Farming Income Includes Form T2042

2011

L / T4003 (E) Rev. 11 www.cra.gc.ca

Canada Revenue Agency

Agence du revenu du Canada

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NOTE: In th is publ icat ion, the text inser ted between square brackets represents the regular pr int in format ion.

Is this guide for you? Use th is guide i f you earned income as a sel f -employed farmer or as a par tner in a farm partnership. I t wi l l help you to calculate the farming income that you report on your 2011 income tax return.

I f you are par t ic ipat ing in the Agr iStabi l i ty and Agr i Invest programs, you have to use the appl icable guide:

• I f you are an Agr iStabi l i ty and Agr i Invest par t ic ipant in Quebec, use th is guide for your income tax return and contact La Financière agr ico le du Québec at 1-800-749-3646 regarding Agr iStabi l i ty and Agr i Invest par t ic ipat ion.

• I f you are an Agr iStabi l i ty and Agr i Invest par t ic ipant in Alber ta, Ontar io, or Pr ince Edward Is land, use Guide RC4060, FARMING INCOME AND THE AGRISTABIL ITY AND AGRI INVEST PROGRAMS.

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• I f you are an Agr iStabi l i ty and Agr i Invest par t ic ipant in the rest of Canada, use Guide RC4408, FARMING INCOME AND THE AGRISTABIL ITY AND AGRI INVEST PROGRAMS HARMONIZED GUIDE.

Throughout th is guide, we refer to other guides, forms, in terpretat ion bul le t ins, and informat ion c i rculars. General ly , i f you need any of these, go to www.cra.gc.ca/forms. You may want to bookmark th is address for easier access to our Web s i te in the future.

The term income tax return used in th is guide has the same meaning as income tax and benefi t return.

I f you have a v isual impairment , you can get our publ icat ions in bra i l le , large pr int , etext (CD), or MP3 by going to www.cra.gc.ca/alternate or by cal l ing 1-800-959-2221. You can a lso get your personal ized correspondence in these formats by cal l ing 1-800-959-8281.

La vers ion f rançaise de ce guide est in t i tu lée REVENUS D 'AGRICULTURE.

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What's new for 2011?

New fi l ing requirements for partnerships Partnerships wi th less than s ix par tners wi l l no longer automat ical ly be exempt f rom f i l ing a T5013 partnership informat ion return; instead i t wi l l depend on cer ta in f inancia l thresholds and the type of par tners. This administ rat ive pol icy change shi f ts the CRA's focus to the nature of a par tnership and i ts f inancia l act iv i t ies rather than on the number of par tners in the par tnership. For more informat ion, go to www.cra.gc.ca/partnership or see "Fi l ing requirements for par tnerships," on page 40 [10] .

Manufacturing and processing sector: Accelerated CCA Under proposed changes, for e l ig ib le machinery and equipment that is acquired by the taxpayer in 2012 or 2013, cont inue thei r inc lus ion in Class 29. For more informat ion, see Guide T4002, BUSINESS AND PROFESSIONAL INCOME.

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Temporary hiring credit for small businesses Under proposed changes, for smal l businesses whose tota l employer Employment Insurance (EI) premiums were at or below $10,000 for 2010, to provide a one-t ime credi t o f up to a maximum of $1,000, calculated by determining the d i f ference between the 2011 EI premiums over those paid for 2010. For more informat ion, go to www.cra.gc.ca/gncy/bdgt/2011/qa17-eng.html.

Agri-Québec Current ly , under the federal Agr i Invest program, government contr ibut ions and interest earned in respect of an Agr i Invest account are not taxable unt i l wi thdrawn.

For the 2011 and subsequent taxat ion years, the budget proposes that the same income tax t reatment apply to an Agr i -Québec account .

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Table of contents Page

Def in i t ions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 [5]

Chapter 1 – General in format ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 [6]

Farming income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 [6]

How to report your farming income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 [6]

Business records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 [7]

Benef i ts of keeping complete and organized records . . . . . . . . . . . 28 [7]

Consequences of not keeping adequate records . . . . . . . . . . . . . . . . . 29 [8]

Income records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 [8]

Expense records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 [8]

T ime l imi ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 [8]

Insta lment payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 [8]

Dates to remember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 [9]

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Page

Employment Insurance (EI) benef i ts for sel f -employed persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 [9]

Goods and serv ices tax/harmonized sales tax (GST/HST) regist rat ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 [9]

What is a par tnership? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 [9]

Chapter 2 – Income f rom Farming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 [11]

Sole propr ietorships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 [11]

Par tnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 [11]

How to complete Form T2042, Statement of Farming Act iv i t ies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 [11]

Ident i f icat ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 [11]

Farming income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 [12]

Chapter 3 – Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 [16]

Deta i ls of equi ty (chart on page 3 [3] of Form T2042) . . . . . . . . . 161 [31]

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Page

Detai ls of other par tners (chart on page 14 [3] of Form T2042) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 [31]

Chapter 4 – Capi ta l cost a l lowance (CCA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 [31]

What is CCA? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 [31]

Avai lable for use ru les. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 [31]

How much CCA you can c la im . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 [31]

How to calculate your CCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 [32]

Classes of depreciable property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 [35]

Specia l s i tuat ions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 [38]

Personal use of property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 [38]

Changing f rom personal to business use . . . . . . . . . . . . . . . . . . . . . . . . 204 [38]

Grants, subsid ies, and rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 [39]

Non-arm's length t ransact ions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 [39]

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Page

Specia l ru les for d isposing of a bui ld ing in the year . . . . . . . . 213 [40]

Replacement property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220 [42]

Chapter 5 – El ig ib le capi ta l expendi tures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 [42]

What is an e l ig ib le capi ta l expendi ture? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224 [42]

What is an annual a l lowance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 [42]

What is a cumulat ive e l ig ib le capi ta l (CEC) account? . . . . . . . . . . 225 [42]

How to calculate your annual a l lowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225 [43]

Sale of e l ig ib le capi ta l property in the 2011 f iscal per iod . . . . 229 [43]

Farming income f rom the sale of e l ig ib le capi ta l property e l ig ib le for the capi ta l gains deduct ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 [44]

E lect ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238 [46]

Replacement property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 [46]

E l ig ib le capi ta l property of a deceased taxpayer . . . . . . . . . . . . . . . . 241 [46]

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Page

Chapter 6 – Farm losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241 [46]

Non-deduct ib le farm losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 [46]

Ful ly deduct ib le farm losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 [46]

Restr ic ted farm losses (par t ly deduct ib le) . . . . . . . . . . . . . . . . . . . . . . . . . . 246 [47]

Non-capi ta l losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 [48]

Chapter 7 – Capi ta l gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 [48]

Restr ic ted farm losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 [50]

Qual i f ied farm property and capi ta l gains deduct ion . . . . . . . . . . . . 262 [50]

What is qual i f ied farm property? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 [50]

Real property or e l ig ib le capi ta l property . . . . . . . . . . . . . . . . . . . . . . . 264 [50]

Transfer of farm property to a chi ld . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 266 [50]

Transfer of farm property to a chi ld i f a parent d ies in the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270 [51]

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Page

Transfer of farm property to a spouse or common- law partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 [52]

Other specia l ru les . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 [52]

Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274 [52]

Exchanges or expropr iat ions of property . . . . . . . . . . . . . . . . . . . . . . . . 275 [52]

Capi ta l cost a l lowance (CCA) rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 [53]

How to calculate the mandatory inventory adjustment (MIA) . . . . 286 [54]

GST/HST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292 [55]

For more informat ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 [57]

What i f you need help? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 [57]

Forms and publ icat ions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 [57]

My Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301 [57]

My Business Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 [57]

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Page

Represent a Cl ient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 [57]

E lectronic payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 [57]

Tax Informat ion Phone Serv ice (TIPS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 [57]

Teletypewr i ter users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304 [57]

Our serv ice complaint process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304 [57]

Your opin ion counts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 [57]

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 [58]

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Definitions Arm's length – refers to a s i tuat ion that ex is ts where two par t ies that deal wi th each other are not re lated to each other , no contro l ex is ts between them, nor does one par ty have a benef ic ia l ( f inancia l ) in terest in the other .

Avai lable for use – general ly , an asset is considered to become avai lable for use and e l ig ib le for capi ta l cost a l lowance and investment tax credi t at the earl iest of:

• the t ime at which the property is f i rs t used by the c la imant for the purpose of earning income; or

• the t ime the property is del ivered or is made avai lable to the c la imant and is capable of producing a saleable product or serv ice.

Capital cost – is the amount on which you f i rs t c la im Capi ta l Cost Al lowance (CCA). The capi ta l cost of a property is usual ly the tota l of :

• the purchase pr ice (not inc luding the cost of land, which is usual ly not depreciable;

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• the par t of your legal , account ing, engineer ing, insta l la t ion, and other fees that re lates to the buying or construct ion of the property (not inc luding the par t that appl ies to land);

• the cost of any addi t ions or improvements you made to the property af ter you acquired i t , i f you d id not c la im these costs as a current expense (such as modi f icat ions to accommodate persons wi th d isabi l i t ies) ; and

• for a bui ld ing, sof t costs (such as interest , legal and account ing fees, and property taxes) re lated to the per iod you are construct ing, renovat ing, or a l ter ing the bui ld ing, i f these expenses have not been deducted as current expenses.

