Farming

T1
1

Where on the T2042 do you indicate whether the farmer is a full time or part time farmer? Is the maximum loss a part time farmer can claim still $17,500?

Thanks for your help with this.

2

You answer Yes on the Summary of Rental and Self-employed income (statementsum) sheet in the area 14100 - Farming income (loss).

And yes, 17,500 is the maximum loss a farmer who is not considered a full time farmer may claim.

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3

And don’t forget if the loss is created but the purchase of inventory still on hand or input cost for the following year you must use MIA to reduce or eliminate the loss.

4

CRA will also be able to see on his tax return if he had a T4 for $120,000 that he is not a full time farmer. You do not need to be a full time farmer to not use the restricted farm loss. If you can show that your potential income is a combination of farming and some other activity, you may be entitled to claim the entire loss against other income (always taking into consideration the MIA).

5

It’s all good. I talked to them and explained how CRA views the different kinds of farmers. They said “we used to be full time farmers, but now we are part time farmers - no expectation of profit”.

I will go back and take a look to make sure there isn’t some inventory I should be taking into account. Thanks to both of you for your input.

6

Lmao. If they actually said “no expectation of profit” then really you can’t deduct anything…
You need to have an expectation of profit to say you have any kind of business. It’s actually a pretty low bar though, any idiot can say “I thought I could make money” and that is usually good enough for a judge.

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7

I had a friend/client who was a dentist and tried farming. After three years RCA disallowed his losses retroactively. He fought it all the way to tax court where he showed the judge he had more money invested in farming than his dental clinic and spent more time at farming than dentistry which qualified him as a full time farmer and won. He then sued RCA where they settled out of court to avoid precedence. He had to walk the straight and narrow line after that.

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8

This should not be a difficult decision - CRA was just looking at the classic “Docter/Farmer” situation without considering the details. They deserved losing in tax court. This precedent should have been set long ago. But it was the classic “Doctor/Farmer” issue that brought about Restricted Farm losses.

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9

You’re right…One of his arguments was that they never came to see his operation.