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CRA Tax Relief and Tips for Farmers

The Canada Revenue Agency (CRA) offers a lot of unique tax deductions and credits designed just for farmers. For instance, if you have to sell livestock due to drought or flooding, you may not have to declare all that income on your return. Instead, you can defer it. This and other rules help Canadian farmers through their unique challenges.

Breeding Livestock

For the purposes of these income deferrals, “breeding livestock” refers to cattle, bison, goats, sheep, deer, and elk. It also refers to horses kept for breeding. To qualify, animals must be over the age of 12 months at the time of sale.

Designated Flood or Drought Areas

To take advantage of the income deferral, your farm must be in a designated flood or drought area. The Minister of Agriculture and Agri-Food Canada (AAFC) makes the ultimate determination on these designations. In most cases, the ministry only designates areas if they have forage yields of 50% or less of the long-term average for the year. Most years, the ministry makes initial designations in September, but it doesn’t finalize the designations until December. That means if you sell off breeding livestock in the middle of the year, you don’t know if you can defer the income until the end of the year.

Reducing Potential Effects From Droughts and Floods

There’s a bit of uncertainty built into this tax deferral, so you may want to take steps to reduce the possibility of a drought affecting you. For example, you may want to plan how to secure water for your livestock during a drought and use certain cereals that boost hydration. You might also keep an eye on Drought Watch, a governmental organization that maintains information on agroclimate issues and drought levels. If severe weather conditions have depleted your grazing area, you may need to sell some of your livestock. If that happens, be sure to check whether you live in a flood-or-drought designated area at the end of the year. If you live in a designated location, you can defer some of your income on your tax return. That helps reduce your tax liability and hopefully keeps your farming business in the black.

Tax Deferrals When Selling Livestock

Normally, if you sell livestock, you have to report the sale as income for your farm. But if the land proves inhospitable to your livestock and you sell them for their survival, the CRA lets you defer your income from the sell until the next year. This gives the flood or drought conditions that your land experienced time to pass, and as a result, you can buy new breeding livestock to grow your herd to normal levels. This also means you can write off the cost of the new livestock against the income you made from selling your old livestock. This deferral prevents you from having to report irregularly high income during times of flood or drought.

In some cases, drought and flood conditions last for longer than a year. If this happens, the CRA allows you to continue to defer your income from the livestock sale. This means you don’t have to declare the income until your land goes back to normal.

Calculating Your Property Tax Deferral

The exact amount of income you can defer depends on how the sale affects the size of your herd. If the sale reduces your herd by at least 15%, you can defer 30% of the resulting income. If the sale reduces your herd by 30% or more, you can defer 90% of your income. For instance, say you have a herd of 100 cattle and you sell 20 of them for $20,000. With this sale, you reduce the herd by 20%, which means you can defer 30% of the income. On the tax return for the year of the sale, you must report $14,000 (70% of the sale price) as income. You don’t have to report the remaining $6,000 until your land recovers from the drought or flood conditions.

Farm Debt Mediation Service

If you need a better way to handle your farm debts, the Farm Debt Mediation Act (FDMA) may provide relief. You must be a professional farmer to qualify, and you must have assets worth less than your total debts or be behind on debt repayments. After qualifying, you receive a financial evaluation, which includes a consultant visiting your farm, determining your debt levels, and analyzing your financial situation. Next, you receive mediating payment agreements with your creditors and a legal stay, preventing the creditors from selling your assets without permission and preventing you from taking out more loans. The stay typically lasts for 30 days, but in some cases, it may extend up to 120 days.

Deferring Property Taxes in New Brunswick

Farmers in New Brunswick can benefit from the Farm Land Identification Program (FLIP). This program allows you to defer provincial property taxes on buildings and farmland if you have livestock for sale in New Brunswick, and you may also qualify to defer local property taxes. Livestock tax and property taxes for larger farms can get expensive, and if this is the case for you, you might want to apply for FLIP. To qualify, you have to have suitable land for agricultural operations or land actively in use for farming. This program has a straightforward application process, but you must apply by September 1st of the year prior to when you want to defer their property tax.

Tax laws and relief programs constantly develop, grow, and change, but you can make filing taxes a simple, straightforward process. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.

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