Canada Farming Tax Guide
the farming tax rules in Canada. The farming income can be reported on the cash basis (the "optional inventory method") — the "income is reported when the proceeds are received" — the "expenses are deducted when the costs are paid". The restricted farm loss — the "farming losses above the $31,000 to $34,000 threshold (depending on the year) are the 'restricted farm losses'" — the "restricted losses can be carried forward 10 years or carried back 3 years". The AgriStability program — the "federal-provincial income stabilization program" — the "government payments compensate for the farming income declines of more than 30%". The farm property capital gains exemption — the "intergenerational farm transfer allows the capital gains reserve to defer the tax". The farm CCA rates: the "farm machinery — the Class 8 at 20% declining balance", the "farm buildings — the Class 6 at 10%", and the "fencing and the drainage — the Class 8 at 20%".
Farming Income Reporting
- Cash basis (optional inventory): The "farmer can elect to use the cash method — the income is reported when the proceeds are received (NOT when the sale occurs)". The "expenses are deducted when paid (NOT when incurred)". The "optional inventory adjustment (the OIA) — the five-year mandatory inventory adjustment".
- Accrual basis: The "mandatory for the farms with the revenue above the $1 million threshold". The "income is reported when the sale occurs — the expenses are deducted when incurred". The "accrual method is the standard for the non-farming businesses".
- Restricted farm loss: The "farming loss above the $2,500 base + 1/3 of the income from the other sources (up to the maximum of $31,000 to $34,000 per year)". The "excess loss is the 'restricted farm loss'" — "carried forward 10 years" — "carried back 3 years".
Farm Property & Intergenerational Transfer
- Farm property capital gain: The "sale of the farm property to the unrelated party — the capital gain at the 50% inclusion rate". The "lifetime capital gains exemption (LCGE) on the qualified farm property — the $1,016,836 exemption (2025)".
- Intergenerational farm transfer: The "farm transfer to the child, the grandchild, or the great-grandchild". The "capital gains reserve: the gain can be deferred over the 10 years (the lower of the 80% of the gain or the $1 million)". The "farm rollover at the ACB: the transfer to the family member at the adjusted cost base (the 'no immediate tax on the transfer')".
- Farm land and the buildings: The "land is the non-depreciable asset" — the "land cost is the capital cost — the no CCA on the land". The "farm buildings: the Class 6 (the 10% declining balance)", the "Class 8 (the 20% for the machinery and the equipment)", the "Class 1 (the 4% for the concrete buildings)".
GST/HST for the Farmers
- GST/HST registration: The "farmer with the revenue above $30,000 must register for the GST/HST". The "farm input tax credits: the farmer can claim the GST/HST paid on the farming inputs (the equipment, the feed, the fertilizer, the fuel, the utilities)".
- Zero-rated farm products: The "basic groceries (the unprocessed farm products)" are the "zero-rated — the 0% GST/HST". The "farmer can claim the input tax credits even on the zero-rated sales".
- AgriStability and the AgriInvest: The "government payments under the AgriStability and the AgriInvest are the 'government assistance'" — the "reduce the farming expenses or the farming losses for the tax purposes".
For the capital cost allowance and the depreciation rules, see our Capital Cost Allowance Guide →. For the small business deduction and the CCPC rules, see our Small Business Deduction Guide →.