Capital cost al lowance (CCA) – you might acquire a depreciable property, such as a bui ld ing, furn i ture, or equipment, to use in your business or professional act iv i t ies. You cannot deduct the cost of the property when you calculate your net business or professional income for the year. However, s ince these propert ies wear out or become obsolete over t ime, you can deduct thei r cost over a per iod of several years. The deduct ion for th is is cal led CCA.

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Depreciable property – th is is the property on which you can c la im CCA. I t is usual ly capi ta l property used to earn income f rom a business or property. The capi ta l cost can be wr i t ten of f as CCA over a number of years. You usual ly group depreciable propert ies in to c lasses. For example, d iggers, dr i l l s , and tools acquired af ter May 1, 2006, that cost $200 or more ($500 or more under proposed changes) belong to Class 8. You have to base your CCA c la im on a rate assigned to each c lass of property.

Fair market value (FMV) – general ly , th is is the h ighest dol lar value that you can get for your property in an open and unrestr ic ted market between an informed and wi l l ing buyer and an informed and wi l l ing sel ler who are deal ing at arm's length wi th each other .

Non arm's length – refers to a s i tuat ion where two par t ies that deal wi th each other are re la ted to each other , one par ty exer ts contro l over the other , or one par ty has benef ic ia l ( f inancia l ) in terests in the other . For more informat ion on non arm's length t ransact ions, see Interpretat ion Bul let in IT-419, MEANING OF ARM'S LENGTH.

Motor vehicle – th is is an automot ive vehic le designed or adapted for use on h ighways and st reets. A motor vehic le does not inc lude a

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t ro l ley bus or a vehic le designed or adapted to be operated only on ra i ls .

Passenger vehicle – th is is a motor vehic le designed or adapted pr imar i ly to carry people on h ighways and st reets. I t seats a dr iver and no more than e ight passengers. Most cars, s tat ion wagons, vans, and some pick up t rucks are passenger vehic les. They are subject to the l imi ts for CCA, in terest , and leasing. A passenger vehic le does not inc lude:

• an ambulance;

• c lear ly marked pol ice and f i re emergency response vehic les;

• a motor vehic le you bought to use more than 50% as a tax i , a bus used in the business of t ransport ing passengers, or a hearse used in a funeral business;

• a motor vehic le you bought to sel l , rent , or lease in a motor vehic le sales, renta l , or leasing business;

• a motor vehic le (except a hearse) you bought to use in a funeral business to t ransport passengers;

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• a van, p ick up t ruck, or s imi lar vehic le that seats no more than the dr iver and two passengers and that , in the tax year you bought or leased i t , was used more than 50% to t ransport goods and equipment to earn income;

• a van, p ick up t ruck, or s imi lar vehic le that , in the tax year you bought or leased i t , was used 90% or more to t ransport goods, equipment, or passengers to earn income;

• a p ick up t ruck that , in the tax year you bought or leased i t , was used more than 50% to t ransport goods, equipment, or passengers whi le earning or producing income at a remote work locat ion or at a specia l work s i te that is at least 30 k i lometres f rom the nearest communi ty having a populat ion of at least 40,000 persons; and

• a c lear ly marked emergency medica l serv ice vehic le used to carry paramedics and thei r emergency medical equipment.

Proceeds of disposit ion – usual ly means the sel l ing pr ice of a property. The proceeds of d isposi t ion are the amounts you receive, or that we consider you to have received, when you d ispose of your property.

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Undepreciated capital cost (UCC) – general ly , the UCC is the amount le f t a f ter you deduct CCA f rom the capi ta l cost of a depreciable property. Each year, the CCA you c la im reduces the UCC of the property.

Chapter 1 – General information Farming income Farming income inc ludes income you earned f rom the fo l lowing act iv i t ies:

• so i l t i l l ing

• l ivestock ra is ing or showing

• racehorse maintenance

• poul t ry ra is ing

• dai ry farming

• fur farming

• t ree farming

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• f ru i t growing

• beekeeping

• cu l t ivat ing crops in water or hydroponics

• Chr is tmas t ree growing

• operat ing a wi ld-game reserve

• operat ing a chicken hatchery

• operat ing a feedlot

In cer ta in c i rcumstances, you may also earn farming income f rom:

• ra is ing f ish

• market gardening

• operat ing a nursery or greenhouse

• operat ing a maple sugar bush ( inc ludes the act iv i ty of maple sap t ransformat ion into maple products i f th is act iv i ty is considered inc identa l to the basic act iv i t ies of a maple sugar bush, such as the

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ext ract ion and the col lect ion of maple sap, which are farming act iv i t ies)

Farming income does not include income you earned f rom work ing as an employee in a farming business, or f rom t rapping.

Note Inc lude a l l your income when you calculate i t for tax purposes. I f you fa i l to report a l l your income, you may be subject to a penal ty of 10% of the amount you fa i led to report af ter your f i rs t omiss ion.

A d i f ferent penal ty may apply i f you knowingly or under c i rcumstances amount ing to gross negl igence part ic ipate in the making of a fa lse statement or omiss ion on your income tax return. The penal ty is 50% of the tax at t r ibutable to the omission or fa lse statement (min imum $100).

You were asking?

Q. When does a farming business star t? Can I deduct the costs I incur before and dur ing the star t of my farming business?

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A. We look at each case on i ts own mer i ts . General ly , we consider that a farming business star ts whenever you begin some s igni f icant act iv i ty that is a regular par t of the business, or that is necessary to get the business going.

For example, suppose you decide to buy enough poul t ry for resale to star t your farming business. We would consider th is to be the star t ing point of your business. You can usual ly deduct a l l o f the expenses you have incurred up to that point to earn farming income. You could st i l l deduct the expenses i f , despi te a l l your ef for ts , your business wound up. On the other hand, i f you rev iew several d i f ferent types of farming act iv i t ies in the hope of going into a farming business of some k ind, we would not consider that your business has begun. In th is case, you cannot deduct any of the costs you have incurred.

For more informat ion about the star t of a business, see Interpretat ion Bul let in IT-364, COMMENCEMENT OF BUSINESS OPERATIONS.

The law al lows Stat is t ics Canada to access business informat ion col lected by the Canada Revenue Agency (CRA). Stat is t ics Canada can now share wi th provinc ia l s tat is t ica l agencies, for research and

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analys is purposes only, data concerning business act iv i t ies carr ied out in the respect ive province.

How to report your farming income You can earn farming income as a sel f employed farmer or as a par tner of a farm partnership. Most of the ru les that apply to sel f employed farmers a lso apply to par tners. However, i f you are a par tner , you should see "Report ing par tnership income," on page 39 [9] .

Fiscal period

You report your farming income based on a f iscal per iod. A f iscal period is the t ime covered f rom the day your farming business star ts i ts business year, to the day your farming business ends i ts business year. For an exis t ing business, the f iscal per iod is usual ly 12 months. A f iscal per iod cannot be longer than 12 months. However, i t can be shorter than 12 months in some cases, such as when a new business star ts or when a business stops.

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Sel f -employed indiv iduals general ly have to use a December 31 year-end. I f you are an e l ig ib le indiv idual , you may be able to use an a l ternat ive method of report ing business income that a l lows you to keep a f iscal per iod that does not end on December 31. I f your f iscal year-end is not December 31, you wi l l need Guide RC4015, RECONCIL IAT ION OF BUSINESS INCOME FOR TAX PURPOSES, to calculate the amount of business income to report on your 2011 income tax return. The publ icat ion inc ludes Form T1139, RECONCIL IAT ION OF 2011 BUSINESS INCOME FOR TAX PURPOSES.

I f you f i led Form T1139 wi th your 2010 income tax return, general ly you have to f i le that form again for 2011.

Report ing methods

You can report your farming income using the cash method or the accrual method of account ing.

Cash method

When you use th is method, you:

• report income in the f iscal per iod that you receive i t ; and

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• deduct expenses in the f iscal per iod that you pay them.

For specia l ru les on prepaid expenses, see "Prepaid expenses," on page 85 [18] .

I f you use the cash method and receive a post-dated cheque as secur i ty for a debt , inc lude the amount in income when the cheque is payable.

I f you receive a post-dated cheque as an absolute payment for a debt and the cheque is payable before the debt is due, inc lude the amount in your income on one of the fo l lowing dates, whichever is ear l ier :

• the date the debt is payable; or

• the date that you cash or deposi t the cheque.

Note The preceding post-dated cheque rules apply to income-producing t ransact ions, such as the sale of gra in. They do not apply to t ransact ions involv ing capi ta l property, such as the sale of a t ractor .

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When you use the cash method in a farming business, do not inc lude inventory when you calculate your income. There are, however, two except ions to th is ru le. For more informat ion, see "L ine 9941 – Opt ional inventory adjustment inc luded in 2011," and "L ine 9942 – Mandatory inventory adjustment inc luded in 2011," on pages 139 and 140 [27] .

For more informat ion on the cash method for farming income, see Interpretat ion Bul let in IT-433, FARMING OR FISHING – USE OF CASH METHOD.

Accrual method

When you use th is method you:

• report income in the f iscal per iod you earn i t , no mat ter when you receive i t ; and

• deduct expenses in the f iscal per iod you incur them, whether or not you pay them in that per iod.

For specia l ru les on prepaid expenses, see "Prepaid expenses," on page 85 [18] .

