Farmers and fishers who are required to make tax instalment payments need to do so once per year on December 31. Now is the time to calculate 2019 income and potential instalment remittances, but in the alternative, to consider whether any farming losses are claimable. Will they pass the scrutiny of a tax auditor? With the instalment deadline as a trigger, here are some common questions and answers on how farming loss claims are handled.
Excerpted from the certificate course Tax Accounting for Proprietorships:
How do farmers/fishers make instalment payments?
Farmers and fishers instalment requirements differ from other self-employed taxpayers. Most notably, farmers and fishers make instalments once a year on December 31 based on 2/3 of the total amount due. Whereas other self-employed taxpayers must make instalments on a quarterly basis, using one of three methods of calculation: the current year method, the prior year method, or CRA’s billing method.
Instalments will be required where the tax payable in the current year and either of the two previous years exceeds $3,000 ($1,800 on the federal return in Quebec). The instalment required is equal to the tax balance owing in the prior year.
What types of farm losses are there?
The losses of a full-time farmer will be full-deductible farm losses. The losses of a farmer whose main source of income is not farming will be partly-deductible restricted farm losses. The losses of a hobby farmer are not deductible.
What is the most important factor in determining whether a business loss (including a farming loss) is deductible?
The most important factor is if the business is carried on as a commercial venture (i.e. not a hobby). If so, the losses are deductible (although they may be restricted in the case of a farmer whose main source of income is other than farming).
Additional Educational Resources: To learn more about taxation of proprietorships, including farmers and fishers, take Tax Accounting for Proprietorships as a certificate course or as part of your DFA – Tax Services Specialist Designation™. Enrol or take a free trial today!
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