Canada; or
    • for lease by the taxpayer to a lessee for use by the lessee in a business carried on by the lessee in Canada or for the purpose of earning income from property situated in Canada.

Passenger vehicles - Class 10 and Class 10.1 (30%)

Your passenger vehicle may belong to either Class 10 or Class 10.1. Include your passenger vehicle in Class 10 unless it meets a Class 10.1 condition. List each Class 10.1 vehicle separately.

Include your passenger vehicle in Class 10.1 if you bought it in 2011 or 2010, and it cost more than $30,000. We consider the capital cost of that vehicle to be $30,000 plus the related GST and PST, or HST.

The $30,000 amount is the capital cost limit for a passenger vehicle. However, to determine the class to which your passenger vehicle belongs, you have to use the cost of the vehicle before you add GST and PST, or HST.


Example
Vivienne owns a farming business. On June 21, 2011, she bought two passenger vehicles to use in her farming business. The PST rate for her province is 8%. Vivienne noted these details for 2011:

  Cost GST PST Total
Vehicle 1 $33,000 $1,650 $2,640 $37,290
Vehicle 2 $28,000 $1,400 $2,240 $31,640

Vivienne puts Vehicle 1 in Class 10.1, since she bought it in 2011, and it cost her more than $30,000. Before Vivienne enters an amount in column 3 of Area C, she has to calculate the GST and PST on $30,000. She does this as follows:

  • GST at 5% of $30,000 = $1,500
  • PST at 8% of $30,000 = $2,400

Therefore, Vivienne's capital cost is $33,900 ($30,000 + $1,500 + $2,400). She enters this amount in column 3 of Area C.

Vivienne puts Vehicle 2 into Class 10, since she bought it in 2011, and it did not cost her more than $30,000. Vivienne's capital cost is $31,640 ($28,000 + $1,400 + $2,240). She enters this amount in column 3 of Area C.

Note
For this example we used 5% as the GST rate, and 8% as the PST rate. For your calculation, use the current GST rate and the current PST rate that applies in your province or territory. If you live in a province that has harmonized sales tax (HST), use the current HST rate. For more information on GST/HST, see Guide RC4022, General Information for GST/HST Registrants.

Special situations

Changing from personal to business use

You may have bought a property for personal use and then started using it in your farming business in your 2011 fiscal period. When you change its use you need to determine the capital cost for business purposes.

Enter the FMV of the property in column 3 of Area C or D, whichever applies, if, at the time of change in use, the FMV of the depreciable property is less than its original cost.

When you start to use your property for your farming business, you are considered to have disposed of it. If the FMV of the property is greater than its cost, you may have a capital gain. For more information on capital gains, see Chapter 7.

Use the following chart to determine the amount to enter in column 3 when the FMV is more than its original cost.

 
Capital cost calculation
Actual cost of the property   $        A
FMV of the property $        B  
Amount on line A $        C  
Line B minus line C (if negative, enter "0") $        D  
Enter all capital gains deductions claimed for the amount on line D* $______x 2 = $        E  
Line D minus line E (if negative, enter "0") $ ______x 1/2 =   $        F
Capital cost: Line A plus line F   $        G
* Enter the amount that relates to the depreciable property only.
Enter the capital cost of the property from line G in column 3 of Area C or D.

We consider that you acquire the land for an amount equal to its FMV when you change its use. Include this amount on line 9923, "Total cost of all land additions in the year", in Area G.

Personal use of property

If you buy property for both business and personal use, there are two ways to show the business portion of the property in Area C or D:

  • If your business use stays the same from year to year, enter the total cost of the property in column 3, the personal portion in column 4, and the business portion in column 5. To calculate the CCA you can claim, enter the amount from column 5 in column 3 of Area A.
  • If your business use changes from year to year, enter the total cost of the property in column 3 and column 5, and enter "0" in column 4. To calculate the CCA you can claim, enter the amount from column 5 in column 3 of Area A. When you claim CCA, you will have to calculate the allowable portion you can claim for business use.

Example

Jennifer owns a business. She bought a car in 2011 that she uses both for personal and business use. The car cost $20,000, including all charges and taxes. Therefore, she includes the car in class 10. Her business use varies from year to year. She calculates her CCA on the car for 2011 as follows:

She enters $20,000 in column 3 and column 5 of Area C. She also enters $20,000 in column 3 of Area A. By completing the other columns in the chart, she calculates a CCA claim of $3,000. Because Jennifer used her car partly for personal use, she calculates her CCA claim as follows:

12,000 (business kilometres) ÷ 18,000 (total kilometres) x $3,000 = $2,000

Jennifer enters $2,000 on line 9936 of Form T1163 or T1164.

Note
The capital cost limits on a Class 10.1 vehicle (a passenger vehicle) still apply when you split the capital cost between business and personal use. For more information, see Passenger vehicles - Class 10 and Class 10.1 (30%).

Grants, subsidies, and rebates

You may receive a grant, subsidy, or a rebate from a government or a government agency to buy depreciable property. When this happens, subtract the amount of the grant from the property's capital cost. Do this before you enter the capital cost in column 3 of Area C or D.

If the rebate is more than the remaining undepreciated capital cost in the particular class, add the excess to income on line 9574 or 9575.

You may have incurred GST or HST on some of the depreciable property you acquired for your business. If so, you may have also received an input tax credit from us.

The input tax credit is government assistance. Therefore, subtract it from the property's capital cost. Do this before you enter the capital cost in column 3 of Area C or D, whichever applies. If you receive an input tax credit for a passenger vehicle you use in your business, use one of these methods:

  • For a passenger vehicle you use 90% or more for your business, subtract the amount of the credit from the vehicle's cost before you enter its capital cost in column 3 of Area C.
  • For a passenger vehicle you use less than 90% for your business, do not make an adjustment in 2011. In 2012, subtract the amount of the credit from your beginning UCC.

You may get an incentive from a non-government agency to buy depreciable property. If this happens, you can either include the amount in income, or subtract the amount from the capital cost of the property.

For more information about government assistance, see Interpretation Bulletin IT-273, Government Assistance - General Comments.

Non-arm's length transactions

When you acquire depreciable property in a non-arm's length transaction, there are special rules to follow to determine the property's cost. These special rules will not apply if you get the property because of someone's death.

You can acquire depreciable property in a non-arm's length transaction from a:

  • resident of Canada;
  • partnership with at least one partner who is an individual resident in Canada; or
  • partnership with at least one partner that is another partnership.

If you pay more for the property than the seller paid for the same property, calculate the cost as follows:

 
Capital cost calculation
Non-arm's length transaction
Resident of Canada
The seller's cost or capital cost   $        A
The seller's proceeds of disposition $        B  
Amount from line A $        C  
Line B minus line C (if negative, enter "0") $        D  
Enter any capital gains deduction claimed for the amount
on line D $______x 2 =		 $        E  
Line D minus line E (if negative, enter "0") $______x 1/2 =   $        F
Capital cost Line A plus line F   $        G
Enter this amount in column 3 of either Area C or D, whichever applies.
Do not include the cost of the related land. Include the cost of the related land on line 9923, "Total cost of all land additions in the year", in Area G.

We consider that you acquire the land for an amount equal to its FMV when you change its use. Include this amount on line 9923, "Total cost of all land additions in the year", in Area G.

You can also buy depreciable property in a non arm's length transaction from:

  • a corporation or an individual who is not a resident of Canada; or
  • a partnership with no partners who are individuals resident in Canada or no partners that are members of other partnerships.

If you pay more for the property than the seller paid for the same property, calculate the capital cost as follows:

 
Capital cost calculation for non-resident
Non-arm's length transaction
Non-resident of Canada
The seller's cost or capital cost   $        A
The seller's proceeds of disposition $        B  
Amount from line A $        C  
Line B minus line C (if negative, enter "0")
$______x 1/2 =		   $        D  
Capital cost Line A plus line D   $        E  
Enter this amount in column 3 of either Area C or D, whichever applies.
Do not include the cost of the related land. Include the cost of the related land on line 9923, "Total cost of all land additions in the year", in Area G.

You might have bought depreciable property in a non arm's length transaction and paid less for it than the seller paid. If that is the case, your capital cost is the same amount as the seller paid. We consider you to have deducted as CCA the difference between what you paid and what the seller paid. Enter the amount you paid in column 3 of Area A. Enter the same amount in Area C or D, whichever applies.

Example
Bruce bought a tractor for $16,000 from his father, Paul, in his 2011 fiscal period. Paul paid $40,000 for the tractor in 1997. Since the amount Bruce paid is less than the amount Paul paid, we consider Bruce's cost to be $40,000. We also consider Bruce to have deducted CCA of $24,000 in the past ($40,000 - $16,000).

Bruce completes the CCA chart as follows:

  • in Area C, "Details of equipment additions in the year", he enters $40,000 in column 3, "Total cost"; and
  • in Area A, "Calculation of capital cost allowance (CCA)", he enters $16,000 in column 3, "Cost of additions in the year", as the addition for the 2011 fiscal period.

There is a limit on the cost of a passenger vehicle you buy in a non-arm's length capital transaction. The cost is one of these amounts, whichever is the least:

  • the FMV when you buy it;
  • if you bought in 2011 or 2010, $30,000 plus any GST and PST, or HST you would pay on $30,000; or
  • the seller's cost amount of the vehicle when you buy it.

The cost amount can vary, depending on what the seller used the vehicle for before you bought it. If the seller used the vehicle to earn income, the cost amount will be the undepreciated capital cost (UCC) of the vehicle when you buy it. If the seller did not use the vehicle to earn income, the cost amount will usually be the original cost of the vehicle.

For more information on non-arm's length transactions, see Interpretation Bulletin IT-419, Meaning of Arm's Length.

Special rules for disposing of a building in the year

If you disposed of a building in the year, special rules may apply that change the amount you use as proceeds of disposition for capital cost purposes. This happens when you meet both of the following conditions:

  • you disposed of the building for an amount less than both its cost amount, as calculated below, and its capital cost to you; and
  • you, or a person with whom you do not deal at arm's length, owned the land that the building is on, or the land next to it, that was necessary for the building's use.

Calculate the cost amount as follows:

  • If the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before you disposed of the building.
  • If there is more than one property in the same class, you have to calculate the cost amount of each building as follows:
capital cost of the building ÷ capital cost of all the properties in the class that have not been disposed of previously x UCC of
the class		 = cost amount of the building

Note
If any property in the class of the building that was acquired at non-arm's length was previously used for a purpose other than gaining or producing income, or if the part of a property used for gaining or producing income has changed, the capital cost of such property has to be recalculated to determine the cost amount of the property.

