Food banks, school lunch programs, and other organizations that distribute food to the less fortunate are in constant need of fresh produce and other agricultural products. In an effort to encourage British Columbia farmers to help these charities and nonprofits, the provincial government introduced the B.C. farmers’ food donation corporate income tax credit. This tax credit gives farms and farmers a potential tax break when they donate some of their harvest to registered charities. Introducing your clients to this credit is a great opportunity for them to save money on their taxes while helping those in need.
What Is the B.C. Farmers’ Food Donation Corporate Income Tax Credit?
This credit lets corporations and individuals working in the B.C. agricultural industry claim donations of unprocessed agricultural produce. The credit is nonrefundable, so it can’t result in a tax refund, but it can help to reduce the amount of overall taxes owed in a fiscal year. It can be claimed along with any other charitable donations that your clients make during a tax year. For instance, if a farmer donates a percentage of his potato crop to a food bank, and also donates a sum of money to the Canadian Red Cross, he gets to claim both these donations separately.
The credit is equal to 25% of the fair market value of whatever food gets donated. It has to be claimed in the same year the donation was made, so make sure your clients are getting detailed receipts for charitable donations. While the credit was originally made available for the 2016, 2017, and 2018 tax years before a scheduled review, the government’s 2018 budget plan included a proposal to extend the program through the 2019 tax year.
Who Can Claim the Credit?
An agricultural corporate entity, farmer, or a spouse or common-law partner of a farmer can be eligible to claim the donation credit. The food products that are being donated must be minimally processed, and need to be grown and harvested in British Columbia. For example, eligible donations can include:
- Raw meat, fish, or eggs
- Fresh fruits and vegetables
- Grains (such as rice or buckwheat)
- Honey or maple syrup
To be eligible for the credit, the donated products should be processed no more than what’s necessary to make them safe and legal for human consumption. For instance, wheat and other grains can be processed into flour before the donation, but bread, cakes, and other processed foods like pickles or jerky are not eligible, even if they’re handmade on your client’s farm.
Farmers also need to donate their agricultural product to an eligible recipient, that is, a registered charity that keeps adequate books and records. Encourage your clients to request receipts that are as detailed as possible for all charitable donations. To claim the farmers’ food donation corporate income tax credit, your client needs to be able to prove the donation was eligible, meaning it needs a receipt that describes the donated goods in enough detail to demonstrate that eligibility.
How Do I Claim the Credit?
To claim the credit, your corporate clients must include the donation amount on their T2 Corporate Income Tax Return. The credit needs to be claimed in the same tax year the donation was made. If your client is filing a tax adjustment for a previous year, keep in mind this credit is only applicable for donations made after Feb. 16, 2016, and before Jan. 1, 2020.
Your client has to specify the dollar amount of the credit it is claiming on line 683 of Schedule 5: Tax Calculation Supplementary — Corporations. Make sure it has the relevant receipts filed and available for review if any questions arise. For individuals, the donated amount should be included on the provincial tax form BC428.
How Do I Determine the Fair Market Value of Donated Goods?
To accurately claim the donated amount, your client needs to have a close estimate for the total value of the produce it donated. If your client has been in the industry for a while, it probably knows the approximate value of the food it’s producing.
The Canada Revenue Agency defines fair market value as the highest dollar amount that would be paid for the product in an open, unrestricted market in a voluntary transaction between an independent buyer and seller. If the market value of your client’s donation is less than $1,000, a member of the receiving charity, or another knowledgeable individual, can determine the exact amount at their discretion. If the amount is higher, you may need to consult with an industry expert or another accountant who has experience dealing with companies selling the same product.
One way to help determine the fair market value is to find out the average retail price of the items being donated. Statistics Canada maintains a comprehensive list of prices by weight for common food and household products.
An understanding of the B.C. farmers’ food donation corporate income tax credit is an invaluable bit of knowledge to have as an accountant. Helping your clients get to know what they can and cannot claim through the credit is not only beneficial for their tax implications, but encouraging more farmers to donate a portion of their crops helps B.C. charities provide healthy food for those who need it most.