Income Tax

Overview

Lifetime Capital Gains Exemption

As announced in the 2015, Federal Budget, the federal government proposes to increase the Lifetime Capital Gains Exemption (LGCE) to $1,000,000 from $800,000. This new limit will apply to the dispositions of qualified farm property made on or after April 21, 2015. The $1,000,000 limit will not be adjusted until inflation has caught up from the $813,000 limit in 2014, at which time it will be reopened for review.

Qualified Property

The eligibility requirements for qualified property vary depending on how long the seller has owned the land. If a farmer has owned the land since before June 17th 1987 there are two simple eligibility criteria:

  • The property be used principally in the business of farming at the time of sale or;
  • If it is not being used in farming at the time of sale then it must have been used for farming for at least five years in the past

If a farmer purchased that land after June 17th 1987 then there are more strict eligibility criteria:

  • For any two years, a qualified user (the current owner or the parents, grandparents, great grandparents, or children or grandchildren),  must have been actively engaged in farming and;
  • Earned more gross revenue from that farming business than from all other sources of income.

To ensure you qualify for the Lifetime Capital Gains Exemption, consult with your accountant.

Restricted Farm Losses

The federal government proposed in the 2013 Federal Budget to increase the annual maximum deduction used in the calculation for Restricted Farm Losses from $8,750 to $17,500 for taxation years that end after March 20, 2013. This means that if your net farm loss is $32,500 or more and you are subject to the Restricted Farm Losses provisions, you will now be able to deduct $17,500 ($2,500 plus 50%  of the next $30,000 in losses) from your other income. If your net farm loss is less than $32,500, the amount that you will be able to deduct from your other income is the lesser of:

  • Your net farm loss for the year; or
  • 2,500 plus 50% x (your net farm loss minus $2,500)

Note that restricted farm losses will apply in cases where a taxpayer’s chief source of income for a year is neither farming nor a combination of farming and some other source of income. In other words, restricted farm loss rules will apply unless all other sources of income are subordinate to farming income. Any remaining farm losses can be applied against farming income earned in other taxation years, and can be carried back three years and carried forward a maximum of 20 years.

Example: Joe incurs a $20,000 loss from his farming business in 2015. Joe has off farm income that exceeds his farming income. The loss Joe can deduct against his other sources of income is $11,250 ($2,500 + (50% x ($20,000- $2,500)))

The Canadian Federation of Agriculture has stated its disappointment with the changes to the Restricted Farm Loss provisions proposed in the 2013 Federal Budget. The CFA has suggested a greater increase in the annual maximum deduction was needed and applying these provisions to more farmers is undesirable.

Small Business Tax Rate

As announced in the 2015, Federal Budget, the federal government proposes to reduce the small tax rate from 11 percent to 9 per cent by 2019. The reduction will be phased in by a half per cent each year starting in 2016 as follows:

  • 10.5 per cent effective January 1, 2016;
  • 10 per cent effective January 1, 2017;
  • 9.5 per cent effective January 1, 2018; and
  • 9 per cent effective January 1, 2019.

The small business tax rate will benefit small to moderate farming operations in Ontario. The small business tax rate applies to Ontario farm operations with $500,000 or less in farm income. The reductions in the small business tax rate will allow smaller farm operations to reinvest in their farming operations. 

Additional Information

Information on the Livestock Tax Deferral Provision – Agriculture and Agri-Food Canada

2016 Initial Tax Deferral Regions – Agriculture and Agri-Food Canada

Information on the Business Risk Management Programs and the Livestock Tax Deferral Program for Ontario farmers affected by drought – Ontario Federation of Agriculture

Farming Income and the AgriStability and AgriInvest Programs Guide (RC4060) – Canada Revenue Agency

Statement A – AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals (T1163) – Canada Revenue Agency  

Income Tax Return Information and Forms – Canada Revenue Agency

Taxation on the Transfer of Farm Business Assets to Family Members – OMAFRA Fact Sheet

Submissions & Correspondence

OFA comments to CRA on Meaning of Farming
(February 6, 2017)

OFA submission regarding proposed changes to Eligible Capital Property
(September 2, 2016)

OFA letter regarding an amendment to the Income Tax Act
(August 8, 2016)


News

Farmers encouraged to act now on federal Income Tax Act issue
(December 6, 2013 - Income Tax)

OFA disappointed provincial budget does not grow agriculture
(April 28, 2017 - Rural Economic Development, Agri-Food Research, Environmental, Energy, Education, Business Risk Management, Transportation, Telecommunications, Income Tax, Property Assessment and Taxation, Drainage, Natural Gas Infrastructure, Provincial Funding Transfers to Municipalities , Climate Change)


Search Issues

If you are having difficulties using our search function, please contact us.