If you disposed of a building under these conditions and you or a person with whom you do not deal at arm's length disposed of the land in the same year, calculate your deemed proceeds of disposition as shown in Calculation A below.

If you, or a person with whom you do not deal at arm's length, did not dispose of the land in the same year as the building, calculate your deemed proceeds of disposition as shown in Calculation B.

 
Calculation A
Land and building sold in the same year
FMV of the building at the time you disposed of it $        A  
FMV of the land just before you disposed of it $        B  
Line A plus line B   $        C
Seller's cost amount of the land $        D  
Total capital gains (without reserves) from any disposition of the land (such as a change in use) in the three-year period before you or a person not dealing at arm's length with you disposed of the building, to either you or another person not dealing at arm's length with you $        E  
Line D minus line E (if negative, enter "0") $        F  
Line B or line F, whichever amount is less   $        G
Line C minus line G (if negative, enter "0")   $        H
Cost amount of the building just before you disposed of it $        I  
Capital cost of the building just before you disposed of it $        J  
Line I or line J, whichever amount is less $        K  
Line A or line K, whichever amount is more   $        L
Deemed proceeds of disposition for the building
Line H or line L, whichever amount is less (enter this amount in column 3 of Area F, and include it in column 4 of Area A)		   $        M
Deemed proceeds of disposition for the land
Proceeds of disposition of the building and the land		   $        N
Amount from line M   $        O
Line N minus line O (include this amount on line 9924 of Area G)   $        P
If you have a terminal loss on the building, include it on line 9896 on page 3 of your form.

 
Calculation B
Land and building sold in different years
Cost amount of the building just before you disposed of it $        A
FMV of the building just before you disposed of it $        B
Line A or line B, whichever amount is more $        C
Actual proceeds of disposition, if any $        D
Line C minus line D $        E
Line E $______×1/2 $        F
Amount from line D $        G
Deemed proceeds of disposition for the building
Line F plus line G (enter this amount in column 3 of Area F, and include it in column 4 of Area A)		 $        H
If you have a terminal loss on the building, include it on line 9896 on page 3 of your form.

Ordinarily, you can deduct all of a terminal loss, but only part of a capital loss. Calculation B ensures that you use the same factor to calculate a terminal loss for a building as you use to calculate a capital loss on land. As a result of this calculation, you add part of the amount on line E to the actual proceeds of disposition from the building (see Terminal loss).

Replacement property

In a few cases, you can postpone or defer adding a capital gain or recapture of CCA to income. You might sell a business property, and replace it with a similar one, or your property might be stolen, destroyed, or expropriated, and you replace it with a similar one. You can defer tax on the sale proceeds if you reinvest in replacement property within a reasonable period of time. To defer reporting the gain or recapture of CCA, you must acquire and you, or a person related to you, must use the new property for the same or a similar purpose as the old one was used for.

For more information, see Interpretation Bulletins  IT-259, Exchange of Property, and IT-491, Former Business Property, and its Special Release.

You can also defer a capital gain or recapture of CCA when you transfer property to a corporation, a partnership, or your child. For more information on transferring, see Transferring farm property to your child.

For information on transfers to a corporation or a partnership, see:

Area B - Business-use-of-home expenses

Use Area B on Form T1175 to list your expenses and any amount of CCA for the business use of your home. Include these expenses and any amount of CCA for business-use-of-home expenses on "line 9896, Other (specify)" on page 4 of Form T1163 or Form T1164. You can also report any business-use-of-home expense carry forward from a previous year on the chart. This chart is for information purposes and to help you make an adjustment at line 9934 if you have a loss in the year. See more information about this adjustment.

Area G - Details of land additions and dispositions in the year

In this area, enter the total cost of acquiring land in 2010. The cost includes the actual purchase price of the land, plus any related expenses that you should add to the capital cost of the land, such as legal fees, land transfer taxes, and mortgage fees. Enter on line 9923 the total cost of all land additions in the year. You cannot claim CCA on land. Do not enter this amount in column 3 of Area A.

Enter on line 9924 the total of all amounts you received or will receive for disposing of land in the year.

Area H - Details of quota additions and dispositions in the year

Enter on line 9929 of Form T1175 the total cost of acquiring quotas in the year.

Enter on line 9930 of Form T1175 the total of all amounts you received or will receive for disposing of quotas in the year.

Area I - Details of equity

Line 9931 - Total business liabilities

A liability is a debt or an obligation of a business. Total business liabilities are the total of all amounts your farming business owes at the end of its fiscal period. This includes accounts payable, notes payable, taxes payable, unpaid salaries, wages and benefits, interest payable, deferred or unearned revenues, loans payable, mortgages payable, or any other outstanding balance.

Line 9932 - Drawings in 2011

A drawing is any withdrawal of cash or other assets and services of a business by the proprietor or partners. This includes transactions by the proprietor or partners (or family members) such as withdrawing cash for non-business use and using business assets and services for personal use.

Line 9933 - Capital contributions in 2011

A capital contribution is an addition of cash or other assets you made to the farming business during its fiscal period. This includes adding personal funds to the business account, paying business debts with personal funds, and transferring personal assets to the farming business.

The following example summarizes this chapter on CCA.

Example

In 2011, Trevor bought a building to use for his farming business. The total cost was $95,000 (the total of the $90,000 total purchase price and the $5,000 total expenses connected with the purchase), as follows:

Building value                      $75,000
Land value   $15,000
Total purchase price   $90,000
Expenses connected with the purchase
Legal fees   $3,000
Land transfer taxes   $2,000
Total fees   $5,000

Trevor's farming business has a December 31 year-end. In 2011, Trevor's farming income was $6,000 and his expenses were $4,900. Therefore, his net income before deducting CCA was $1,100 ($6,000 - $4,900).

Before Trevor can complete his CCA schedule, he has to calculate the capital cost of the building. Since land is not depreciable farm property, he has to calculate the part of the expenses connected with the purchase that relates only to the building. To do this, he has to use the following formula, which is explained in the section Land.

$75,000 ÷ $90,000  x  $5,000  =  $4,166.67

This $4,166.67 represents the part of the $5,000 in legal fees and land transfer taxes that relates to the purchase of the building, while the remaining $833.33 relates to the purchase of the land. Therefore, the capital cost of the building is:

Building value            $ 75,000.00
Related expenses   $ 4,166.67
Capital cost of the building   $ 79,166.67

Trevor enters $79,166.67 in column 3 of Area D and $15,833.33 ($15,000 + $833.33) on line 9923 of Area G as the capital cost of the land.

Note
Trevor did not own farm property before 2011. Therefore, he has no UCC to enter in column 2 of Area A.

Trevor acquired his farm property in 2011. Therefore, he is subject to the half-year rule that we explain under the heading Column 6 - Adjustment for current-year additions.



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Chapter 5 - Eligible Capital Expenditures

What is an eligible capital expenditure?

You may buy property that has no physical existence, but gives you a lasting economic benefit. Some examples are milk and egg quotas. We call this kind of property eligible capital property. The price you pay to buy this kind of property is an eligible capital expenditure.

What is an annual allowance?

You cannot deduct the full cost of an eligible capital expenditure, since the cost is capital and the eligible capital property gives you a lasting economic benefit. However, you can deduct part of its cost each year. We call the amount you can deduct your annual allowance.

What is a cumulative eligible capital (CEC) account?

This is the bookkeeping record you set up to determine your annual allowance. You also use your CEC account to keep track of the property you buy and sell. We call the property in your CEC account your eligible capital property. You base your annual allowance on the balance in your account at the end of your fiscal period. Keep a separate account for each business.

How to calculate your annual allowance

Complete the following chart to calculate your annual allowance and the balance in your CEC account at the end of your 2011 fiscal period.

 
Calculating your annual allowance and your
CEC account balance at the end
of your 2011 fiscal period
Balance in the account at the start of your 2011 fiscal period          A
Eligible capital expenditures you made in your 2011 fiscal period        B  
75% × line B          C
Line A plus line C          D
All the amounts you received or are entitled to receive from the sale of eligible capital property in your 2011 fiscal period        E  
All the amounts that became receivable in your 2011 fiscal period from the sale of eligible capital properties before June 18, 1987        F  
Line E plus line F        G  
75% × line G          H
CEC account balance
Line D minus line H		          I
Annual allowance 7% × line I          J
CEC account balance at the end of 2011
Line I minus line J		          K

Note
An eligible capital expenditure is reduced by the amount of any government assistance received or receivable. Also, an amount forgiven (or entitled to be forgiven) on government loans for an eligible capital expenditure reduces your CEC account.

Special conditions may apply to non-arm's length transactions. For more information, see Interpretation Bulletin IT-123, Transactions Involving Eligible Capital Property.

If your fiscal period is less than 365 days, you have to prorate your claim. Base your claim on the number of days in your fiscal period compared to 365 days.

You can deduct an annual allowance if there is a positive balance in your CEC account at the end of your 2011 fiscal period. You can deduct up to a maximum of 7% of the balance, but you do not have to deduct the maximum annual allowance. If the balance is negative, see Sale of eligible capital property - Fiscal period ending in 2011.

Example

Heather started her farming business on January 1, 2011. Her business has a December 31 year-end. During 2011, she bought a milk quota for $135,000. To calculate her annual allowance and her CEC account balance at the end of her fiscal year, she completes the chart as follows:

Heather's CEC account

Balance at the start of her 2011 fiscal period   $ 0 A
Milk quota cost during her 2011 fiscal period $ 135,000 B  
75% × line B   $ 101,250 C
Line A plus line C   $ 101,250 D
Heather does not have any amounts on lines E to H. Therefore, her CEC account balance is the amount on line D   $ 101,250 I
Her annual allowance is 7% × line I   $ 7,087 J
Balance at the end of 2011 line I minus line J   $ 94,163 K

Election

You can elect to treat a disposition of eligible capital property (ECP) as a capital gain instead of including it in the chart "Calculating your annual allowance and your CEC account balance at the end of your 2011 fiscal period".

If you make the election, the proceeds of disposition on lines E and F of the chart are considered to be equal to the original cost.

You can then declare a capital gain equal to your actual proceeds of disposition minus the cost of acquisition. Report the details on the "Real estate, depreciable property, and other properties" line on Schedule 3, Capital Gains (or Losses) in 2011.

