Farm tax questions

[buckbrush]

I am doing my farm taxes for the first time. Wondering if anyone who does there own would be able to answer some questions about expenses.

Quick background for relevance- Farrow-freezer outdoor raised heritage pig operation. Still very small approx. 100 head/year. Planning to start expanding.

My questions are about claiming expenses and capital cost allowance.
It seems like the T2042 does not have enough categories. I am unsure about where to claim items. Does every item that depreciates or serves a purpose
over multiple years have to be put into it's own spot for capital cost and be depreciated on a %/year basis despite being a small cost item?

A few examples I am unsure about would be-
Cost of materials to build small feeder troughs.
Heat lamps for in farrowing shelters.
Small galvanized water tanks (approx $150 each)
New Gates to replace wire gates.
Feed tubs.

These are just a few of the items I am unsure about how to claim. If I built 10 troughs would I have to enter each one into capital cost individually for the $80 each one would cost?

Note: I am just wondering how you guys would claim this, I understand anything I take from this should be confirmed by an accountant.

Thank you in advance.

Buckbrush.

[fish_e_o]

Does every item that depreciates or serves a purpose over multiple years have to be put into it's own spot for capital cost and be depreciated on a %/year basis despite being a small cost item?

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/dprcbl-eng.html

[chasingtail]

Don't worry about depreciating any item under $500, just write it off that year.

[fish_e_o]

Don't worry about depreciating any item under $500, just write it off that year.

pretty much.

don't quote me but i'm pretty sure my accountant doesn't do anything under 2000

[densa44]

Just expense anything under $200. My advice is, lots of times there are courses, often free put on by the ministry of agriculture to help new people getting into farmers.

Take the course.

Welcome we need farmers, and if you have to pay any tax, you've done it wrong!

[avb3]

I've done a lot of taxes for others. I've had some who went into farming and always advised them to see a chartered accountant. Things can get to complex to rely on yourself or some tax preparer, or some chartered accountant who is not familiar with farm accounting. Do yourself a favor, and go see an expert.

[CanuckShooter]

If the amount is 'material' in relation to your business you should capitalize it. If it's not then just expense it.

I've seen more than a few peoples lives ruined by run ins with CRA over business expenses and accounting practices. Your best bet is to secure a professional accountant that specializes in farm taxes. It could save you a lot of grief.

If that isn't something you can afford then you should depreciate all of your capital expenses [asset acquisitions]....I don't think you can get into tax trouble that way. You get into trouble when they think you are expensing [writing off things] to avoid paying tax.

[wwbirds]

"to be confirmed with a tax accountant" Good advice to yourself. You have received some great advice from a few above and some absolutely stupid comments from others. Seek out a professional to set up your first year accounts and book keeping to be on the right track. Everyone has an opinion and a couple are even right!

[Gammaboy]

Find a decent accountant, it will save you money in the long run and let you sleep at night if you ever get audited. (you have someone to blame). My farm grosses about 250k a year and I have oilfield contractor business grossing 150k+ and the bill for last year was 2,000 (but I also paid them enter receipts that I had sorted into groups, paperwork sucks and it would have taken me at least 3 days to enter it all into a spreadsheet. Time better spent working off farm, chasing kids, chasing my wife or drinking beer)

[schmedlap]

Some good advice and some bad above. The income tax accounting and preparation for "farmers" is super-complicated, and not for the amateur. I still do my own for my more "typical" small business(es). But I wouldn't even think about trying it as a farmer, unless I happened to be a tax accountant on the side. There are huge advantages, in both the current reporting and longer term planning, that you are going to miss. There are many special rules and breaks. No business has better potential tax advantages in our systems. Find an accountant who is actually experienced and qualified (NOT the H&R Block crowd) to advise you on just how to keep your records and to do your statements and returns. Even if you are "small" in this venture currently, it WILL save you way more than the cost, and a lot of hassle and annoyance, in the longer term. And CRA do have a special "trust" for the honest and competent specialists which will serve you very well if and when there are any assessment issues.

[Dr. Phil A]

First of all ditch the T2042. You are right not enough categories. Plus every accountant that still uses one should be fined.

Use the T1163 Statement A for farming income. There is a category for hogs/swine.

Put your ledgers together and then find a qualified accountant. 100 hogs a year is enough to qualify you for farm income. 10 grand is the minimum

There are some deductions relating to use of your house, electricity, phone, heating fuel, office expenses etc.

If you find the right accountant they will help set up your books so you can cut your bookkeeping costs. But take it to an accountant. No H&R and no FBC.

[MoFugger21]

Unless he's in the agriinvest or agristabilty programs, not sure why he'd use the 1163 over the 2042... Though I'm curious why accountants should be fined for using the 2042....? Also, there is a line on the 2042 under livestock sold for swine.

Don't worry about not enough categories for your expenses, as long as you document and have backup (receipts) for the expenses, you can add different 'accounts' to the form (depending on how you're filing- online vs pen & paper via mail) such as a 'supplies' expense which is generally used as a catch all account for expenses that don't fit into other categories. As well, you can combine expense accounts into one category. Documentation and keeping receipts are your friend.

As far as capitalizing certain items or expensing them, you can generally expense items that are not material to the overall operation - such as a cordless drill (small tools expense) - generally this would be expensed in the year of purchase. Depending on how many feeders you have, if the total amount is material in relation to the total revenues, you may want to capitalize them and claim CCA. You don't need to include each individual feeder, add up the total and write 'X amount of feeders'.

There's lots a guy could cover, but the best advice is, even if you're going to file on your own, sit down or phone an accountant - CGA, CA, or soon CPA, it don't matter, so long as they're knowledgeable about farming and tax, they'll point you in the right direction.

[josey]

Welcome we need farmers, and if you have to pay any tax, you've done it wrong!

Geez, really? That's a great tip. Don't make money?!?

[fish_e_o]

Geez, really? That's a great tip. Don't make money?!?

well he's right. just because on paper you "didn't make money" doesn't mean you didn't make money. pull it all out in payroll or bonuses and avoid getting taxed twice. stuff like that

[TBD]

Apparently the guilty ones recognized the error in their ways and self identified.
:thinking-006:

[buckbrush]

Thank you for the info. Gives me a lot to think over. Got me pointed in the right direction which looks like it leads to an accountant. Doesn't look like it would take much for a good accountant to pay for themselves in a hurry.

[TBD]

Thank you for the info. Gives me a lot to think over. Got me pointed in the right direction which looks like it leads to an accountant. Doesn't look like it would take much for a good accountant to pay for themselves in a hurry.

also wise to consult with a tax lawyer - see if incorporation makes sense, this is the time to plan your exit strategy as well !

[Klondike]

.......

Welcome we need farmers, and if you have to pay any tax, you've done it wrong!

ain't that the truth:thinking-006: