Industry tax guides
Farming Taxes in Canada: Cash Method, Losses and GST on Farm Products
20 yearsis how far a farm loss can be carried forward, after it has first been applied to the year or carried back up to three years.
Sources checked October 20263 min read
Key points
- Farmers may report income on the cash method or the accrual method, but GST/HST is always accrual
- Inventory adjustments can change a cash method farmer's loss
- Farm losses carry back three years and forward twenty
- Grain, raw wool and most livestock are zero rated, so many farms receive GST refunds
The cash method and inventory adjustments
Farmers are among the few taxpayers allowed to report income on the cash method: income when received and expenses when paid, without counting inventory. Income is reported on Form T2042, or on the AgriStability and AgriInvest statements for farmers in those programs. A farmer using the cash method for farming still uses the accrual method for any separate business and for GST/HST, with separate records for each.
Two adjustments keep the cash method from producing artificial losses. The mandatory inventory adjustment reduces a net loss when purchased inventory is still on hand at year end, and the optional inventory adjustment lets a farmer add an amount to income. Both are deducted again the following year.
Losses and instalments
A farm loss larger than other income for the year can be carried back up to three years, using Form T1A, or forward up to twenty. A farm that is not the farmer's chief source of income can have its deductible loss restricted. Individuals whose main source of income is farming pay any instalments once a year, on December 31, rather than quarterly.
GST/HST and selling the farm
Agricultural products such as grain, raw wool and dried tobacco leaves, most farm livestock and most fishery products are zero rated. A registered farm charges no tax on them but claims input tax credits on fuel, equipment and supplies, so its returns often show refunds.
When the time comes to sell or pass on the farm, qualified farm property can qualify for the capital gains deduction, and a transfer of family farm property to a child can spread the gain over up to ten years through a reserve.
Quick answers
Can farmers use cash accounting?
Yes. Farmers may report income on the cash method for income tax, though GST/HST is still reported on an accrual basis and any separate business must use accrual.
How far can a farm loss be carried?
Back up to three years, by filing Form T1A, or forward up to twenty years.
Do farmers charge GST on grain and livestock?
No. Grain, raw wool and most farm livestock are zero rated, and a registered farm can still claim input tax credits on its costs.
Related pages
Official sources
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Important. This article provides general educational information, not legal or tax advice for a specific business. Rules, administrative policies, rates and deadlines can change. Confirm your facts and current obligations with the responsible government agency and a qualified adviser.