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When you calculate your income using the accrual method, the value of a l l inventor ies, such as l ivestock, crops, feed, and fer t i l izer wi l l form part of the calculat ion. Make a l is t of your inventory and count i t a t the end of your f iscal per iod. Keep th is l is t as par t of your business records.

You can use one o f the fo l lowing three methods to value your inventory:

• va lue a l l inventory at i ts fair market value (see "Def in i t ions," on page 12 [5] ) ;

• va lue indiv idual i tems at cost or fa i r market value, whichever is lower (when you cannot easi ly te l l one i tem f rom another , you can value the i tems as a group); or

• va lue l ivestock according to the uni t pr ice base. For th is method, complete Form T2034, ELECTION TO ESTABLISH INVENTORY UNIT PRICES FOR ANIMALS.

Use the same method you used in past years to value your inventory. The value of your inventory at the star t of your 2011 f iscal per iod is the same as the value at the end of your 2010 f iscal per iod. I f th is is

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your f i rs t year operat ing a farming business, you wi l l not have an opening inventory at the star t of your f iscal per iod.

For more informat ion on inventor ies, see Interpretat ion Bul let in IT-473, INVENTORY VALUATION.

Note I f you use the accrual method to calculate your farming income, calculate your cost of goods sold on a separate p iece of paper. Form T2042 does not have a l ine to calculate th is amount .

Changing your method of report ing income

I f you decide to change your method of report ing income f rom the accrual method to the cash method, s imply use the cash method when you f i le your next income tax return. Make sure you inc lude a statement that shows each adjustment you had to make to your income and expenses because of the d i f ference in methods.

I f you decide to change f rom the cash method to the accrual method, you have to receive permiss ion f rom your tax serv ices of f ice. Ask for th is change in wr i t ing before the date you have to f i le your

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income tax return. In your le t ter , expla in why you want to change methods.

Because there is a d i f ference between the cash and accrual methods, the f i rs t t ime you f i le your income tax return using the accrual method, make sure you inc lude a statement that shows each adjustment you had to make to your income and expenses.

Business records You are required by law to keep records of a l l your t ransact ions to support your income and expense c la ims.

Keep a record of your dai ly income and expenses. We do not issue record books nor suggest any type of book or set of books. There are many record books and bookkeeping systems avai lable. For example, you can use a book that has columns and separate pages for income and expenses.

Keep your records a long wi th your dupl icate deposi t s l ips, bank statements, and cancel led cheques. Keep separate records for each

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business you run. I f you want to keep computer ized records, make sure they are c lear and easy to read.

Note Do not send your records wi th your income tax return. However, do keep them in case we ask to see them at a la ter date.

Benefits of keeping complete and organized records

There are benef i ts for you when you keep complete and organized records:

• When you earn income f rom many p laces, good records help you ident i fy the source of income. I f you keep proper records, you may be able to prove that some income is not f rom your business, or that i t is not taxable.

• Keeping good records wi l l remind you of expenses you can deduct when i t is t ime to do your income tax return.

• Good records wi l l keep you bet ter in formed about the past and present f inancia l posi t ion of your business.

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• Good records can help you budget , spot t rends in your business, and assist you to get loans f rom banks and other lenders.

• Good records can prevent problems you may run into i f we audi t your income tax returns.

Consequences of not keeping adequate records

I f you do not keep the necessary in format ion and you do not have any other proof , we may have to determine your income using other methods.

We may also d isal low expenses that you deducted i f you are unable to support them.

There are penal t ies i f you do not keep adequate records, do not g ive the CRA access to your records when requested, or do not g ive informat ion to CRA of f ic ia ls when asked.

Income records

Keep t rack of the gross income that your farming business earns. Gross income is your to ta l income before you deduct the cost of

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goods sold and expenses. Your income records should show the date, amount , and source of the income. Record the income whether you received cash, property, or serv ices. Support a l l income entr ies wi th or ig inal documents. Or ig inal documents inc lude sales invoices, cash register tapes, receipts, cash purchase t ickets f rom the sale of gra in, and cheque stubs f rom market ing boards.

Expense records

Always get receipts or other vouchers when you buy something for your business. When you buy merchandise or serv ices, the receipts have to show:

• the date of the purchase;

• the name and address of the sel ler or suppl ier ;

• the name and address of the buyer; and

• a fu l l descr ipt ion of the goods or serv ices.

You were asking?

Q. What should I do i f there is no descr ipt ion on a receipt?

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A. When you buy something, make sure the sel ler descr ibes the i tem. However, somet imes there is no descr ipt ion on the receipt , as wi th a cash register tape. In th is case, you should wr i te what the i tem is on the receipt or in your expense journal .

Q. What should I do i f a suppl ier does not want to g ive me a receipt?

A. When you buy something, make sure you get a receipt . Suppl iers who are GST/HST regist rants are required to provide receipts. Farmers must obta in documentat ion to support the t ransact ions they enter in thei r books and records. Your farming re lated t ransact ions may be denied i f you do not have the proper documentary ev idence to support your purchases. For more informat ion, see Guide RC4022, GENERAL INFORMATION FOR GST/HST REGISTRANTS.

Keep a record of the propert ies that you bought . This record should show who sold you the property, the cost , and the date you bought i t . This in format ion wi l l help you calculate your capi ta l cost a l lowance (CCA) and other amounts. Chapter 4 expla ins how to calculate CCA.

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I f you sel l or t rade a property, show the date you sold or t raded i t and the amount of the payment or credi t f rom the sale or t rade- in.

Time l imits

Depending on the s i tuat ion, you have to keep your records and re lated vouchers for the fo l lowing lengths of t ime:

• i f you f i le your income tax return on t ime, a minimum of s ix years af ter the end of the tax year to which they re late;

• i f you f i le your income tax return late, s ix years f rom the date you f i le your return; and

• i f you f i le an object ion or appeal , unt i l e i ther :

– the issue is set t led and the t ime for f i l ing any fur ther appeal expi res; or

– the s ix-year per iod ment ioned above has expi red, whichever is la ter .

These retent ion per iods do not apply to cer ta in records. For more informat ion, see Informat ion Circular IC78-10, BOOKS AND RECORDS

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RETENTION/DESTRUCTION. I f you want to destroy your records and re lated vouchers before the minimum six-year per iod is over , you must f i rs t get wr i t ten permiss ion f rom your tax serv ices of f ice. To do th is , e i ther use Form T137, REQUEST FOR DESTRUCTION OF RECORDS, or prepare your own wr i t ten request . For more informat ion, see Guide RC4409, KEEPING RECORDS, or go to www.cra.gc.ca/records.

Instalment payments As a sel f -employed farmer, you may have to make insta lment payments for 2012. Your 2012 insta lment payment is due on December 31. In most cases, we wi l l send you a not ice indicat ing an insta lment amount we have calculated for you. However, there are d i f ferent methods that can be used to calculate insta lment payments.

You may have to pay interest and a penal ty i f you do not pay the fu l l insta lment amount you owe on t ime.

For more informat ion about insta lment payments or insta lment in terest charges, see Pamphlet P110, PAYING YOUR INCOME TAX BY INSTALMENTS.

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Note I f any of the dates ment ioned on page 33 [above] fa l ls on Saturday, Sunday or a statutory hol iday, you have unt i l the next business day to make your insta lment payments.

Dates to remember February 29, 2012 – I f you have employees, f i le your 2011 T4 and T4A informat ion returns. Also, g ive your employees thei r copies of the T4 and T4A s l ips.

March 31, 2012 – Most farm partnerships wi l l f i le a par tnership in format ion return by March 31, 2012. However, there are except ions. See Guide T4068, GUIDE FOR THE T5013 PARTNERSHIP INFORMATION RETURN.

Apri l 30, 2012 – Pay any balance owing for 2011. F i le your 2011 income tax return i f the expendi tures of the business are main ly the cost or capital cost (see "Def in i t ions," on page 12 [5] ) of tax shel ter investments.

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June 15, 2012 – Fi le your 2011 income tax return i f you have sel f -employed farming income or i f you are the spouse or common- law partner of someone who is sel f -employed, unless the expendi tures of the business are main ly the cost or capi ta l cost of tax shel ter investments. Remember in every case to pay any balance owing by Apr i l 30, 2012, to avoid in terest charges.

December 31, 2012 – Make your 2012 insta lment payment.

Employment Insurance (EI) benefits for self-employed persons Beginning in the year you register to par t ic ipate in the measure, your EI premiums wi l l be calculated on your income tax return for that year. For example, i f you register in 2011 to par t ic ipate in th is program, premiums for 2011 wi l l be calculated on your 2011 income tax return and wi l l be payable by Apr i l 30, 2012.

Subsequent ly , i f you pay your income tax by insta lment , EI premiums may be inc luded in your insta lment payments.

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When you register for the measure, EI premiums wi l l be payable on your sel f -employment income for the ent i re year, regardless of the date you register . For example, whether you register in Apr i l 2011 or December 2011, you wi l l pay EI premiums on your sel f -employment income for the ent i re year of 2011.

EI premiums are payable on the amount of your earnings f rom sel f -employment, up to an annual maximum amount . The annual maximum amount for 2011 is $44,200.

For more informat ion, v is i t www.servicecanada.gc.ca.

Goods and services tax/harmonized sales tax (GST/HST) registration I f your tota l gross revenue f rom your GST/HST taxable sales, inc luding those taxed at the rate of 0% (zero rated) , is more than $30,000 in a calendar quarter or in four consecut ive calendar quarters, you have to register for GST/HST.

General ly , i f your gross revenue is equal to or less than $30,000, you do not have to register , but you can do so voluntar i ly . I t may benef i t

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you to register because GST/HST regist rants are able to c la im input tax credi ts .

Note Bri t ish Columbia, Nova Scot ia, New Brunswick, Ontar io, and Newfoundland and Labrador harmonized the GST wi th thei r provinc ia l sa les tax to create the HST.

For in format ion about GST/HST taxable farm goods and serv ices, zero-rated farm products, and zero-rated farm purchases, see page 292 [55] . For more informat ion on GST/HST, go to www.cra.gc.ca/gsthst.

The GST/HST Registry

The GST/HST Regist ry is an onl ine serv ice that a l lows you to val idate the GST/HST number of a business, which helps to ensure that c la ims submit ted for input tax credi ts only inc lude GST/HST charged by suppl iers who are registered for GST/HST. For more informat ion, go to www.cra.gc.ca/gsthstregistry.

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You can val idate the Quebec Sales Tax (QST) regist rat ion number by accessing the QST regist ry on the Revenu Québec Web s i te at www.revenuquebec.ca/en/services/sgp_val idation_tvq/ index.aspx.

What is a partnership? A partnership is usual ly the re la t ionship between persons who carry on a business in common wi th the bel ie f they wi l l make a prof i t . You can have a par tnership wi thout a wr i t ten agreement. To help you decide i f you are a par tner in a cer ta in business, determine the type and extent of your involvement in the business and check the laws of your province or terr i tory.

When you form, change, or d issolve a re lat ionship that may be a par tnership, consider :

• whether the re lat ionship is a par tnership;

• the specia l ru les about capi ta l gains or losses and the recapture of CCA that apply when you t ransfer propert ies to a par tnership;

• the specia l ru les that apply when you d issolve a par tnership; and

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• the specia l ru les that apply when you sel l or d ispose of your in terest in a par tnership.

For more informat ion about par tnersh ips, see Interpretat ion Bul let in IT-90, WHAT IS A PARTNERSHIP?

Limited partnership

A l imi ted par tnership is a par tnership that g ives i ts par tners l imi ted responsib i l i t ies that are s imi lar to those g iven to shareholders of a corporat ion. A l imi ted par tner 's l iab i l i ty as a par tner is l imi ted, as opposed to that of a general par tner who has unl imi ted l iabi l i ty .

Report ing partnership income

A partnership does not general ly pay income tax on i ts income and does not f i le an income tax return. Instead, each par tner f i les an income tax return to report h is or her share of the par tnership 's net income or loss. This requirement remains whether the share of income was received in cash or as cred i t to a capi ta l account in the par tnership.

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Partnership losses

A partnership can have a loss. However, apply the loss carry over ru les to each par tner and not to the par tnership. For example, when you complete your own income tax return, combine your share of the par tnership non-capi ta l losses wi th any other non-capi ta l losses you have in the year. Apply th is amount against your income.

The loss carry forward per iod is 20 years for :

• non-capi ta l losses, farm losses, restr ic ted farm losses, and l i fe insurer 's Canadian l i fe investment losses incurred; and

• investment tax credi ts earned for sc ient i f ic research and exper imental development (SR&ED).

Fil ing requirements for partnerships

For 2011 and later taxat ion years, a par tnership that carr ies on a business in Canada, or a Canadian par tnership wi th Canadian or fore ign operat ions or investments, has to f i le a T5013 par tnership in format ion return for each f iscal per iod of the par tnership, i f :

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• at the end of the f iscal per iod, the par tnership has an absolute value of revenues p lus an absolute value of expenses of more than $2 mi l l ion, or has more than $5 mi l l ion in assets; or

• at anyt ime dur ing the f iscal per iod,

– the par tnership is a t iered par tnership (has another par tnership as a par tner or is i tse l f a par tner in another par tnership) ;

– the par tnership has a par tner that is a corporat ion or a t rust ;

– the par tnership invested in f low-through shares of a pr inc ipal -business corporat ion that incurred Canadian resource expenses and renounced those expenses to the par tnership; or

– the Minister of Nat ional Revenue requests one in wr i t ing.

For more informat ion about the par tnership in format ion return, go to www.cra.gc.ca/partnership or see Guide T4068.

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Capital cost al lowance (CCA)

A partnership can own depreciable property (see "Def in i t ions," on page 12 [5] ) and c la im CCA on i t . As an indiv idual par tner , you cannot c la im CCA on property that the par tnership owns.

From the capi ta l cost of depreciable property, subtract any investment tax credi t a l located to the indiv idual par tners. We consider th is a l locat ion to be made at the end of the par tnership 's f iscal per iod. Also, you must reduce the capi ta l cost by any type of government assistance received. Box 85 of your T5013 or T5013A s l ip wi l l show the amount of CCA the par tnership c la imed on your behal f . This amount has a l ready been deducted f rom your business income in box 35 of the T5013 or T5013A s l ip . Do not deduct th is amount again. For more informat ion about CCA and the adjustments to capi ta l cost , see Chapter 4.

Any taxable capi ta l gain or recapture f rom the sale of property the par tnership owns is inc luded in the income of the par tnership. Also, any a l lowable capi ta l or terminal loss f rom the sale of par tnership-owned property is the loss of the par tnership.

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For more informat ion about capi ta l gains and losses, as wel l as recapture and terminal losses, see Chapter 4.

Eligible capital expenditures

A partnership can own el ig ib le capi ta l property and deduct an annual a l lowance. Any income f rom the sale of e l ig ib le capi ta l property the par tnership owns is income of the par tnership. For more informat ion about e l ig ib le capi ta l expendi tures, see Chapter 5.

Goods and services tax/harmonized sales tax (GST/HST) rebate for partners

I f you are an indiv idual who is a member of a par tnership, you may be able to get a rebate for the GST/HST that you paid on cer ta in expenses. The rebate is based on the GST/HST that you paid on expenses that you deducted f rom your share of the par tnership income on your income tax return. However, specia l ru les apply i f your par tnership paid you an a l lowance for those expenses.

As an indiv idual who is a member of a par tnership, you may qual i fy for the GST/HST partner rebate i f :

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• the par tnership is a GST/HST regist rant ; and

• you personal ly paid GST/HST on expenses that ;

– you d id not incur on the account of the par tnership; and

– you deducted f rom your share of the par tnership income on your income tax return.

We base the rebate on the amount of the expenses subject to GST/HST that you deduct on your income tax return. Examples of expenses subject to GST/HST are vehic le costs and cer ta in business-use-of-home expenses.

You can a lso get a GST/HST rebate for the CCA that you c la im on cer ta in types of property. For example, you can c la im CCA for a vehic le you bought to earn par tnership income i f you paid GST/HST when you bought i t .

Use the chart "Other amounts deduct ib le f rom your share of net par tnership income ( loss)" on page 12 [3] of Form T2042, STATEMENT OF FARMING ACTIV IT IES, to c la im expenses for which the par tnership d id not re imburse you or any other deduct ib le amounts.

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For more informat ion, see "L ine 9943 – Other amounts deduct ib le f rom your share of net par tnership income ( loss) , " on page 157 [30] .

Note Enter the amount of the GST/HST rebate for par tners that re lates to e l ig ib le expenses other than CCA on l ine 9974 on page 11 [2] of Form T2042. In Area B on page 22 [4] of Form T2042, reduce the undepreciated capi ta l cost (UCC) for the beginning of 2012 by the por t ion of the rebate that re lates to the e l ig ib le CCA.

For more informat ion about the GST/HST rebate, see Guide RC4091, GST/HST REBATE FOR PARTNERS, which inc ludes Form GST370, EMPLOYEE AND PARTNER GST/HST REBATE APPLICATION.

Investment tax credit

An investment tax credi t ( ITC) le ts you subtract , f rom the taxes you owe, par t of the cost of some types of property you acquired or expendi tures you incurred. You may be able to c la im th is credi t in 2011 i f you bought qual i fy ing property, incurred qual i fy ing expendi tures, inc luding monies paid to agr icul tura l organizat ions through check-of fs , lev ies, or cash assistance; or were a l located

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renounced Canadian explorat ion expenses. You may also be able to c la im the credi t i f you have unused ITC's f rom years before 2011. For more informat ion about ITCs, see Form T2038(IND), INVESTMENT TAX CREDIT ( INDIV IDUALS).

Chapter 2 – Income from Farming Sole proprietorships I f you are a sole propr ietor of a fa rming business, complete a l l o f the appl icable areas and l ines on Form T2042, STATEMENT OF FARMING ACTIV IT IES.

Partnerships The deta i ls of your farming act iv i t ies that you have to g ive us depend on the type of your par tnership. I f you are a par tner in a par tnership that has to f i le a partnership in format ion return, complete Form T2042 as fo l lows:

• Complete the " Ident i f icat ion" area.

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• Enter your gross par tnership farming income (box 168 on your T5013 or T5013A s l ip) on l ine 168 of your income tax return. Enter the amount f rom box 41 (or box 20 i f a l imi ted par tnership) of your T5013 or T5013A s l ip on l ine d on page 10 [2] of Form T2042.

• Complete the "Other amounts deduct ib le f rom your share of net par tnership income ( loss)" chart to c la im any expenses for which the par tnership d id not re imburse you, or other amounts you may be able to deduct . Also, complete the "Calculat ion of business-use-of- home expenses" chart i f i t appl ies to you. For more informat ion, see "L ine 9945 – Business-use-of-home expenses," on page 158 [30] .

• Enter your share of the net income or loss f rom the farming business on l ine 9946, "Your net income ( loss) . " I f you d id not make any adjustments to the amount in box 41 (or box 20 i f a l imi ted par tnership) of your T5013 or T5013A s l ips, the amount you enter on l ine 9946 wi l l be the same as the amount you entered on l ine d.

I f you are a par tner in a par tnership that does not have to f i le a par tnership informat ion return, complete Form T2042 as fo l lows:

• Complete the " Ident i f icat ion" area.

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• Complete the " Income" sect ion to report the business income for the par tnership.

• Complete the "Expenses" sect ion to report the business par t of expenses for the par tnership.

• Complete the "Other amounts deduct ib le f rom your share of net par tnership income ( loss)" chart to c la im any expenses for which the par tnership d id not re imburse you or any other amounts you may be able to deduct . Also, complete the "Calculat ion of business-use-of-home expenses" chart i f i t appl ies to you. For more informat ion, see page 158 [30] .

• Complete the "Detai ls of other par tners" chart .

To see i f your par tnership has to f i le a par tnership in format ion return, see "Fi l ing requirements for par tnerships," on page 40 [10] .

How to complete Form T2042, Statement of Farming Activit ies At the end [ In the middle] of th is guide, you wi l l f ind two copies of Form T2042, STATEMENT OF FARMING ACTIV IT IES. This form can help

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you calculate your income and expenses for income tax purposes. We encourage you to use i t ; however, we wi l l cont inue to accept other types of f inancia l s tatements.

You have to complete a separate form for each business you operate. For more informat ion about the tax consequences of operat ing more than one business, see Interpretat ion Bul let in IT-206, SEPARATE BUSINESSES.

F i le your completed Form T2042 wi th your income tax return.

Note I f you are par t ic ipat ing in the Agr iStabi l i ty and Agr i Invest do not use Form T2042. Instead, use one of the fo l lowing:

• Form T1163, Statement A – Agr iStabi l i ty and Agr i Invest Programs Informat ion and Statement of Farming Act iv i t ies for Indiv iduals;

• Form T1164, Agr iStabi l i ty and Agr i Invest Programs Informat ion and Statement of Farming Act iv i t ies for Addi t ional Farming Operat ions;

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• Form T1273, Statement A – Harmonized Agr iStabi l i ty and Agr i Invest Programs Informat ion and Statement of Farming Act iv i t ies for Indiv iduals; or

• Form T1274, Statement B – Harmonized Agr iStabi l i ty and Agr i Invest Programs Informat ion and Statement of Farming Act iv i t ies for Addi t ional Farming Operat ions.

The forms are inc luded in the appl icable Agr iStabi l i ty and Agr i Invest Programs guides. I f you need one of the Agr iStabi l i ty and Agr i Invest Programs guides, go to www.cra.gc.ca/forms or cal l 1-800-959-2221.

Identif ication Complete a l l o f the l ines that apply to your farming business.

Enter your Account Number (15 characters) , ass igned by the CRA, in the appropr iate area.

Indicate the per iod that your business year covered, which is your f iscal per iod. For an explanat ion of f iscal per iod, see page 21 [6] .

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Enter the industry code that best descr ibes your farming act iv i ty . I f more than 50% of your farming business involved one speci f ic act iv i ty , choose the code that ident i f ies that main act iv i ty . However, i f your farming operat ion involved more than one type of farming act iv i ty , and none of these makes up more than 50% of your farming business, choose the appropr iate combinat ion farming code f rom the l is t .

The fo l lowing is a l is t of codes that apply to farming act iv i t ies:

Livestock farm

112110 Beef cat t le , inc luding feedlots

112120 Dairy cat t le and mi lk

112210 Hogs and p igs

112310 Chicken eggs ( inc luding hatching eggs)

112320 Broi ler and other meat- type chickens

112330 Turkeys

112340 Poul t ry hatcher ies

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112391 Combinat ion poul t ry and eggs

112399 Al l o ther poul t ry and eggs

112410 Sheep

112420 Goats

112510 Aquacul ture ( inc luding animal , a lgae and seaweed farming)

115210 Support act iv i t ies for animal product ion (husbandry serv ices)

112991 Livestock combinat ion farming, and l ivestock farming wi th secondary crop farming

Other animal specialt ies farm

112910 Apicul ture (beekeeping)

112920 Horses and other equines

112930 Rabbi t and other fur-bear ing animals product ion

112999 Al l o ther miscel laneous animals

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Field-crop farm

111110 Soybeans

111120 Oi lseed ( inc luding canola, f lax, mustard, and sunf lowers)

111130 Pulse crops (such as dry f ie ld peas, beans, and lent i ls)

111140 Wheat

111150 Corn

111190 Cereals (such as bar ley, oats, rye, and growing wi ld r ice)

111211 Potato farming inc luding sweet potatoes and yams

111219 Other vegetables (except potatoes, sweet potatoes and yams) and melons

111330 Non-c i t rus f ru i t and t ree nuts

111411 Mushrooms

111419 Other food crops grown under cover

111421 Nursery and t ree product ion

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111422 Flor icu l ture

111910 Tobacco

111940 Hay

111993 Fru i t and vegetable combinat ion farming

111994 Maple syrup and products product ion

111999 Miscel laneous crops, combinat ion of crops, and combinat ion of crops wi th secondary l ivestock farming (except maple syrup, a lgae and seaweed)

115110 Support act iv i t ies for crop product ion (soi l preparat ion, pruning, spraying, harvest ing, f ru i t p ick ing, crop c lear ing, sor t ing, grading) on contract

I f your Form T2042 is for a farming par tnership, ident i fy your percentage of the par tnership and enter the 9-d ig i t Partnership business number f rom the Form T5013 or T5013A you received, i f appl icable.

I f you d id not prepare Form T2042, enter the name and address of the person or f i rm that prepared i t for you.

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I f you have a tax shel ter , enter the ident i f icat ion number on the appropr iate l ine. I f you are c la iming a deduct ion or losses for 2011, at tach to your income tax re turn any appl icable T5003 s l ip , STATEMENT OF TAX SHELTER INFORMATION, and T5013A s l ip , STATEMENT OF PARTNERSHIP INCOME FOR TAX SHELTERS AND RENOUNCED RESOURCE EXPENSES, and a completed Form T5004, CLAIM FOR TAX SHELTER LOSS OR DEDUCTION. For more informat ion on tax shel ters, go to www.cra.gc.ca/taxshelters.

Note Tax shel ter numbers are used for ident i f icat ion purposes only. They do not guarantee that taxpayers are ent i t led to receive the proposed tax benef i ts .

Tax t ip For more informat ion about how to protect yoursel f against tax schemes, go to www.cra.gc.ca/alert .

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Farming income Lines 9370 to 9378 ( inclusive)

Enter the income f rom the sale of your gra ins and o i lseeds – whether sold d i rect ly or through an agency – on the appropr iate l ines 9371 to 9378. I f you have other income f rom grains and o i lseeds not l is ted on l ines 9371 to 9378, enter the amount on l ine 9370.

I f you sold gra in d i rect ly or through an agency, inc lude in income al l the amounts that you received f rom these sales. For example, inc lude any Canadian Wheat Board payments f rom the sale of wheat , durum wheat , and bar ley.

When you del ivered gra in to a l icensed publ ic e levator or process e levator , you received a storage t icket , a cash purchase t icket , or a deferred cash purchase t icket .

I f you received a storage t icket, a sale d id not take p lace. Therefore, you do not have to inc lude that amount in income.

However, i f you received a cash purchase t icket, a sale did take p lace. Because we consider that you have received a payment at the

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t ime that you received the t icket , you have to inc lude th is amount in income.

I f you received a deferred cash purchase t icket, you may be able to defer the income unt i l the fo l lowing tax year. You can do th is i f the t icket provides for payment af ter the end of the tax year in which you del ivered the gra in. This carry-over of income is only a l lowable in speci f ic s i tuat ions. For more informat ion, see Interpretat ion Bul let in IT-184, DEFERRED CASH PURCHASE TICKETS ISSUED FOR GRAIN.

Cash advances

Under the AGRICULTURAL MARKETING PROGRAMS ACT, you may be able to get advances for crops that someone stores in your name. We consider these advances to be loans. Do not inc lude these payments in your income unt i l the crops are sold. However, inc lude the fu l l amount f rom the sale of your crops in your income for the tax year in which the sale occurs.

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Lines 9421 to 9424 ( inclusive)

Enter the tota l income f rom the sale of the ident i f ied produce on the appl icable l ine. Whether you sold produce di rect ly or through an agency, inc lude in income al l the amounts you received f rom these sales.

Do not inc lude amounts received f rom the sale of greenhouse vegetables. For more in format ion see l ine 9425.

Line 9420 – Other crops

Enter the tota l income f rom the sale of pulse crops, sugar beets, hops, or any other crops you have not ident i f ied on another l ine.

Line 9425 – Greenhouse and nursery products

Enter the tota l income f rom the sale of such th ings as ornamental p lants, shrubs, t rees, cut and f ie ld-grown f lowers, rooted cut t ings, seeds and bulbs, sod and tur f , and greenhouse vegetables.

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Line 9426 – Forage crops or seeds

Enter the tota l income f rom the sale of hay, a l fa l fa, c lover and c lover seed, a ls ike, t imothy, fescue, grass seed, or any other forage crops or seeds.

Lines 9471 to 9474 ( inclusive) – Livestock sold

On the appl icable l ine, enter the to ta l income f rom the sale of the ident i f ied l ivestock. In some cases you can defer inc luding some amounts in income, as expla ined below. These deferra ls do not apply i f you were a non-resident and were not carry ing on a farming business through a f ixed p lace of business in Canada at the end of the tax year. They a lso do not apply in the year of the farmer 's death.

Line 9470 – Other animal specialt ies

Enter on th is l ine the tota l income f rom the sale of any other l ivestock not speci f ica l ly ident i f ied on another l ine ( for example, the sale of horses, ponies, goats or l lamas). Inc lude amounts f rom the sale of fur-bear ing animals you ra ised in capt iv i ty , such as fox, chinchi l la , mink, or rabbi t , as wel l as income f rom an apiary operat ion.

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Prescribed drought region (PDR)

In some cases, you may be able to defer the appl icable income received f rom the sale of breeding animals in your 2011 f iscal per iod to a la ter f iscal per iod. To be able to do th is , you must meet the fo l lowing two condi t ions:

• your farming business was located in a PDR at some t ime dur ing your 2011 f iscal per iod; and

• you reduced, by sale or other means, the number of breeding animals in your breeding herds by at least 15%.

For a l is t of PDRs, contact us at 1-800-959-5525 or Agr icul ture and Agr i -Food Canada (AAFC) at the te lephone numbers in the government sect ion of your te lephone book. You wi l l a lso f ind the l is t of PDRs on the AAFC Webpage at www.agr.gc.ca/pfra/drought/ program_e.htm.

Prescribed f lood region (PFR)

El ig ib le farmers who dispose of breeding l ivestock in a tax year because of f lood or excessive moisture wi l l be permi t ted to exclude a

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por t ion of the sale proceeds f rom thei r incomes unt i l the fo l lowing tax year . You may wish to f i le your 2008 and subsequent income tax returns based on the proposed legis lat ion in the same manner as you would for a prescr ibed drought region.

For a l is t of the prescr ibed regions of f lood or excessive moisture, go to www.fin.gc.ca/n08/09-024-eng.asp.

Breeding animals

The fo l lowing are considered to be breeding animals:

• bovine cat t le ;

• b ison;

• goats;

• sheep;

• deer, e lk , and other s imi lar grazing ungulates you keep for breeding; and

• horses that you breed to produce pregnant mares ' ur ine that you sel l .

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Note Al l of your breeding animals must be o lder than 12 months.

To determine the s ize of your breeding herd at the end of your 2011 f iscal per iod, complete the fo l lowing chart :

Breeding herd chart

Part 1

How many of your female bovine cat t le over 12 months of age (held at the end of your 2011 f iscal year) have g iven b i r th?

1

How many of your female bovine cat t le over 12 months of age (held at the end of your 2011 f iscal year) have never given b i r th?

2

Enter one hal f of the amount f rom l ine 1 3

Enter e i ther the amount f rom l ine 2 or l ine 3, whichever is less

4

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Part 2

How many breeding animals d id you have at the end of your 2011 f iscal per iod?

5

Enter the amount f rom l ine 2 6

Enter the amount f rom l ine 4 7

Line 6 minus l ine 7 8

Number of breeding animals in your breeding herd at the end of your 2011 f iscal per iod: L ine 5 minus l ine 8

9

I f the amount f rom l ine 9 is not more than 85% of the tota l number of animals in your breeding herd at the end of your 2010 f iscal year , you can defer par t of the income received in 2011 f rom the sale of breeding animals.

Before you determine how much you can defer , you need to calculate a few amounts. F i rs t , determine your sales of breeding animals for

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your 2011 f iscal per iod minus any reserves you c la imed for these sales.

A reserve is created when you sel l property and do not receive the fu l l proceeds at the t ime of the sale. Instead, the amount of proceeds is spread over a number of years, which a l lows you to defer report ing these proceeds to the year in which you receive them. For more informat ion on reserves, see Interpretat ion Bul let in IT-154, SPECIAL RESERVES.

Af ter you have determined your sales of breeding animals, subtract f rom th is amount the cost of breeding animals you bought in your 2011 f iscal per iod. The resul t is your net sales amount .

You then determine how much you can defer as fo l lows:

• i f the amount at l ine 9 is more than 70% and not more than 85% of your breeding herd at the end of your 2010 f iscal per iod, you can defer up to 30% of your net sales amount ; or

• i f the amount at l ine 9 is between 0% and 70% of your breeding herd at the end of your 2010 f iscal per iod, you can defer up to 90% of your net sales amount .

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You do not have to defer a l l o f th is income. You can inc lude any par t of i t in your 2011 income. The deferred income must , however, be reported in the f iscal per iod that ends in:

• the year beginning af ter the per iod or per iods when the region stops being a PDR or PFR;

• the year when a farmer d ies; or

• the f i rs t year when, at the end of that year, the farmer is a non-resident and has ceased to carry on business through a f ixed p lace of business in Canada.

I f you want , you can e lect to report the deferred income in the year af ter you deferred i t .

However, as long as your farming business was in a PDR/PFR at any t ime in your 2011 f iscal per iod, you do not have to inc lude income you deferred in ear l ier years.

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Line 9476 – Milk and cream (not including dairy subsidies) and Line 9477 – Eggs

On the appl icable l ine, enter the to ta l income from sel l ing eggs, mi lk , and cream. Do not inc lude any amount you received as dai ry subsid ies. Inc lude these in your 2011 f iscal per iod on l ine 9541.

Line 9520 – Other commodit ies

On th is l ine, enter the tota l income f rom sel l ing any other commodi ty not speci f ica l ly ident i f ied on another l ine. Other commodi t ies inc lude the sale of semen, s tud serv ices, embryo t ransplants, ar t i f ic ia l inseminat ion, and pregnant mares ' ur ine. Also inc lude amounts f rom the sale of maple products, mushrooms, and g inseng.

Program payments

You should receive an AGR-1 s l ip , STATEMENT OF FARM-SUPPORT PAYMENTS, to ident i fy your 2011 taxable farm-support payments for a l l farm-support programs f rom which you received payments of more than $100. These inc lude farm-support programs administered by the federal , provinc ia l , terr i tor ia l , and munic ipal governments, and by producer associat ions.

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You have to inc lude in income a l l taxable farm-support payments you received in your 2011 f iscal per iod, inc luding amounts of $100 or less.

I f your farm is operated as a par tnership, only one par tner should at tach the AGR-1 s l ip to h is or her income tax return. However, i f your par tnership has to f i le a par tnership informat ion return, you should f i le the s l ip wi th that return.

I f the annual per iod of the AGR-1 s l ip is not the same as the f iscal per iod of your farming operat ion, report only the par t of the farm-support payments that you earned dur ing your normal f iscal per iod. For example, i f your farming business has a f iscal per iod ending on June 30, 2011, and your AGR-1 s l ip shows income of $10,000 in box 14, but you earned only $6,000 of that income by June 30, 2011, inc lude only $6,000 in your income for your 2011 f iscal per iod. Inc lude the remaining $4,000 in your next f iscal per iod. However, inc lude the AGR-1 s l ip issued for the 2011 calendar year wi th your 2011 income tax return or par tnership informat ion return.

I f you are a former Net Income Stab i l izat ion Account (NISA) program part ic ipant and received an AGR-1 s l ip wi th a posi t ive amount in box 18, report i t as income on l ine 130 of your income tax return. The

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f igure in box 18 represents taxable amounts paid out of your NISA Fund 2 account .

The back of the AGR-1 s l ip conta ins informat ion about how to report amounts that appear in the var ious boxes.

Line 9541 – Dairy subsidies

Enter the dai ry or mi lk subsid ies that you received.

Line 9542 – Crop insurance

Enter any insurance proceeds that you received f rom federal , provinc ia l , or jo int federal /provinc ia l programs for loss of crops.

Line 9540 – Other payments

Inc lude the tota l income that you received f rom al l o ther s tabi l izat ion and farm-subsidy programs made to farm producers under federal , prov inc ia l , munic ipal , or jo int programs.

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Disaster assistance program payments – Enter any payments that you received f rom federal or provinc ia l d isaster assistance programs. These inc lude the fo l lowing:

• the Agr icul tura l Income Disaster Assistance (AIDA) Program in Saskatchewan, Mani toba, Nova Scot ia, Newfoundland and Labrador, New Brunswick, Pr ince Edward Is land, and Quebec;

• the Canadian Farm Income Program (CFIP) in Saskatchewan, Mani toba, Nova Scot ia, Newfoundland and Labrador, New Brunswick, Pr ince Edward Is land, and Quebec;

• the Whole Farm Insurance Pi lo t (WFIP) Program in Br i t ish Columbia;

• the Farm Income Disaster Program (FIDP) in Alber ta, and

• the Ontar io Whole Farm Rel ief Program (OWFRP) and the Ontar io Farm Income Disaster Program (OFIDP) in Ontar io.

Destroying l ivestock – You have to inc lude in income any payments you received under the HEALTH OF ANIMALS ACT for destroy ing animals. You can choose to deduct a l l or par t of the payment as an expense in the year. However, i f you choose to do th is , you have to inc lude in

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your income for your next f iscal per iod the amount you deduct in your 2011 f iscal per iod. I f you deferred payments in your 2010 f iscal per iod, you have to inc lude the deferred amounts as income in 2011.

Line 9570 – Rebates

Enter the amount of the rebate, grant , or assis tance you received on th is l ine. Before doing so, reduce any re lated expense or the capi ta l cost of a re lated depreciable asset by the amount of the rebate, grant , or assis tance you received. For more informat ion, see "Grants, subsid ies, and rebates," on page 206 [39] . For more informat ion about GST/HST rebates, go to www.cra.gc.ca/gsthst.

Line 9601 – Custom or contract work, and machine rentals

Enter the tota l of your inc identa l farming income f rom such th ings as custom or contract work, haul ing, custom trucking, harvest ing, combining, crop dust ing or spraying, seeding, dry ing, packing, c leaning, t reat ing seeds, and rent ing farm machinery.

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Line 9604 – Insurance proceeds

Enter the amount of any insurance proceeds you received as compensat ion for loss or damage to cer ta in types of property. For example, you may have received insurance proceeds for damage to a bui ld ing due to f i re, or for the loss of l ivestock to d isease.

Enter the tota l insurance proceeds on th is l ine i f you are being re imbursed for :

• the cost of non-depreciable proper ty that you previously deducted as a current expense; or

• the cost of property that was a saleable i tem, such as l ivestock.

I f the insurance proceeds compensated you for damages to depreciable property, and you used a l l o f them to repair the property wi th in a reasonable per iod of t ime, inc lude the proceeds as income on th is l ine. Cla im a deduct ion for the same amount in the "Other expenses" area on page 9 [2] of Form T2042. Cla im repairs to depreciable property that is machinery on l ine 9760 and repairs to motor vehic les on l ine 9819. I f you d id not spend a l l o f the insurance proceeds on repairs wi th in a reasonable length of t ime, we consider

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the amounts you d id not spend to be proceeds of d isposi t ion. Report these amounts in column 4 of Area A on page 18 [4] of Form T2042. For more informat ion, see "Column 4 – Proceeds of d isposi t ion in the year," on page 176 [33] .

Insurance proceeds that compensate you for replacement o f lost or destroyed depreciable property are considered to be proceeds of d isposi t ion for that depreciable property. Do not inc lude th is type of insurance proceeds on th is l ine. For more informat ion, see Chapter 4. For in format ion on how insurance af fects the adjusted cost base of capi ta l property, see Chapter 7.

Do not inc lude insurance proceeds f rom federal , provinc ia l , or munic ipal government programs. For in format ion on government insurance programs, see l ines 9540 and 9542 on page 68 [ th is page] .

Line 9605 – Patronage dividends

Report patronage div idends (other than those for consumer goods or serv ices) that are received by e l ig ib le members of agr icu l tura l co-operat ives on l ine 9605.

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I f you receive a patronage div idend in the form of " tax deferred co-operat ive shares," there is no need to immediate ly inc lude i t in income. Tax may be deferred unt i l the shares are d isposed of (or deemed to be d isposed of) . The balance of the shares could then be carr ied forward and shel tered unt i l actual (or deemed) proceeds of d isposi t ion.

Line 9600 – Other income

Enter the tota l of any other farming income that you have not speci f ica l ly ident i f ied on another l ine. The fo l lowing paragraphs ident i fy some of these income i tems.

Wood sales ( including stumpage)

I f you operated or regular ly harvested a woodlot , inc lude in your income the amounts f rom the sale of t rees, lumber, logs, poles, or f i rewood.

From th is income, you can deduct a type of capi ta l cost a l lowance known as a deplet ion a l lowance. For more informat ion, see

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In terpretat ion Bul let in IT-481, T IMBER RESOURCE PROPERTY AND TIMBER L IMITS.

I f you earned the income by let t ing other people remove standing t imber f rom your woodlot , the proceeds may be a capi ta l receipt . A taxable capi ta l gain or an a l lowable capi ta l loss may resul t . For more informat ion on capi ta l gains and losses, see Chapter 7 of th is guide and Guide T4037, CAPITAL GAINS.

For more informat ion on the sale of wood, see Interpretat ion Bul let in IT-373, WOODLOTS.

Gifts

In your income, inc lude the fair market value (see "Def in i t ions," on page 12 [5] ) of l ivestock or other i tems you gave away that you would normal ly have sold.

Once you g ive the l ivestock or other i tems away, you cannot deduct any more costs for ra is ing or mainta in ing them.

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Payment in kind

A payment in k ind occurs when you receive or g ive goods or serv ices instead of money. For instance, to pay someone for a business expense, you may give h im or her something you produced on your farm instead of money. When you do th is , inc lude the fa i r market value of the goods or serv ices in income. Deduct the same amount as an expense.

I f you received a payment in k ind for a product you would normal ly have sold, inc lude the fa i r market value of the product in income.

I f you were a landlord rent ing out land involved in sharecropping, we consider any payment in k ind you received to be renta l income.

Surface rental for petroleum or natural gas explorat ion

I f you received payments for leasing your farmland for petro leum or natura l gas explorat ion, these payments wi l l be e i ther income or a capi ta l receipt . Inc lude in your income the year ly amounts for renta l , severance, or inconvenience f rom a sur face renta l agreement.

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The f i rs t payment f rom these agreements is of ten larger than the rest of the annual payments. However, the agreement may not speci fy how much of the f i rs t payment is for such th ings as damage to land, land improvements, severance, inconvenience, or the f i rs t year 's rent . When th is happens, in the year you received the f i rs t payment, inc lude in income an amount that is equal to the annual payment you wi l l receive in the fo l lowing years. The rest of the f i rs t payment is a payment for property. This may resul t in e i ther a capi ta l gain or loss. For in format ion about capi ta l gains, see Chapter 7.

Rental income

Except for the sur face renta l previously expla ined, you do not usual ly inc lude renta l income in your farming income. To determine your renta l income, use Form T776, STATEMENT OF REAL ESTATE RENTALS. You wi l l f ind th is form in Guide T4036, RENTAL INCOME.

I f you were a landlord rent ing out land involved in sharecropping, we consider the payments that you received, whether in k ind or cash, to be renta l income for tax purposes.

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Recapture of capital cost al lowance (CCA)

Inc lude in your income the amount of any recapture of CCA you have f rom sel l ing depreciable property such as tools and equipment.

To f ind out i f you have any recapture of CCA complete the appl icable areas on Form T2042. For more informat ion, see Chapter 4.

Miscel laneous

Inc lude in your income amounts that you receive f rom the sale of soi l , sand, gravel , or s tone. For some of these i tems, you can c la im a deplet ion a l lowance.

You can deduct 100% of the cost of property such as smal l tools i f they cost less than $200 ($500 under proposed changes). I f you d id th is and you later sold that proper ty, you have to inc lude in income the amount that you received f rom the sale.

Inc lude in your income pr izes that you won f rom fa i rs or farming exhib i t ions. For more informat ion, see Interpretat ion Bul let in IT-213, PRIZES FROM LOTTERY SCHEMES, POOL SYSTEM BETT ING AND GIVEAWAY CONTESTS.

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Line 9659 – Gross income

Gross farming income is your tota l farming income before you deduct expenses. Enter your gross farming income on l ine 168 of your income tax return.

Chapter 3 – Expenses This chapter d iscusses the more common expenses you might incur to earn income f rom your business act iv i t ies. Incur means that you paid or wi l l pay the expense.

Current or capital expenses

Renovat ions and expenses that extend the usefu l l i fe of your property or improve i t beyond i ts or ig inal condi t ion are usual ly capi ta l expenses. However, an increase in a property 's market value because of an expense is not a major factor in determining whether the expense is capi ta l or current . To determine whether an amount is a current expense or a capi ta l expense, consider your answers to the quest ions on the fo l lowing chart .

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Current or capital expenses

Criter ia

Does the expense provide a last ing benefi t?

Capital expenses A capi ta l expense general ly g ives a last ing benef i t or advantage. For example, the cost of put t ing v iny l s id ing on the exter ior wal ls of a wooden house is a capi ta l expense.

Current expenses A current expense is one that usual ly recurs af ter a short per iod. For example, the cost of paint ing the exter ior of a wooden house is a current expense.

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Criter ia

Does the expense maintain or improve the property?

Capital expenses The cost of a repair that improves a property beyond i ts or ig inal condi t ion is probably a capi ta l expense. I f you replace wooden steps wi th concrete steps, the cost is a capi ta l expense.

Current expenses An expense that s imply restores a property to i ts or ig inal condi t ion is usual ly a current expense. For example, the cost of repair ing wooden steps is a current expense.

Criter ia

Is the expense for a part of a property or for a separate asset?

Capital expenses The cost of replac ing a separate asset wi th in that property is a capi ta l expense. For example, the cost of buying a compressor for use in your business operat ion is a capi ta l expense. This is the case

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because a compressor is a separate asset , and is not a par t of the bui ld ing.

Current expenses The cost of repair ing a property by replac ing one of i ts par ts is usual ly a current expense. For instance, e lectr ica l wir ing is par t o f a bui ld ing. Therefore, an amount you spend to rewi re is usual ly a current expense, as long as the rewir ing does not improve the property beyond i ts or ig inal condi t ion.