You can only make this election if you meet the following conditions:

  • you disposed of an ECP;
  • the cost of the ECP can be determined;
  • the proceeds of disposition exceed the cost;
  • the ECP that you disposed of is not goodwill; and
  • making the election will help you if you have capital losses to apply against your gain.

The election may also help if you are eligible to claim a capital gains deduction and you disposed of an ECP that is a qualified farm property. If you disposed of an ECP that was a qualified farm property, any deemed gain reported under the election is also considered to be from a disposition of qualified farm property. If this is the case, report the details on the "Qualified farm property" line on Schedule 3, Capital Gains (or Losses) in 2011, instead of the "Real estate, depreciable property, and other properties" line. See Qualified farm property and cumulative capital gains deduction. Attach a note to your income tax return stating that you are electing under subsection 14(1.01) of the Income Tax Act.

Sale of eligible capital property - Fiscal period ending in 2011

When you sell eligible capital property, you have to subtract part of the proceeds of disposition from your CEC account.

You have to do this calculation if you sell eligible capital property:

  • in your 2011 fiscal period; or
  • before June 18, 1987, and the proceeds of disposition become due to you in your 2011 fiscal period.

For 2011, the amount you have to subtract is 75% of the total of these amounts:

  • the proceeds of disposition of all eligible capital property you sell in your 2011 fiscal period (include the total amount from a sale even if you do not get any or all of the proceeds until after 2011); and
  • the amount of any proceeds that become due to you in your 2011 fiscal period from eligible capital property you sold before June 18, 1987.

If you have a negative balance in your CEC account after you subtract the required amount, you have to calculate the part of that amount to include in your farming income.

The part of the negative amount in your CEC account that exceeds the annual allowances deducted is multiplied by 2/3. To that result, you add the excess or annual allowances deducted, whichever is less. This is the amount to include in your farming income. The following example shows how to calculate the amount to include in farming income.

Example
Carol started her farming business on January 1, 2005, with a December 31 year-end. In 2005, Carol bought an egg quota for $25,000. Carol sold her farming business on September 1, 2011. She sold her egg quota for $65,000, and she does not have any other eligible capital property in her farming business. She deducted annual allowances each year as follows:

2005            $ 1,313
2006     1,220
2007     1,135
2008     1,056
2009     982
2010     913
Total   $ 6,619

The amount included in Carol's farming income on line 9600, "Other (specify)", is the total of amounts A and C:

Calculation of amount A
The lesser of i) or ii):
i) Excess amount calculated as follows:
Proceeds of disposition: $65,000
$65,000 x  75%		 $ 48,750  
Plus: total annual allowances deducted   6,619  
  $ 55,369  
Minus: 75% of eligible capital expenditures
$25,000 x  75%		 $ 18,750  
Excess amount $ 36,619 i
ii) Total annual allowances deducted $ 6,619 ii
The lesser of i) or ii): $ 6,619 A
Calculation of amount B
Excess amount $ 36,619  
Minus: total annual deductions taken   6,619 $ 30,000 B
Calculation of amount C
Line B × 2/3 $ 20,000 C
Line A plus line C $ 26,619  

The amount Carol includes in farming income on line 9600, "Other (specify)", is $26,619.

If the property is considered to be a qualified farm property, part of the farming income may be eligible for the capital gains deduction. For more information, read the following section.

Farming income from the sale of eligible capital property eligible for the capital gains deduction

Part of your farming income from the sale of eligible capital property (ECP) that is qualified farm property (QFP) may be eligible for the capital gains deduction. See the definition of QFP. If you have more than one business, do a separate calculation for each. Complete the following chart to calculate the amount eligible for the capital gains deduction from the sale of ECP.

Farming income eligible
for the capital gains deduction
Farming income from the sale of ECP (other than recapture of annual allowances deducted in previous years) for 2011          A
All proceeds of disposition from the sale of ECP that is QFP during fiscal periods that began after 1987 and ended before February 28, 2000          B  
All eligible capital expenditures made or incurred for QFP sold during fiscal periods that began after 1987 and ended before February 28, 2000        C  
Outlays and expenses related to dispositions described on line B not deducted in calculating income        D  
Line C plus line D          E  
Line B minus line E          F  
Amount from line F ______x 3/4 =          G
All proceeds of disposition from the sale of ECP that is QFP during fiscal periods ending after February 27, 2000, and before October 18, 2000          H  
All eligible capital expenditures made or incurred for QFP sold during fiscal periods ending after February 27, 2000, and before October 18, 2000        I  
Outlays and expenses related to dispositions described on line H not deducted in calculating income        J  
Line I plus line J          K  
Line H minus line K          L  
Amount from line L ______x 2/3 =          M
All proceeds of disposition from the sale of ECP that is QFP during fiscal periods ending after October 17, 2000          N  
All eligible capital expenditures made or incurred for QFP sold during fiscal periods ending after October 17, 2000        O  
Outlays and expenses related to dispositions described on line N not deducted in calculating income        P  
Line O plus line P          Q  
Line N minus line Q          R  
Amount from line R ______x 1/2 =          S
Line G plus line M plus line S          T
All taxable capital gains from the disposition of ECP for the farming business that is QFP for fiscal periods that began after 1987 and ended before February 23, 1994          U  
Farming income eligible for the capital gains deduction from the sale of ECP that is QFP for fiscal periods that began after February 22, 1994, and ended before January 1, 2011          V  
Line U plus line V          W
Line T minus line W          X
Farming income eligible for the capital gains deduction for 2011 (the lesser of line A and line X)          Y
If you are a sole proprietor,
claim the amount on line Y		          Z
If you are a partner,
claim your share of the amount on line Y		          AA
Enter the amount from line Z or line AA (above) on line 173 of Schedule 3, Capital Gains (or Losses) in 2011. To claim the capital gains deduction, use Form T657, Calculation of Capital Gains Deduction for 2011.

Replacement property

If you sell an eligible capital property and replace it with another one for the same or similar use, you can postpone all or part of any gain on the sale. This happens if you acquire a replacement eligible capital property within a certain period of time. To do this, you have to replace the property no later than one year after the end of the tax year in which you sell the original property. For more information, see Interpretation Bulletin IT-259, Exchange of Property.

Eligible capital property of a deceased taxpayer

At death, a taxpayer is deemed to have disposed of eligible capital property, just before death, for proceeds of disposition equal to 4/3 of the cumulative eligible capital property at that time.

The person who acquires the eligible capital property from the deceased is deemed to acquire it as stated in the previous paragraph.

For more information about eligible capital expenditures, see Interpretation Bulletins IT-123, Transactions Involving Eligible Capital Property, and IT-143, Meaning of Eligible Capital Expenditure.



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Chapter 6 - Farm Losses

When the expenses for your farming business are more than the income for the year, you have a net operating loss. However, before you can calculate your net farm loss for the year, you may have to increase or decrease the loss by certain adjustments explained in line 9941, Optional inventory adjustment - current year and line 9942, Mandatory inventory adjustment- current year.

If you have a net farm loss for the year, read this chapter for information on how to treat your loss. For more information on farm losses, see Interpretation Bulletin IT-322, Farm Losses.

The amount of the net farm loss you can deduct depends on the nature and extent of your business. Your farm loss may be:

  • fully deductible
  • partly deductible (restricted farm loss); or
  • non-deductible

Fully deductible farm losses

If you made your living from farming, we consider farming to be your chief source of income. As long as farming was your chief source of income, you can deduct the full amount of your net farm loss from other income. Other income could come from investments, part-time employment, and so on. Farming can still be your chief source of income even if your farm did not show a profit.

To determine if farming was your chief source of income, you need to consider such factors as:

  • gross income;
  • net income;
  • capital invested;
  • cash flow;
  • personal involvement;
  • your farm's ability to make a profit (both actual and potential);
  • plans to maintain or develop your farm and how you carried out these plans.

Although you may have been a partner in a farming business, you still have to determine if farming was your own chief source of income.

When farming is your chief source of income and you have a net farm loss in 2011, you may have to reduce the loss when you have other income in 2011. Any loss that is left is your farm loss for 2011.

Example

Rick's farming business, which is his chief source of income, has a December 31 fiscal year-end. His farm loss before adjustments is $50,000. He wants to reduce his loss by the optional inventory adjustment (OIA). Rick kept the following records for 2011:

Net farm loss before adjustments  $ 50,000  
Optional inventory adjustment  $ 15,000  
Other income  $ 2,000  
To reduce the loss amount, Rick adds back his OIA. He determines his farm loss for 2011 as follows:  
Farm loss before adjustments ($ 50,000 )
Add: optional inventory adjustment  $ 15,000  
Farm loss after adjustments ($ 35,000 )
Add: other income  $ 2,000  
Farm loss for 2011 ($ 33,000 )

Applying your 2011 farm loss

You can carry back your 2011 farm loss for up to three years. You can also carry it forward up to 20 years. In both cases, you can deduct it from your income from all sources in those years.

If you choose to carry back your 2011 farm loss to your 2008, 2009, or 2010 income tax returns, complete Form T1A, Request for Loss Carryback. File one copy of the form with your 2011 income tax return. Do not file an amended return for the year to which you apply the loss.

Applying your farm losses from years before 2011

On your 2011 income tax return, you may be able to apply farm losses you had in any year from 2001 to 2010. You can apply these losses if you did not already deduct them and you have net income in 2011. To apply these losses to 2011, you have to apply the loss from the earliest year first. Enter the amount you wish to deduct on line 252 on your income tax return.

Restricted farm losses (partly deductible)

You may have run your farm as a business. For your farm to be considered a business, you must have carried on activities with the intent to make a profit, and there is evidence to support that intention.

However, if farming was not your chief source of income (for example, you did not rely on farming alone to make your living), you may be able to deduct only part of your net farm loss.

Each year you have a farm loss, check your situation carefully to see if farming was your chief source of income. It is important to do this, since a farming loss may be restricted in one year, but not in another year.

How to calculate your restricted farm loss

If farming was not your chief source of income and you had a net farm loss, the loss you can deduct depends on the amount of your net farm loss.

When your net farm loss is $15,000 or more, you can deduct $8,750 from your other income. The rest of your net farm loss is your restricted farm loss.

When your net farm loss is less than $15,000, the amount you can deduct from your other income is one of the following two amounts, whichever is less:

A) your net farm loss for the year; or

B) $2,500 plus 50% x (your net farm loss minus $2,500).

The amount remaining is your restricted farm loss.

Note
When the farm loss you deduct is different from your actual farm loss because of the restricted farm loss calculation, you should include this on your income tax return on the line "Farming income". You can do this by noting "restricted farm loss," "RFL," or "Section 31" to the left of line 168.

Example

Sharon ran a cattle farm with the intention of making a profit. However, farming was not her chief source of income in 2011. In 2011, she had employment income and a net farm loss of $9,200, which she calculated on line 9946 on page 4 of Form T1163.

The part of Sharon's net farm loss she can deduct from her other income in 2011 is either amount A or amount B, whichever is less:

A) $9,200; or
B) $2,500 plus 50% x ($9,200 - $2,500)
  $2,500 plus 50% x $6,700

Therefore, B = ($2,500 + $3,350) = $5,850.

Since Sharon can only deduct A or B, whichever amount is less, she enters $5,850 on line 141 of her income tax return and deducts this amount from her other income in 2011. Her restricted farm loss is the amount that remains, which is $3,350 ($9,200 minus $5,850). Sharon prints "Section 31" to the left of line 168 on her return to show that the loss she is deducting is the result of a restricted farm loss calculation.

Applying your 2011 restricted farm loss

You can carry back your 2011 restricted farm loss up to three years and carry it forward up to 20 years.

The amount you deduct in any year cannot be more than your net farm income for that year. If you have no net farming income in any of those years, you cannot deduct any restricted farm loss.

To carry back your 2011 restricted farm loss to any of your  2008, 2009, or 2010 income tax returns, use Form T1A, Request for Loss Carryback. File one copy of the form with your 2011 return. Do not file an amended return for the year or years to which you apply the loss.

Applying your restricted farm losses from years before 2011

You may have net farm income in 2011. If so, you may be able to apply to your 2011 income tax return restricted farm losses you had in any year from 2001 to 2010. You can apply these losses as long as you did not already deduct them from your farm income. Also, you can only apply them up to the amount of your net farm income in 2011. You have to apply the loss from the earliest year first, before you apply the losses from other years. Claim this amount at line 252 of your income tax return.

You may have sold farmland at a time when you had restricted farm losses that you did not claim. If so, you may be able to reduce the amount of your capital gain from the sale. For more information, see Restricted farm losses.

Non-deductible farm losses

If you did not run your farm as a business, you cannot deduct any part of your net farm loss.

The size and scope of your farm may make it impossible for the farm to make a profit, either now or in the near future. In this case, you cannot deduct your farm loss. We consider this kind of farm to be personal. Therefore, any farm expenses are personal expenses and non-deductible.

Non-capital loss

You may have incurred a loss in 2011 from a business other than farming. If this loss is more than your other income for the year, you may have a non-capital loss. To calculate your 2011 non-capital loss, use Form T1A, Request for Loss Carryback.

You can carry back your 2011 non-capital loss up to 3 years. You can carry forward non-capital losses incurred before March 23, 2004 for up to 7 years. Non-capital losses incurred after March 22, 2004, and before 2006 can be carried forward 10 years. Non-capital losses incurred after 2005 can be carried forward up to 20 years.

If you choose to carry back your 2011 non-capital loss to your 2008, 2009, or 2010 income tax returns, complete Form T1A. File one copy of the form with your 2011 income tax return. Do not file an amended return for the year to which you apply the loss.

For more information about non-capital losses, see Interpretation Bulletin IT-232, Losses - Their Deductibility in the Loss Year or in Other Years.



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Chapter 7 - Capital Gains

This chapter explains the capital gains rules for people who farm. We cover the general capital gains rules in Guide T4037, Capital Gains.

Throughout this chapter, we use the terms sell, sold, buy, or bought. These words describe most capital transactions. However, the information in this chapter also applies to deemed dispositions or acquisitions. When reading this chapter, you can use the terms sold instead of disposed of, and bought instead of acquired, if they more clearly describe your situation.

List the dispositions of all your properties on Schedule 3, Capital Gains (or Losses) in 2011. To get forms and publications, go to Forms and publications, or call 1-800-959-2221.

You may be a partner in a partnership that provides you with a T5013 slip, Statement of Partnership Income, or T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses. If the partnership has a capital gain, the partnership will allocate part of that gain to you. The gain will be reported on the partnership's financial statements or on your T5013 or T5013A slip.

What is a capital gain?

You have a capital gain when you sell, or are considered to have sold, a capital property for more than its adjusted cost base plus the outlays or expenses you incurred to sell the property. To calculate your capital gain, subtract the adjusted cost base of your property from the proceeds of disposition. From this amount, subtract any outlays or expenses you incurred when selling your property.

In most cases, capital property includes land, buildings, and equipment that you used in your farming business. Therefore, capital property includes depreciable and non-depreciable property.

You have to include your taxable capital gain in income. Not all your capital gain is taxable. For 2011, generally, your taxable capital gain is one-half of your capital gain.

A disposition of depreciable property may result in a recapture of capital cost allowance (CCA).

What is a capital loss?

You have a capital loss when you sell, or are considered to have sold, non-depreciable capital property for less than its adjusted cost base plus the outlays or expenses you incurred to sell the property. To calculate your capital loss, subtract the adjusted cost base of your property from the proceeds of disposition. From this amount, subtract any outlays or expenses you incurred when selling your property.

Not all your capital loss is deductible. For 2011, your allowable capital loss is one-half of your capital loss. You can only deduct an allowable capital loss from a taxable capital gain.

A loss on a disposition of depreciable property may only result in a terminal loss.

Definitions

Before you can determine your capital gain or capital loss, you will need to know the following terms.

Proceeds of disposition - In most cases, this means the sale price of the property. See Chapter 4, Proceeds of disposition.

Adjusted cost base (ACB) - The ACB is the original cost of the property (including amounts you paid to buy it, such as commissions and legal fees). ACB includes other costs such as the cost of any additions, or the cost to renovate or improve the property.

Outlays and expenses - These are amounts you incurred to sell your property. They include costs such as commissions, surveyors' fees, transfer taxes, and advertising costs.

Fair market value (FMV) - This is generally the highest dollar value you can get for your property. We define this term.

How to calculate your capital gain or loss

To calculate your capital gain or loss, use the following formula:

Proceeds of disposition $        A
Adjusted cost base $        B
A minus B $        C
Outlays and expenses $        D
C minus D = capital gain (loss) $        E

Note
You have to calculate the capital gain or loss on each property separately.

Did you sell capital property in 2011 that you owned before 1972?

If you did, you have to apply a special set of rules when you calculate your capital gain or loss, since you did not have to pay tax on capital gains before 1972. To help you calculate your gain or loss, use Form T1105, Supplementary Schedule for Dispositions of Capital Property Acquired Before 1972.

Disposing of farmland that includes your principal residence

Your home is most often your principal residence. If your home was your principal residence for every year you owned it, you generally do not pay tax on any capital gains when you dispose of it. Therefore, if you sold farmland that included your home in 2011, only part of the gain is taxable. You can choose one of two methods to determine your taxable capital gain. Try both methods to see which one is best for you.

We usually consider approximately one acre of land on which your residence is situated to be part of your principal residence. We will allow you more if you can prove that you needed more land to use and enjoy your principal residence.

Method 1

Separately calculate the capital gain on your principal residence and each of your farm properties. To do this, apportion the proceeds of disposition, the ACB, and any outlays and expenses between your principal residence and each of your farm properties.

Then, calculate the taxable capital gain on your principal residence, if any, and each of the farm properties.

Value the land that is part of your principal residence at one of the following two amounts, whichever is more:

  • the FMV of the land; or
  • the FMV of a comparable residential building site in the area.

Example

On February 1, 2011, Helena sold her 32-acre farm, which included her principal residence. One acre of land is part of her principal residence. Helena has these details:

Value of land when she bought her farm    
FMV of similar farmland per acre $ 3,750
FMV of a typical residential building site in the area $ 15,000
Value of land when she sold her farm    
FMV of similar farmland per acre $ 6,250
FMV of a typical residential building site in the area $ 25,000
Adjusted cost base (ACB) - actual purchase price    
Land $ 120,000
House   60,000
Barn   16,000
Silo   4,000
Total $ 200,000
Proceeds of disposition - actual sale price    
Land $ 200,000
House   75,000
Barn   20,000
Silo   5,000
Total $ 300,000


Proceeds of disposition Principal residence             Farm         properties Total
Land $ 25,000 * $ 175,000 $ 200,000
House 75,000   75,000
Barn 20,000 20,000
Silo 5,000 5,000
$ 100,000 $ 200,000 $ 300,000


Minus ACB  
Land $ 15,000 * $ 105,000 $ 120,000
House 60,000   60,000
Barn   16,000 16,000
Silo   4,000 4,000
$ 75,000 $ 125,000 $ 200,000


Gain on sale $ 25,000 $ 75,000 $ 100,000


Minus:
Gain on principal residence **		 25,000       25,000

Capital gain $ 0 $ 75,000 $ 75,000



Taxable capital gain
(1/2 x $75,000)		 $ 37,500


* Helena uses the value of a typical residential building site for the land that is part of her principal residence, since the FMV of a typical site in the area is more than the FMV of one acre of farmland.
** Because Helena's home was her principal residence during all the years she owned it, the capital gain is not taxable.

Note
If your home was not your principal residence for every year you owned it, there could be a capital gain on it that you have to include in your income. Form T2091(IND), Designation of a Property as a Principal Residence by an Individual (Other Than a Personal Trust), will help you calculate the number of years for which you are entitled to designate your home as your principal residence and calculate the part of your gain, if any, that is taxable.

Method 2

Determine the capital gain on your land and your principal residence. Then subtract $1,000 from the gain. Subtract an additional $1,000 for each year after 1971 that the property was your principal residence and you were a resident of Canada. Using Method 2, you can reduce a gain to nil, but you cannot create a loss.

To calculate your capital gain, use the following formula:

Proceeds of disposition $        A
Adjusted cost base $        B
A minus B $        C
Outlays and expenses $        D
Capital gain before reduction (C minus D) $        E
Method 2 reduction $        F
Capital gain after reduction (E minus F) $        G

Note
Transfer the entries on lines A, B, D, and G to the relevant columns on Schedule 3, Capital Gains (or Losses) in 2011, under "Qualified farm property" or "Real estate, depreciable property, and other properties".

If you choose this method, attach a letter to your income tax return that includes the following information:

  • a statement that you sold your farm and are electing under subparagraph 40(2)(c)(ii) of the Income Tax Act;
  • a description of the property you sold; and
  • the number of years after 1971 that the farmhouse was your principal residence while you were a resident of Canada (if you purchased your farm after 1971, give the date you purchased it).

As proof of the value of your property, regardless of which method you choose, keep documents that have the following information:

  • a description of the farm, including the size of the buildings and construction type;
  • the cost of the property and date of purchase;
  • the cost of any additions or improvements you made to the property;
  • the assessment for property tax purposes;
  • any insurance coverage;
  • the type of land (arable, bush, or scrub); and
  • the type of farm operation.

For more information, see Interpretation Bulletin IT-120, Principal Residence.

Restricted farm losses

You may have a capital gain from farmland you sell in 2011. You may also have restricted farm losses from previous years that you have not yet used. In this case, you can deduct part of these losses from the gain. The part you can deduct is the property taxes and the interest on money you borrowed to buy the land, if you included these amounts in the calculation of the restricted farm loss in question.

You cannot use the restricted farm loss to create or increase a capital loss on the sale of your farmland.

Qualified farm property and cumulative capital gains deduction

If you have a taxable capital gain from the sale of qualified farm property, you may be able to claim a capital gains deduction. We explain qualified farm property below.

The lifetime capital gains exemption (LCGE) has increased from $500,000 to $750,000 for dispositions of qualified farming property made after March 18, 2007.

For information on how to calculate your capital gains deduction, get Form T657, Calculation of Capital Gains Deduction for 2011, and Form T936, Calculation of Cumulative Net Investment Loss (CNIL) to December 31, 2011.

You may be a partner in a partnership that sold capital property. In this case, the partnership includes any taxable capital gain in its income. However, as a partner, you can only claim the capital gains deduction for your share of the gain on qualified farm property.

What is qualified farm property?

Qualified farm property is certain property you, your spouse or common-law partner own. It is also certain property owned by a family-farm partnership in which you, your spouse or common-law partner holds an interest. We define spouse and common-law partner in the "Identification" area of your General Income Tax and Benefit Guide.

Qualified farm property includes:

  • a share of the capital stock of a family-farm corporation that you, your spouse, or common-law partner owns;
  • an interest in a family-farm partnership that you, your spouse, or common-law partner owns;
  • real property, such as land and buildings;
  • eligible capital property, such as milk and egg quotas.

Real property or eligible capital property as qualified farm property

Real property or eligible capital property is qualified farm property only if it is used to carry on a farming business in Canada by any one of the following:

  • you, your spouse or common-law partner, or any of your parents or children;
  • the beneficiary of a personal trust, or the spouse or common-law partner, parent, or child of such a beneficiary;
  • a family-farm corporation where any of the above persons owns a share of the corporation; or
  • a family-farm partnership where any of the above persons (except a family-farm corporation) owns an interest in the partnership.

You may have bought or entered into an agreement to buy real or eligible capital property before June 18, 1987. We consider you to have used this property in carrying on a farming business in Canada if you meet one of these conditions:

  • In the year you disposed of it, the property or the one it replaced was used in a farming business in Canada by any of the above persons, a family-farm partnership, a corporation, or by a personal trust from which one of the above individuals acquired the property.
  • The property, or the property it replaced, was used in a farming business in Canada for at least five years by any of the above persons, a family farm partnership, a corporation, or by a personal trust from which one of the above individuals acquired the property. During this time, the property was owned by any of the above persons or a family-farm partnership or corporation.

We will also consider other real or eligible capital property to be used to carry on a farming business in Canada if you meet the following conditions:

  • throughout the 24 months before the sale, you, your spouse or common-law partner, any of your children, parents, a personal trust from which one of these persons acquired the property, or a family-farm partnership (in which any of these persons has an interest) must have owned the property; and
  • you meet one of the following two conditions:
    • the property, or the property it replaced, was used in a farming business in Canada in which any of the above persons was actively engaged on a regular and ongoing basis. Also, in any 24 months of ownership, the person's gross income from the farming business was larger than the person's income from all other sources in the year; or
    • a family-farm partnership or corporation used the property for at least 24 months, to carry on a farming business in Canada. Also, during this time, you, your spouse or common-law partner, any of your children, or your parents must have been actively engaged on a regular and ongoing basis in the farming business.

Transfer of farm property to a child

You may be able to transfer Canadian farm property to your child. When you do this, you can postpone tax on any taxable capital gain and any recapture of capital cost allowance until the child sells the property. To do this, both these conditions have to be met:

  • Your child is a resident of Canada just before the transfer.
  • The farm property was, land in Canada of a prescribed class owned by you, or any eligible capital property in respect of a farming business carried on in Canada, and used in a farming business in which you, your spouse or common-law partner, or any of your children were actively engaged on a regular and ongoing basis before the transfer.

Your children include:

  • your natural child, your adopted child, or your spouse or common-law partner's child;
  • your grandchild or great-grandchild;
  • your child's spouse or common-law partner;
  • another person who is wholly dependent on you for support and who is, or was immediately before the age of 19, in your custody and control.

The following types of property qualify for this transfer:

  • farmland;
  • depreciable property, including buildings;
  • eligible capital property.

Furthermore, a share of the capital stock of a family-farm corporation and an interest in a family-farm partnership also qualify for this transfer if your child is a resident of Canada just before the transfer.

For depreciable property, the transfer price can be any amount between its undepreciated capital cost (UCC) and its FMV. For land, the transfer price can be any amount between its adjusted cost base (ACB) and its FMV. For eligible capital property, the transfer price can be any amount between:

  • 4/3
   x  your cumulative
eigible capital
property from
the farming
business		  x  FMV of the property ÷ FMV of all your eligible
capital property from the farming business

Example
Wade wants to transfer these farm properties to Vicky, his 19-year-old daughter.

Land
ACB $ 85,000
FMV at the time of transfer $ 100,000

Combine
FMV $ 9,000
UCC at the time of transfer $ 7,840

Therefore, Wade can transfer:

  • the land at any amount between $85,000 (ACB) and $100,000 (FMV); and
  • the combine at any amount between $7,840 (UCC) and $9,000 (FMV).

If Wade chooses to transfer the land at its ACB and the combine at its UCC, he postpones any taxable capital gain and any recapture of CCA. Also, if he does this, we consider that Vicky acquires the land at $85,000 and the combine at $7,840. When Vicky disposes of the land and the combine, she includes in her income any taxable capital gain and recapture that Wade postpones.

For more information about transfers of eligible capital property, see Interpretation Bulletin IT-268, Inter Vivos Transfer of Farm Property to Child.

Transfer of farm property to a child if a parent dies in the year

We allow a tax-free transfer of a deceased taxpayer's Canadian farm property to a child if both of these conditions are met:

  • The child was resident in Canada just before the parent's death.
  • The property was used in a farming business on a regular and ongoing basis by the deceased, the deceased's spouse or common-law partner, or any of the children before the parent's death.

The following types of farm property qualify for this transfer:

  • land and buildings, or other depreciable property used in a farming business;
  • eligible capital property for a farming business; and
  • a share of the capital stock of a family-farm corporation, and an interest in a family-farm partnership, if the child was resident in Canada just before the parent's death and the property transfers to the child no later than 36 months after the parent's death. In some cases, we may allow the transfer, even if it took place later than 36 months after the parent's death.

For most property, the transfer price can be any amount between the ACB and its FMV.

For depreciable property, the transfer price can be an amount between the property's FMV and a special amount. For more information, see Chapter 4, Deemed Disposition of Property in Guide T4011, Preparing Returns for Deceased Persons.

The deceased's legal representative will choose the amount in the year of death. We consider that the child acquires these properties at the amount chosen.

Similar rules apply for property that a deceased person leased to the family-farm corporation or partnership.

For eligible capital property, the transfer amount is equal to 4/3 of the cumulative eligible capital at that time. See Eligible capital property of a deceased taxpayer.

If a child gets a farm from a parent and the child later dies, the property can be transferred to the surviving parent, based on the same rules.

Shares or other property of a family-farm holding corporation can also be transferred based on the same rules from a spouse or common-law partner trust to a child of the settlor. The settlor is the person who sets up a trust, or the person who transfers property to a trust.

For more information on these transfers, see Interpretation Bulletin IT-349, Intergenerational Transfers of Farm Property on Death.

Transfer of farm property to a spouse or common-law partner

A farmer can transfer farm property to a spouse or common-law partner or to a spouse or common-law partner trust during the farmer's lifetime. At the time of the transfer, the farmer can postpone any taxable capital gain or recapture of CCA.

If the spouse or common-law partner later disposes of the property, the farmer generally has to report any taxable capital gain, not the spouse or common-law partner. This rule applies to transfers made after 1971 where the farmer is living when the spouse or common-law partner sells the property. However, there are exceptions to this rule. For more information, see Interpretation Bulletin IT-511, Interspousal and Certain Other Transfers and Loans of Property.

A transfer of farm property can also occur after the farmer dies. For more information, see Chapter 4, Deemed Disposition of Property, in Guide T4011, Preparing Returns for Deceased Persons.

The rollover provisions available for farm property are now extended to land and depreciable property used principally in a woodlot farming business. They will apply where the deceased, the deceased's spouse or common-law partner, or any of the deceased's children were engaged in the woodlot operation as required by a prescribed forest management plan for the woodlot. These provisions apply to transfers of property that occur after December 10, 2001.

Other special rules

You may also be able to postpone paying tax on capital gains in the following situations.

Reserves

When you dispose of a capital property, you usually receive full payment at that time. However, sometimes you receive the amount over a number of years. Generally, a reserve allows you to defer reporting part of the capital gain to the year in which you receive the proceeds. For example, you may sell a capital property for $50,000 and receive $10,000 at the time of the sale. You receive the remaining $40,000 over four years. In this situation, you can claim a reserve. However, there is a limit to the number of years you can do this. For more information on reserves, see Guide T4037, Capital Gains, and Form T2017, Summary of Reserves on Dispositions of Capital Property.

Exchanges or expropriations of property

There are special rules that apply when you dispose of a property and replace it with a similar one, or when someone expropriates your property. For more information, see Interpretation Bulletin IT-259, Exchange of Property. You may also want to see Interpretation Bulletin IT-491, Former Business Property, and its Special Release.



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Commodity List

COMMODITY CODE
  GRAINS, OILSEEDS, AND SPECIAL CROPS
  Barley 003
  Beans (Dry Edible) 004
  Borage 006
  Buckwheat 007
  Camelina 282
  Canadian Wheat Board Payments 002
  Canary Seed 008
  Canola 010
  Chick Peas / Garbanzo Beans 023
  Corn 011
  Faba Beans 012
  Field Peas 013
  Flaxseed 014
  Forage (Including Pellets, Silage) 264
  Forage Seed 015
  Grain (Pellets, Screenings, Silage) 039
  Hemp 030
  Kenaf 317
  Khorasan Wheat / Kamut 036
  Lathyrus 040
  Lentils 041
  Lupins 042
  Millet 043
  Mixed Grain 024
  Mustard Seed 044
  Niger Seed / Niger Thistle 283
  Oats 045
  Oilseed Radish 038
  Prepared Feed and Protein Supplements (Itemized) 046
  Quinoa 047
  Rice 048
  Rye 049
  Safflower 050
  Soybeans 053
  Spelt 037
  Straw 267
  Sugar Beets (Including Molasses) 268
  Sunflowers 054
  Tobacco 269
  Triticale 055
  Vegetable Seed (seed production only) 051
  Wheat 056
  EDIBLE HORTICULTURE
  Flowers (Edible) 180
  Mushrooms (Including Spawn) 131
  Nuts (All) 140
  Weeds (Edible) 211
  BERRIES
  Currants (Black, Red ) 065
  Blackberries 066
  Blueberries 067
  Cranberries 068
  Elderberries 074
  Gooseberries 069
  Haskap 075
  Loganberries 070
  Raspberries 071
  Saskatoon Berries 072
  Seabuckthorn 076
  Strawberries 073
  Fruit
  Apples 060
  Apricots 091
  Cantaloupe 168
  Cherries (Sweet, Sour) 092
  Fruit Juice 081
  Grapefruit 082
  Grapes 083
  Kiwi Fruit 084
  Lemons 085
  Melons 185
  Nectarines 093
  Oranges 086
  Peaches 094
  Pears 095
  Plums 096
  Prunes 097
  Watermelon 087
  Wine 088
  Herbs and Spices
  Anise 101
  Basil 102
  Caraway Seed 103
  Chervil 158
  Chives 104
  Cilantro 105
  Comfrey 106
  Coriander 107
  Cumin 144
  Dill 108
  Echinacea 142
  Fennel 110
  Fenugreek 111
  Fireweed 377
  Garlic 113
  Gingko Biloba 380
  Ginseng 114
  Lavender 379
  Lemon Balm 378
  Marjoram 115
  Mint 116
  Monarada 117
  Oregano 118
  Parsley 119
  Pepper 120
  Rosemary 121
  Sage 122
  Salsify 123
  St. Johns Wort 381
  Summer Savory 125
  Tarragon 126
  Thyme 127
  Watercress 128
  Vegetables 
  Artichokes 160
  Arugula / Rocket 195
  Asparagus 161
  Beans, Fresh 025
  Beets 162
  Bok Choi 163
  Broccoflower 164
  Broccoli 165
  Brussel Sprouts 166
  Cabbage 167
  Carrots 169
  Cauliflower 170
  Celery 171
  Chinese Vegetables 173
  Collards 174
  Cucumbers 175
  Eggplant 176
  Endive 177
  Fiddleheads 179
  Gherkins 221
  Green Peas 223
  Horseradish 181
  Kale 214
  Kohlrabi 182
  Leeks 183
  Lettuce 184
  Mustard Leaves 186
  Okra 227
  Onions 187
  Parsnip 190
  Peppers 191
  Potatoes and By‑Products 147
  Pumpkins 192
  Radish 193
  Rhubarb 194
  Rutabagas 197
  Shallots 198
  Spinach 201
  Squash 202
  Stevia 230
  Sweet Corn 203
  Sweet Peas 204
  Sweet Potatoes / Yams 205
  Swiss Chard 206
  Tomatoes 207
  Turnips 208
  Vegetable Marrow 209
  Witloof Chicory 212
  Zucchini 213
  Vegetables – Greenhouse
  Cherry Tomatoes 233
  Cucumbers 234
  Lettuce 235
  Peppers 236
  Tomatoes 237
  NON‑EDIBLE HORTICULTURE
  Bedding Plants 132
  Flowers and Ornamental Foliage 133
  Fruits and Vegetables (Non‑Edible) 134
  Seeds and Bulbs 135
  Shrubs 136
  Sod 137
  Trees (Cultivated Christmas) 138
  Trees (Fruit and Ornamental) 139
  INCOME FEED
  Custom feedlot operator income
  Custom feedlot operator income (itemized invoices) – qualifying feed and protein 243
  Other custom feeding income (itemized) 576
  Custom feedlot operator income (non itemized invoices) – qualifying prepared feed 246
  EXPENSE FEED
  Livestock owners and custom feedlot operators with prepared feed purchases
  Prepared feed and protein supplements (itemized) 046
  Other feed charges (itemized) 570
  Prepared feed and purchases (non itemized) 571
  Livestock owners and custom feeding expense
  Livestock Owners Custom Feeding Expense (itemized) – Qualifying Feed and Protein Supplements 577
  Other custom feeding expenses (itemized) 572
  Custom feeding expenses (non itemized) 573
  Ranch fur operators with prepared feed purchases
  Prepared feed and protein supplements (itemized) 046
  Ranch fur Operators Other Feed Expenses (itemized) 310
  Ranch fur Operators Feed Purchases (non itemized) 574
  POULTRY, FOWL, RATITES
  Chickens 366
  Chickens, (Non‑Supply Managed) 590
  Chickens, Eggs (Non‑Supply Managed) 589
  Chickens, Eggs for Consumption 343
  Chickens, Eggs for Hatching 344
  Ducks (Including Eggs) 332
  Emus 373
  Geese (Including Eggs) 333
  Ostriches 371
  Partridge 323
  Pheasants (Including Eggs) 338
  Pigeons 327
  Quail 324
  Rheas 372
  Silkies 326
  Taiwanese Chickens 325
  Turkeys 334
  Turkeys (Non‑Supply Managed) 591
  Turkey Eggs 342
  PRESCRIBED DROUGHT REGION (PDR) / CFIA
  LIVESTOCK CODES
  Deferred bison 151
  Deferred Bovine cattle 150
  Deferred deer 154
  Deferred elk 155
  Deferred goat 152
  Deferred horse for PMU sales 156
  Deferred other breeding animals 157
  Deferred sheep 153
  LIVESTOCK
  Alpacas 370
  Bees, Leaf Cutter 312
  Bees, Honey 374
  Bison (Including Hides) 350
  Cattle, Calves 719
  Cattle, Cows and Bulls 706
  Cattle, Fat / Slaughter 720
  Cattle, Feeder 721
  Cattle, Purebred Breeding 722
  Chinchilla 240
  Commercial Game Animals (Including Hides) 351
  Deer (Including Hides) 352
  Dogs (Kennels and Pet Breeding Excluded) 313
  Donkeys/Mules 367
  Elk (Including Hides and Velvet) 353
  Fox 241
  Goats (Including Milk and Hides) 354
  Groundhogs / Hedgehogs 369
  Horses (Including Hides) 316
  Llamas (Including Hides) 355
  Mink 242
  Pot Bellied Pigs 239
  Rabbits (Including Pelts) 356
  Reindeer 244
  Sheep, Lambs 723
  Sheep Ewes and Rams 734
  Swine 341
  Wild Boar 247
  OTHER PRODUCTS
  Bee By‑Products 375
  Fish Meal 263
  Honey 129
  Manure 318
  Maple Products 130
  Milk and Cream (Cattle) 319
  Milk and Cream (Non‑Supply Managed) 592
  Pollination Services Fee 376
  Pregnant Mare Urine (PMU) 322
  Semen and Embryos 712
  Wool 328
  Wood 259

Note
For information on any commodities not included in this listing, contact your administration.



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Program Payment List A

See the following lists to determine the correct code to be used for reporting the payment type on Form T1163 or Form T1164.

Payments received from Program Payment List A as compensation for commodity income or loss are included in calculating your AgriStability program year production margin.

Program payments received directly for the loss of an allowable commodity (e.g., AgriInsurance/production or crop insurance, hail insurance, private insurance for eligible commodities, or wildlife damage compensation) will be included in the calculation of your ANS for AgriInvest.

PROGRAM PAYMENT CODE

Alberta Farm Recovery Plan (AFRP)

 580

Alberta Livestock Price Insurance Programs (CPIP, HPIP)

 620

BC Cull Animal Program

 457

BC Livestock Drought Assistance Program (LDAP) Federal Portion

 569

BC Negative Margin Insurance Pilot Program

 497

BC Steer and Heifer Market Transition Program

 496

Bovine Spongiform Encephalopathy Recovery Program (BSE)

 468

Canada‑Alberta Excess Moisture Initiative (CAEMI, CAEMI II)

610

Canada‑Alberta Feed Transportation Assistance Initiative (CAFTAI)

618

Canada‑Alberta Pasture Recovery Initiative (CAPRI)

608

Canada‑Alberta Seed Potato Assistance Program

 599

Canada‑British Columbia Excess Moisture Initiative

 624

Canada‑British Columbia Feed Assistance and Pasture Restoration Initiative

 625

Canada‑Manitoba Avian Influenza Assistance Initiative

621

2010 Canada‑Manitoba Excess Moisture Assistance Program

 611

Canada‑Manitoba Feed and Transportation Assistance Initiative

617

Canada‑New Brunswick Honey Bee Revitalization Initiative

 578

Canada‑Saskatchewan Excess Moisture Program

 612

Canada‑Saskatchewan Pasture Recovery Initiative (CSPRI)

 613

Canadian Food Inspection Agency (CFIA) Payment for allowable commodities

 469

Canadian Food Inspection Agency (CFIA) Payment for supply managed commodities

 479

Canadian Food Inspection Agency (CFIA) Payment for other amounts

 588

Circovirus Inoculation Program (CIP) (all provinces)

 579

Cost of Production Payment

 426

Cover Crop Protection Program

 473
AgriInsurance (Production or crop)/Hail insurance
  Grains, oilseeds, and special crops 401
  Edible horticulture crops 402
  Non-edible horticulture crops 470
  Other commodities 463
Cull Breeding Swine Program (all provinces) 582
Farm Income Payment Direct (FIP) 485
Farm Income Payment General (FIP) 484
Fed Cattle Set-Aside Program (all provinces) 483
Feeder Calf Set-Aside Program (all provinces) 482
Grain and Oilseed Program Payment (GOPP) 486
Insurance proceeds for allowable expense items 406
Livestock Feed Insurance Program 412

