Living in the Cowichan Valley has so many benefits, but my favourite is the abundance of farm fresh products available. The Eat Local movement is strong here, and the farmers who produce this delicious bounty are a passionate and dedicated people. As a small-scale farmer myself, and a self-employed accountant, I thought I would share my tips for self-employed farmers at the start of the 2016 tax season.
Register for GST – Farms are different than other businesses because the sale of farm products is not GST taxable. However, a farm business that has a GST account can claim back the GST they paid on expenses (Input Tax Credits or ITCs). This results in a GST refund for the farm!
Open a business bank account – Treat your farm operation as a legitimate business and keep your business and personal finances separated. This makes it easier to prepare your bookkeeping, saving you time and money! If you need to transfer money in to the farm bank account this is considered a loan from you, the shareholder.
Save receipts & Use annual summaries – Save your receipts for any farm-related expenses. If you aren’t sure if something can be claimed, ask your accountant. Set up an account at farm feed stores such as Buckerfield’s and Top Shelf Feeds so that you can ask for an annual print out of your purchases. This can be used instead of keeping individual receipts.
Write receipts & Legitimize trades – Use a carbon copy receipt book for your farm sales direct to customers. Record in a notebook or spreadsheet what your road stand sales were every day. When you trade goods with another farmer (we all know farmers love to trade!) write receipts to each other for the cash value of your trades, as if you had paid each other in cash.
Keep a mileage log – When you use your personal vehicle for farm-related travel you can claim a portion of your auto expenses. The best thing to do is to keep a mileage logbook in your dash and record the details of the trip (Date, Destination, Reason, Round-trip Km). There are some great mileage tracker apps if you prefer to use your smartphone! 3 examples are Mileage Tracker Log, MileIQ, and TripLog. If you have a vehicle that is 100% farm use it is still good practice to keep a logbook as proof in case of an audit. You can also claim depreciation on a farm vehicle.
Arrange bookkeeping – You can prepare the bookkeeping yourself on a spreadsheet or by using software such as Quickbooks or Sage 50. Remember that if your farm has a GST account, the GST needs to be pulled out of every expense. Alternatively, you can bring your receipts and bank statements to a professional bookkeeper or accountant. Coastal Tax and Accounting Services performs cloud-based bookkeeping using QuickBooks Online and Hubdoc subscriptions.
Claim home expenses – If you are running a farm business on your personal property, you may be able to claim a portion of your mortgage interest, property tax, and other home expenses.
Apply for Farm Status – Although this point is not related to income tax, you can save a lot of money on your property tax if you receive farm status from BC Assessment.
Don’t call yourself a “Hobby Farmer” – The CRA defines a hobby farmer as someone who farms purely for personal use, with no expectation of profit, and so the expenses incurred are not tax deductible. Even if your farm business is not making a profit, if you are selling farm products to the public and trying to make a profit, you are not a hobby farmer. Depending on your employment situation, a farm loss can be fully or partially deductible against your other income. Talk with your accountant to determine the best tax treatment of your farm business.
Carryback or Carryforward a Farm Loss – A farm loss can be carried back 3 years or forward 20 years. Losses that have been carried forward can also be used to reduce the capital gain on farmland that has been sold.
Finally, if you are a self-employed farmer, or if you are the spouse or common-law partner of someone who is, note that your 2016 income tax return is due by June 15, 2017. This gives you more time to file if you are expecting a refund, but if you owe tax, the payment is still due by April 30, 2017.
The condensed version of this article is published in the March 2017 issue of the Cowichan Valley Voice magazine.
-Alicia Loewen, Coastal Tax