Business & Policy
Three tips for reporting farm income
January 9, 2015 - For the average Canadian, the year starts in January and ends in December. But for a typical farmer, the business year begins when seeds are first planted and ends when the fields are put to bed. It's over the course of these months that farmers' singular focus is on what they produce and sell to their customers.
But as with every business owner, farmers have to devote part of their attention to what they've earned in the past year so they can make the necessary information known and available to the government.
The following tips should help you prepare your farm income quickly so you can put your focus back on what's most important – managing and maintaining your farm operation.
1. Understand what farm income is
Of course, farming is an umbrella term that references more than grain and vegetable production. Farm income includes a variety of activities where the product will be made available for sale such as raising livestock, poultry or fish, operating a tree farm, nursery or greenhouse, as well as maple tree tapping for commercial use.
Additionally, other forms of farm income may include dairy, beekeeping, fur farming, racehorse maintenance, wind turbine income or feedlot operation. There are some exceptions, however, that may apply, so it's a good idea to talk to a tax professional when there are other factors that may be unique.
2. Know what farm income does not include
Just as key to knowing what farm income is taxable is what money is not considered earnings. If your income is from trappings, for instance, this isn't considered farming income. Also, if your earnings came from working as an employee in another farming business, this also isn't considered farming income, thus isn't subject to the same tax rules.
3. Use correct forms
Tax reform efforts by the government have tried to simplify the tax filing process. But it can still be confusing trying to figure out which form is needed. When preparing your farm income, you can use Form T2042 from CRA. This is also the form you'll use to make a formal statement of your farming activities.
Managing your farm business includes accurate reporting of income and maintaining appropriate records. Be sure to talk to a tax professional to ensure you're meeting all the reporting requirements.
FBC is Canada’s Farm & Small Business Tax Specialist, providing tax accounting and bookkeeping services to over 20,000 farms and small businesses from Ontario to British Columbia. Our complete financial planning for farm and small business owners takes a long-term approach to address your specific needs at all stages of life and business, minimizing your taxes year after year. Year-round services include tax planning, tax optimization, business consulting and audit protection.
For more information, visit www.fbc.ca
January 28, 2015 By FBC Tax Consultants