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What to do

1. Claim income and deduct expenses

a If your client participates in AgriStability or AgriInvest in Alberta, Ontario, Prince Edward Island or Saskatchewan, use CRA’s guide RC4060 to fill out her income tax return.

Complete Form T1163 Statement A. If your client owns more than one farm, also complete Form T1164 Statement B.

Complete Form T1175 Farming – Calculation of Capital Cost Allowance.

Enter gross income from Line 9959 of the T1163 on Line 168 of your client’s return, and net income from Line 9946 on Line 141.

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b If your client participates in AgriStability or AgriInvest in B.C., Manitoba, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Yukon, use Guide RC4408.

Complete T1273 Statement A. If your client owns more than one farm, also complete T1274 Statement B.

As with the other provinces, complete Form T1175.

Enter gross income from Line 9959 of the T1273 on Line 168 of your client’s return, and net income from Line 9946 on Line 141.

c If your client doesn’t participate in AgriStability or AgriInvest, use CRA’s Guide T4003 to fill out her return.

Complete Form T2042 Statement of Farming Activities.

Enter gross farming income from Line 9659 of the T2042 on Line 168 of your client’s return and net income from Line 9946 on Line 141

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2. Transferring ownership

a If your client is selling the farm, land, buildings and shares of farming companies and partnerships qualify for a lifetime capital gains exemption of $813,600 in 2015.

Your client, her parent or grandparent must have:

›› owned the property for at least two years;

›› continually used the property to farm or fish; and

›› earned more gross income from farming or fishing than from other sources.

Complete Schedule 3 Capital Gains (Or Losses).

Optional: If the buyer is paying your client over up to five years, complete Lines C and F of Form T23017 Summary of Reserves on Dispositions of Capital Property.

Calculate the deduction by completing Form T657, Calculation of Capital Gains Deduction for 2014. The deduction is the least of your client’s:

›› annual gains limit;

›› cumulative gains limit;

›› net taxable capital gains reported in 2014 from the sale of farm, fishing or small business corporation shares sold after May 1, 2006; or

›› the maximum capital gains deduction available for 2014.

List the deduction on Line 254 of the return.

b Your client has two options for transferring the farm to a child, grandchild, great-grandchild or dependant, says Bob Neufeld, partner at Krahn Friesen Neufeld Chartered Accountants in Winnipeg, Man.

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i Your client could transfer the farm at her own purchase cost. If the farm has since appreciated in value, that gain is deferred to a future sale and she wouldn’t have capital gains to report on her return, says Neufeld.

Eligible property includes farmland; depreciable property, such as buildings; eligible capital property; or a share of capital stock in the family farm.

To qualify:

›› the recipient must be a Canadian resident;

›› the property must be in Canada; and

›› the property must be used regularly and on an ongoing basis in a farming business by your client, her spouse, common-law partner or children.

ii Your client could sell the farm to her child for a price between her cost and the market value of the farm in order to incur some capital gain. She could then write off up to $800,000 or $813,600 of that gain, and her child would have a higher cost base should he later sell the farm, says Neufeld.

See 2a for details on filling out your client’s return.

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3. Filing the return

Your client has until June 15, 2015 to file her return if:

she has self-employed farming income, or

she is the spouse or common-law partner of someone who has self-employed farming income.

Any balance owing is still due April 30 of that year.

Sources: Bob Neufeld, CA, partner at Krahn Friesen Neufeld Chartered Accountants in Winnipeg, Man.; KPMG’s Tax Planning for You and Your Family 2015; CRA spokesperson Philippe Brideau.

Federal farming programs

AgriInvest: Farmers can deposit income into an account that can offset lower income. Farmers’ contributions are based on allowable net sales, and the government contributes up to $15,000 a year.

AgriStability: The program provides income support when farmers experience larger-than-usual losses. To collect, your client’s margin must drop by at least 30%, says Bob Neufeld, partner at Krahn Friesen Neufeld Chartered Accountants.

by Jessica Bruno, content editor of Advisor Group.

Originally published in Advisor's Edge Report

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