2011 Manitoba AgriRecovery Program (Allowable income)

 626
Manitoba Assiniboine Valley Producers Flood Assistance Program 564
Manitoba Cull Animal Program 492
Manitoba Drought Assistance Program 489
Manitoba Feeder Assistance Program 480

Manitoba Flood: Building and Action Recovery Program (allowable income)

 623
Manitoba Forage Assistance Program (MFAP) 597
Manitoba Forage Restoration Assistance Program 595
Manitoba Interlake Unseeded Land Restoration Program 609
Manitoba Livestock Feed Assistance Program 594
Manitoba Other Ruminant Industry Transitional Program 488
Manitoba Slaughter Deficiency Program 481

Manitoba Spring Blizzard Livestock Mortalities Assistance Program

 628
New Brunswick Potato Storage Assistance Program 615
Nova Scotia Modified BSE Recovery Program 491
Nova Scotia Ruminant Industry Support Program 487
Ontario Juice Grape Transition Program 551
Ontario Special Beekeepers Fund 552
Ontario Tornado Assistance Initiative 614

Other AgriRecovery Program (allowable income)**

 627
Orchard and Vineyards Transition Program 583
PEI Potato Assistance Program 598
Plum Pox Eradication 600
Saskatchewan Cattle and Hog Support Program 593
Saskatchewan Cull Animal Program 494

Saskatchewan Feed and Forage Program

 616
Saskatchewan Herd Retention Program 493

Shoal Lakes Agriculture Flooding Assistance Program (allowable income)

 622
Transitional Industry Support Program (TISP) 498
Waterfowl/Wildlife Damage Compensation
  Grains, oilseeds, and special crops 418
  Horticulture 419
  Other commodities 425

** “This code should only be used for AgriRecovery programs (allowable income for AgriStability) not specifically listed above.”

Program Payment List B

Payments received from Program Payment List B as compensation for commodity income or loss are NOT included in calculating your AgriStability program year margin or in calculating your ANS for AgriInvest.

PROGRAM PAYMENT CODE
Alberta Spring Price Endorsement 495
Alternate Land Use Services ALUS 557
BC Bovine Tuberculosis Assistance Program 596
BC Livestock Drought Assistance Program (LDAP) Provincial portion 603
Canada - Manitoba Farm Stewardship Program 563
Canada - Ontario Grain and Oilseed Payment 410
Canada - Ontario Grain Stabilization Payment 410
Canadian Agricultural Skills Service CASS 561
Canadian Farm Business Advisory Service CFBAS 562
Canadian Farm Families Options Program 420
Canadian Food Inspection Agency (CFIA) Payment for non-allowable commodities 587
CAIS Inventory Transition Initiative (CITI) 421
Dairy subsidies 435
Green Plan, Farm-Based Program
  Permanent cover practices 466
Hog Farm Transition Program 607
Industry Transition Production Assistance Program 478
Management Training Credit 558

2011 Manitoba AgriRecovery Program (non-allowable income)

630
Manitoba Farmland School Tax Rebate Program 556

Manitoba Flood: Building and Action Recovery Program (non-allowable income)

631
Manitoba Ruminant Assistance Program 584
Market Revenue Insurance (MRI)
  Grains, oilseeds, and special crops 410
  Edible horticulture crops 411
  Non-edible horticulture crops 474
New Brunswick Honey Bee Revitalization Initiative (provincial payment) 604
Nova Scotia Hog Transition Program 555
Nova Scotia Margin Enhancement Program 554
Nova Scotia Transitional Assistance Program for Ruminant Livestock and Hogs 585
Ontario Cattle, Hog and Horticulture Payment 581
Ontario Cost Recognition Top-Up 553
Ontario Duponchelia Assistance 602
Ontario Edible Horticulture Crop Payment 475
Ontario Grain and Oilseed Program Payment 471
Ontario Inventory Transition Payment 441
Ontario Risk Management Program 565

Other AgriRecovery Program (non‑allowable income)**

632
Production Insurance Premium Adjustment 499

Saskatchewan Crop Insurance Premium Adjustment

 619
SK Farm and Ranch Water Infrastructure Program (FRWIP) 601

Shoal Lakes Agriculture Flooding Assistance Program (non-allowable income)

 629
Special Farm Assistance 560
Tobacco Transition Program 606
Transitional Financial Assistance Program (TFA) 427
Young Farmer Rebate 559

** “This code should only be used for AgriRecovery programs (non-allowable income for AgriStability) not specifically listed above.”

Capital Cost Allowance (CCA) Rates

In this list, you will find the more common depreciable properties a farming business may use. The CCA rates appear at the end of the list. For information on the CCA rates for Class 13, Class 14, Class34, Class 43.1, and Part XVII of the Income Tax Act, call 1-800-959-5525.

Depreciable property Class No.
Aircraft - Acquired before May 26, 1976 16
Aircraft - Acquired after May 25, 1976 9
Bee equipment 8
Boats and component parts 7
Breakwaters
  Cement or stone 3
  Wood 6
Brooders 8
Buildings and component parts
  Wood, galvanized, or portable 6
  Other:
  Acquired after 1978 and before 1988* 3
  Acquired after 1987 1
  Fruit and vegetable storage (after Feb. 19, 1973) 8
Casing, cribwork for water wells 8
Chain-saws 10
Cleaners - grain or seed 8
Combines
  Drawn 8
  Self-propelled 10
Coolers - Milk 8
Cream separators 8
Cultivators 8
Dams
  Cement, stone, wood, or earth 1
Diggers - All types 8
Discs 8
Docks 3
Drills - All types 8
Dugouts, dikes, and lagoons 6
Electric-generating equipment - portable 8
Electric motors 8
Electronic office equipment and data network infrastructure equipment 8, 45,
46, 50, 52
Elevators 8
Engines - Stationary 8
Fences - All types 6
Forage harvesters
  Drawn 8
  Self-propelled 10
Graders - Fruit or vegetable 8
Grain-drying equipment 8
Grain loaders 8
Grain separators 8
Grain-storage building
  Wood, galvanized steel 6
  Other 1
Greenhouses (all except as noted below) 6
Greenhouses of rigid frames covered with replaceable flexible plastic 8
Grinder 8
Harness 10
Harrows 8
Hay balers and stookers
  Drawn 8
  Self-propelled 10
Hay loaders 8
Ice machines 8
Incubators 8
Irrigation equipment - Overhead 8
Irrigation ponds 6
Leasehold interest 13
Manure spreaders 8
Milking machines 8
Mixers 8
Mowers 8
Nets 8
Office equipment including photocopiers, fax machines 8
Outboard motors 10
Passenger vehicles (see Chapter 3) 10 or 10.1
Piping - Permanent 2
Planters - All types 8
Ploughs 8
Pumps 8
Rakes 8
Roads or other surface areas - Paved or concrete 17
Silo fillers 8
Silos 8
Sleighs 10
Sprayers 8
Stable cleaners 8
Stalk cutters 8
Swathers
  Drawn 8
  Self-propelled 10
Threshers 8
Tillers - All types 8
Tools
  Less than $500 12
  $500 and more 8
Tractors 10
Trailers 10
Trucks 10
Trucks (freight) 16
Wagons 10
Water towers 6
Weeders 8
Welding equipment 8
Well equipment 8
Wharves
  Cement, steel, or stone 3
  Wood 6
Wind chargers 8
Wind-energy conversion equipment
  acquired before February 22, 1994 34
  acquired after February 21, 1994 43.1

* You may add to or alter a Class 3 building after 1987. In this case, there is a limit on the amount you can include in Class 3. The most you can include in Class 3 is the lower of $500,000 or 25% of the building's cost on December 31, 1987. In Class 1, include any costs you incur that are over this limit.

Class Rates
Class 1 4%
Class 2 6%
Class 3 5%
Class 6 10%
Class 7 15%
Class 8 20%
Class 9 25%
Class 10 30%
Class 10.1 30%
Class 12 100%
Class 16 40%
Class 17 8%
Class 45 45%
Class 46 30%
Class 50 55%
Class 52 100%


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How to Calculate the Mandatory Inventory Adjustment (MIA)

For instructions on how to complete the following charts, see Chapter 3.

Chart 1
Cash cost of purchased inventory
Enter the amount you paid by the end of the 2011 fiscal period for the specified animals you bought:
Fiscal period Cash cost
  • in your 2011 fiscal period
 $        A
  • in your 2010 fiscal period
 $        B
  • in your 2009 fiscal period
 $        C
  • in your 2008 fiscal period
 $        D
  • before your 2008 fiscal period
 $        E
Enter the amount you paid by the end of your 2011 fiscal period for all other inventory you bought:
  • in your 2011 fiscal period
 $        F
  • in your 2010 fiscal period
 $        G
  • in your 2009 fiscal period
 $        H
  • in your 2008 fiscal period
 $        I
  • before your 2008 fiscal period
 $        J

 
Chart 2
Value of purchased inventory for specified animals
Inventory bought in your 2011 fiscal period
  Enter an amount that is not more than the amount on line A
but not less than 70% of this amount.		 $        K

Inventory bought in your 2010 fiscal period
  Enter an amount that is not more than the amount on line B,
but not less than 70% of the total of the value at the end of your 2010
fiscal period plus any amounts you paid in your 2011 fiscal period toward the purchase price.

 $        L

Inventory bought in your 2008 fiscal period
  Enter an amount that is not more than the amount on line C,
but not less than 70% of the total of the value at the end of your 2010
fiscal period plus any amounts you paid in your 2011 fiscal period toward the purchase price.

 $        M

Inventory bought in your 2008 fiscal period
  Enter an amount that is not more than the amount on line D,
but not less than 70% of the total of the value at the end of your 2010
fiscal period plus any amounts you paid in your 2011 fiscal period toward the purchase price.

