Reporting methods

You report your farming income based on a fiscal period. 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. However, it can be shorter than 12 months in some cases, such as in the first year or last year of your business.

Self-employed individuals generally have to use a December 31 year-end. 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 and Form T1139, Reconciliation of Business Income for Tax Purposes.

You can report your farming income using the cash method or the accrual method of accounting.

Cash method

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 more details on the cash method for farming income, see Chapter 1 of Guide T4003, Farming Income and Interpretation bulletin IT-433, Farming or Fishing - Use of Cash Method.

Accrual 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 for 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, and so on, will form part of the calculation. For more information on inventories, see Chapter 1 of Guide T4003, Farming Income and Interpretation bulletin IT-473, Inventory Valuation.

Note
Financial Statements, prepared in accordance with Generally Accepted Accounting Principles (GAAP), are completed using the accrual method.

Changing your method of reporting income

If you decide to change your method of reporting income from the accrual method to the cash method, or from the cash method to the accrual method, see Chapter 1 of Guide T4003, Farming Income for detailed information.

Forms and publications

• Guide T4003, Farming Income
• Guide T4002, Business and profession Income
• Guide RC4015, Reconciliation of Business Income for Tax Purposes
• Interpretation bulletin IT-433, Farming or Fishing - Use of Cash Method
• Interpretation bulletin IT-473, Inventory Valuation

Related topics

• Sole proprietorships and partnerships