 $        N
Inventory bought before your 2008 fiscal period
  Enter an amount that is not more than the amount on line E,
but not less than 70% of the total of the value at the end of your 2010
fiscal period plus any amounts you paid in your 2011 fiscal period toward the purchase price.		 $        O

 
Chart 3
Value of purchased inventory for all other inventory
Inventory bought in your 2011 fiscal period:
  Enter the amount on line F or the fair market value, whichever is less.		 $        P
Inventory bought in your 2010 fiscal period:
  Enter the amount on line G or the fair market value, whichever is less.		 $        Q
Inventory bought in your 2009 fiscal period:
  Enter the amount on line H or the fair market value, whichever is less. 		$   R
Inventory bought in your 2008 fiscal period:
  Enter the amount on line  I or the fair market value, whichever is less		 $        S
Inventory bought before your 2008 fiscal period:
  Enter the amount on line J or the fair market value, whichever is less.		 $        T

 
Chart 4
Calculation of MIA
Enter the amount of your net loss from line 9969 of Form T1163 or T1164.   $       U
Enter the value of your inventory from Chart 2 and Chart 3:
  • the amount on line K
 $        
  • the amount on line L
 $     
  • the amount on line M
 $     
  • the amount on line N
 $     
  • the amount on line O
 $     
  • the amount on line P
 $     
  • the amount on line Q
 $     
  • the amount on line R
 $     
  • the amount on line S
 $     
  • the amount on line T
 $     
Total value of inventory $    $       V
MIA - enter the amount on line U or line V, whichever is less.   $    W


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GST/HST Rates

Farm goods and services subject to GST or HST include:

  • crop dusting;
  • contract work, including field clearing, tilling, harvesting done by one farmer on behalf of another;
  • road-clearing services;
  • stud or artificial insemination services;
  • storing goods (i.e., storing grain in a grain elevator);
  • beeswax;
  • maple sugar candy;
  • canary seed, lawn seed, and flower seed;
  • bedding plants, sod, cut flowers, living trees, and firewood;
  • furs, animal hides, and dead animals not suitable for human consumption;
  • fertilizer in bulk quantities of less than 500 kg, or any quantities of soil or soil mixture whether or not it contains fertilizer;
  • gravel, stones, rock, soil, and soil additives;
  • livestock or poultry not normally raised as food or to produce food for human consumption (i.e., horses, mules, rabbits, exhibition poultry, and mink); and
  • processed wool, feathers, and down.

Many farm products and purchases, such as milk sales and feeder-cattle purchases, are taxable, but at 0%. We refer to these as zero-rated. You do not pay GST/HST when you buy these products and you do not charge GST/HST when you sell them to your customers.

Zero-rated farm products are:

  • fruit and vegetables;
  • grains or seeds in their natural state, treated for seeding purposes or irradiated for storage purposes, hay or silage, or other fodder crops, when they are sold in quantities larger than ordinarily offered for sale to consumers, except grains and seeds sold to use as feed for wild birds or pet food;
  • feed sold by a feedlot operator, as long as the price is separately identified on the invoice or written agreement;
  • hops, barley, flaxseed, straw, sugar cane, or sugar beets;
  • livestock such as cattle, hogs, poultry, bees, or sheep that are raised or kept to produce food, or to be used as food, for human consumption, or to produce wool;
  • poultry or fish eggs that are produced for hatching;
  • rabbits, except those that are to be sold as pets;
  • frozen, salted, smoked, dried, scaled, eviscerated or filleted fish, or seafood sold for human consumption;
  • fertilizer sold in individual bags of at least 25 kg when the total quantity is at least 500 kg;
  • wool that is not further processed than washed; and
  • tobacco leaves that are not further processed than dried and sorted.

Zero-rated farm purchases are:

  • large farm tractors (60 PTO hp. and over);
  • pull and self-propelled combines, swathers, and wind-rowers;
  • headers for combines, forage harvesters, swathers or wind-rowers;
  • combine or forage harvester pickups;
  • forage harvesters, and self-propelled, tractor-mounted, or pull-type mechanical fruit or vegetable pickers or harvesters;
  • mouldboard and disc ploughs (3 or more furrows), and chisel ploughs and subsoil chisels (at least 8 feet or 2.44 metres);
  • discers, rod weeders, or bean rods (at least 8 feet or 2.44 metres);
  • field and row crop cultivators (at least 8 feet or 2.44 metres);
  • combination discer-cultivators (at least 8 feet or 2.44 metres);
  • rototillers and rotovators (at least 6 feet or 1.83 metres);
  • harrows sold in complete units and pulverizers (at least 8 feet or 2.44 metres);
  • land packers, mulchers, and rotary hoes (at least 8 feet or 2.44 metres);
  • airflow seeders, grain and seed drills (at least 8 feet or 2.44 metres), and farm-type row-crop or toolbar seeders or planters designed to seed two or more rows at a time;
  • mower conditioners, hay balers, hay cubers, hay rakes, hay conditioners, hay crushers, hay crimpers, hay tedders, swath turners, and wind-row turners;
  • bale throwers, elevators, or conveyors, silage baggers and round bale wrapping machines;
  • grain bins or tanks with a capacity of 181 m3 or less (5,000 bushels);
  • transportable grain augers, utility augers, elevators and transportable conveyors with belts less than 76.2 cm (30 inches) wide and 0.48 cm (3/16 inch) thick;
  • bin sweep or cleaner attachments for portable grain augers;
  • tractor-powered pneumatic grain conveyors;
  • feed mills, including roller mills and hammer mills;
  • feed mixers, grinders, grinder mixers, and tub grinders;
  • ensilage mixers, and self-propelled feed or ensilage carts;
  • grain toasters to use in livestock feed production;
  • grain dryers;
  • farm bulk milk coolers;
  • assembled and fully operational milking systems or individual components of these systems;
  • automated and computerized farm livestock or poultry feeding systems or individual components of these systems;
  • self-propelled, tractor-mounted, or pull-type agricultural wagons or trailers designed for off-road handling and transporting of grain, forage, livestock feed, or fertilizer, and to be used at speeds not exceeding 40 km per hour;
  • mechanical rock or stone pickers, rock or root rakes, and rock or root wind-rowers, forage blowers, silo unloaders, and shredders with an operational width of at least 3.66 m or 12 feet;
  • tractor-mounted, self-propelled, or pull-type field sprayers with tank capacities of at least 300 litres or 66 gallons;
  • granular fertilizer or pesticide applicators with an operational capacity of at least 0.2265 m3 or 8 cubic feet;
  • liquid box, tank, or flail manure spreaders and injection systems for liquid manure spreaders;
  • leafcutter bees;
  • complete feeds, supplements, micro-premixes, macro-premixes, and mineral feeds other than trace mineral salt feeds, labelled in accordance with the Feeds Regulations, and designed for rabbits or a specific type of farm livestock, fish, or poultry ordinarily raised or kept for human consumption or to produce wool, and sold in bulk quantities or bags of 20 kg or more;
  • feed sold in bulk quantities or bags of 20 kg or more and designed for ostriches, rheas, emus, or bees;
  • food processing by-products sold in bulk quantities or bags of 20 kg or more and used as feed or as ingredients in feed for farm livestock, fish, or poultry that is ordinarily raised or kept for human consumption or to produce wool, or for rabbits, ostriches, rheas, emus, or bees;
  • pesticides used for agricultural purposes labelled by the Pest Control Products Regulations and not designed for domestic use;
  • sales of quotas between farmers for zero-rated products (including dairy, turkey, chicken, eggs, and tobacco leaves); and
  • farmland rented to a registrant under a sharecropping arrangement, where a share of the production that is zero-rated is part of the price (any other extra payments are taxable).

GST/HST registrants can claim an input tax credit for the GST/HST they paid or owe for expenses used to provide taxable goods and services at the rates of 0%, 5%, and 13%.

A limited number of goods and services you purchase are exempt from GST/HST. Since you do not pay GST/HST on these goods and services, there is no input tax credit to claim.

Examples of exempt goods and services include:

  • insurance services sold by insurance companies, agents, or brokers;
  • most services provided by financial institutions, such as arranging loans or mortgages; and
  • most health, medical, and dental services.

For more information about GST/HST, see Guide RC4022, General Information for GST/HST Registrants.



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Index

For more information

What if you need help?

If you need help after reading this publication, our Web site or call 1-800-959-5525.

Forms and publications

To get any forms or publications, go to Forms and publications or call 1-800-959-2221.

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My Account

My Account is a secure, convenient, and time-saving way to access and manage your tax and benefit information online, seven days a week! If you are not registered with My Account but need information right away, use Quick Access to get fast, easy, and secure access to some of your information now. For more information, go to My Account for individuals or see Pamphlet RC4059, My Account for individuals.

My Business Account

My Business Account is a secure and convenient way to access and manage your business accounts online.

You can:

  • view your account balance and transactions
  • file your return and view its status
  • calculate your instalment payments
  • view notices, letters, and statements
  • view address and banking information
  • transfer payments and immediately view an updated balance

Quick. Easy. Secure. For more information, go to My Business account.

Represent a Client

Represent a Client is a secure online service to access tax information and services on behalf of businesses, including your employer. To register, go to Represent a Client.

My Payment

My Payment is a new payment option that allows individuals and businesses to make payments online, using the Canada Revenue Agency’s Web site, from an account at a participating Canadian financial institution. For more information on this self-service option, go to My Payment.

TIPS (Tax Information Phone Service)

For personal and general tax information by telephone, use our automated service, TIPS, by calling 1-800-267-6999.

Teletypewriter users

TTY users can call 1-800-665-0354 for bilingual assistance during regular business hours.

Our service complaint process

Step 1 – Talk to us

If you are not satisfied with the service that you have received from us, you can make a formal complaint. Before you do this, we recommend that you try to resolve the matter with the CRA employee you have been dealing with or call the telephone number that you have been given.

If you are not pleased with the way your concerns are addressed, you can ask to discuss the matter with the employee’s supervisor.

Step 2 – Contact CRA – Service Complaints

The CRA – Service Complaints program is available to individual and business taxpayers, as well as benefit recipients. This program gives you another level of review if you are not pleased with the results from the first step of our complaint process. Generally, service-related complaints refer to the quality and timeliness of work that we have performed.

To bring your complaint to the attention of CRA – Service Complaints, complete Form RC193, Service-Related Complaint, which you can get by going to Service Complaints or by calling 1‑800‑959‑2221.

Step 3 – Contact the Taxpayers’ Ombudsman

If, after following steps 1 and 2, you are still not satisfied with our service, you can file a complaint with the Office of the Taxpayers’ Ombudsman.

For information about the Taxpayers’ Ombudsman and how to file a complaint, please visit Taxpayers’ Ombudsman.

Your opinion counts

If you have any comments or suggestions that could help us improve our publications, we would like to hear from you. Please send your comments to:

Your opinion counts

Taxpayer Services Directorate
Canada Revenue Agency
750 Heron Road
Ottawa ON  K1A 0L5

Date Modified: 2012-03-16

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