Criter ia

What is the value of the expense? (Use th is test only i f you cannot determine whether an expense is capi ta l or current by consider ing the three previous tests. )

Capital expenses Compare the cost of the expense to the value of the property. General ly , i f the cost is of cons iderable value in re lat ion to the property, i t is a capi ta l expense.

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Current expenses This test is not a determining factor by i tse l f . You might spend a large amount of money for maintenance and repairs to your property a l l a t once. I f th is cost was for ord inary maintenance that was not done when i t was necessary, i t is a maintenance expense, and you deduct i t as a current expense.

Criter ia

Is the expense for repairs to used property that you acquired to put i t in suitable condit ion for use?

Capital expenses The cost of repair ing used property that you acquired to put i t in a sui table condi t ion for use in your business is considered a capi ta l expense even though in other c i rcumstances i t would be t reated as a current operat ing expense.

Current expenses Where the repairs were for ord inary maintenance of a property that you a l ready had in your business, the expense is usual ly current .

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Criter ia

Is the expense for repairs made to an asset in order to sel l i t?

Capital expenses The cost of repairs made in ant ic ipat ion of the sale of a property, or as a condi t ion of sale, is regarded as a capi ta l expense.

Current expenses Where the repairs would have been made anyway, but a sale was negot iated dur ing the course of the repairs or af ter thei r complet ion, the cost is regarded as current .

For more informat ion, see "Chapter 4 – Capi ta l cost a l lowance (CCA)," and Interpretat ion Bul let in IT-128, CAPITAL COST ALLOWANCE – DEPRECIABLE PROPERTY.

You cannot c la im expenses you incur to buy capi ta l property. However, as a ru le, you can deduct any reasonable current expense you incur to earn farming income. The deduct ib le expenses inc lude any GST/HST you incur on these expenses less the amount of any

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input tax credi t c la imed. Also, s ince you cannot deduct personal expenses, enter only the business par t of expenses on Form T2042.

Note When you c la im the GST/HST you paid on your business expenses as an input tax credi t , reduce the amounts of the business expenses you show on Form T2042 by the amount of the input tax credi t . Do th is when the GST/HST for which you are c la iming the input tax credi t was paid or became payable. Simi lar ly , subtract any rebate, grant , or assistance f rom the expense to which i t appl ies. Enter the net f igure on the proper l ine. Any such assistance you c la im for the purchase of depreciable property used in your business wi l l a f fect your c la im for CCA. I f you cannot apply the rebate, grant , or assis tance you received to reduce a par t icu lar expense, or to reduce an asset 's capi ta l cost , inc lude the tota l on l ine 9570, "Rebates," on Form T2042. For more informat ion, see "Grants, subsid ies, and rebates," on page 206 [39] .

"Enter business part only," on Form T2042, means any of the fo l lowing are not inc luded as par t of your expenses:

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• sa lary or wages ( inc luding drawings) paid to sel f , par tner(s) , or both;

• the cost of saleable goods or serv ices that you, your fami ly , or your par tners and thei r fami l ies used or consumed ( inc luding i tems such as dai ry products, eggs, f ru i t , vegetables, poul t ry , and meat) ;

• donat ions to char i t ies and pol i t ica l contr ibut ions;

• in terest and penal t ies you paid on your income tax;

• most l i fe insurance premiums ( for more informat ion on a l imi ted except ion, see l ine 9804 on page 96 [20] ) ;

• the par t of any expenses that can be at t r ibuted to non-business use of business property; and

• most f ines and penal t ies imposed af ter March 22, 2004, under the law of Canada or a province or a fore ign country.

Prepaid expenses

A prepaid expense is an expense you pay for ahead of t ime. Under the accrual method o f account ing, c la im the expense you prepay in the year or years in which you get the re lated benef i t . For example,

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suppose your f iscal year-end is December 31, 2011. On June 30, 2011, you prepay the rent on your bui ld ing for a fu l l year (July 1, 2011, to June 30, 2012). You can only deduct one-hal f of th is rent as an expense in 2011. You can deduct the other hal f as an expense in 2012.

Under the cash method o f account ing, you cannot deduct a prepaid expense amount (other than for inventory) re lat ing to a tax year that is two or more years af ter the year the expense is paid. However, you can deduct the par t of an amount you paid in a previous year for benef i ts received in the current tax year. These amounts are deduct ib le as long as you have not previously deducted them. For example, i f you paid $600 for a three-year serv ice contract for of f ice equipment in 2011, you can deduct $400 in 2011. This represents the par t of the expense that appl ies to 2011 and 2012. On your 2013 income tax return, you could then deduct the balance of $200 for the par t of the prepaid lease that appl ies to 2013.

For more informat ion, see Interpretat ion Bul let in IT-417, PREPAID EXPENSES AND DEFERRED CHARGES.

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Line 9661 – Containers and twine

Enter the tota l amount that you paid for mater ia l to package, conta in, or ship your farm produce or products.

I f you operated a nursery or greenhouse, deduct the cost of your conta iners and pots for the p lants you sold.

Line 9662 – Fert i l izers and l ime

Enter the tota l amount that you paid for fer t i l izers and l ime you used in your farming business.

Line 9663 – Pesticides (herbicides, insecticides, fungicides)

Enter the tota l amount that you paid for herbic ides, insect ic ides, and fungic ides.

Line 9664 – Seeds and plants

Enter the tota l amount that you paid for seeds and p lants. Do not inc lude the cost of seeds and p lants that you used in your personal vegetable or f lower garden.

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Line 9711 – Feed, supplements, straw, and bedding

Enter the tota l amount that you paid for feed, supplements, s t raw, and bedding you purchased for your farming business. You cannot deduct the value of the feed, s t raw, or bedding you grew.

Line 9712 – Livestock purchased

Enter the amount that you paid for a l l l ivestock you purchased.

Line 9713 – Veterinary fees, medicine, and breeding fees

Enter the tota l amount that you paid for medic ine for your animals, and for veter inary and breeding fees. Examples of such fees inc lude the cost of ar t i f ic ia l inseminat ion, s tud serv ice and semen, embryo t ransplants, d isease test ing, and neuter ing or spaying.

Machinery expenses

The expense of operat ing and maintain ing your machinery is the tota l of l ine 9760 and l ine 9764 on page 89 [below].

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Line 9760 – Repairs, l icences, and insurance

Enter the tota l amount of repair , l icence fee, and insurance premium expenses you incurred for your machinery. I f you received insurance proceeds to help pay for repairs , see "L ine 9604 – Insurance proceeds," on page 71 [15] .

Line 9764 – Gasoline, diesel fuel , and oi l

Enter the tota l amount that you paid for fuel and lubr icants for your machinery.

Line 9795 – Building and fence repairs

Deduct repairs to fences and a l l bu i ld ings that you used for farming, except your farmhouse. Do not inc lude the value of your own labour. I f the expendi ture improved a fence or bui ld ing beyond i ts or ig inal condi t ion, the costs are capi ta l expendi tures. Add the expendi ture to the cost of the asset on your CCA charts on Form T2042. We expla in the CCA charts in Chapter 4.

For more informat ion on capi ta l expendi tures, see Interpretat ion Bul let in IT-128, CAPITAL COST ALLOWANCE – DEPRECIABLE PROPERTY.

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I f you used your farmhouse for business reasons, see "L ine 9945 – Business-use-of-home expenses," on page 158 [30] .

Note You may have received insurance proceeds to pay for the cost of repairs . I f the insurance proceeds compensated you for damages to depreciable property such as bui ld ings or fences, and you used a l l o f them to repair the property wi th in a reasonable per iod of t ime, you can c la im a deduct ion for the amount spent on repairs on l ine 9795. However, you have to inc lude the insurance proceeds as income on l ine 9604. I f you d id not spend al l o f the insurance proceeds on repairs wi th in a reasonable length of t ime, inc lude the unexpended excess as proceeds of d isposi t ion in column 4 of "Area A – Calculat ion of capi ta l cost a l lowance (CCA)" on Form T2042. For more informat ion, see "Column 4 – Proceeds of d isposi t ion in the year," on page 176 [33] .

Line 9796 – Clearing, level l ing, and draining land

Enter the tota l of the expenses l is ted on page 91 [below]. In most cases, you can deduct the costs for :

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• c lear ing the land of brush, t rees, roots, s tones, and so on;

• f i rs t p loughing of the land for farm use;

• bui ld ing an unpaved road; and

• insta l l ing land dra inage.

You do not have to deduct a l l o f the costs in the year that you paid them. I f you paid a l l o f the costs, you can deduct any par t of them in the year that you paid them. You can carry forward any par t of the costs that you d id not deduct to another year.

However, i f you rented land to someone else, you cannot deduct the costs ment ioned above. Instead, you may be able to:

• add these costs to the cost of the land; or

• i f you p lan to bui ld on the land r ight away, add these costs to the cost of the bui ld ing; or

• i f you insta l led a t i le , p last ic , or concrete land dra inage system, the cost can be inc luded under Class 8 in the CCA charts on Form T776, STATEMENT OF REAL ESTATE RENTALS.

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In th is case, add the costs for a t i le , p last ic or concrete land dra inage system to Class 8 on your CCA char ts on Form T2042. For more informat ion, see Chapter 4.

For more informat ion, see Interpretat ion Bul let in IT-485, COST OF CLEARING OR LEVELL ING LAND.

Improving land

You cannot deduct the cost of a paved road. Instead, you have to add th is cost to Class 17 of your CCA charts on Form T2042. For more informat ion, see Chapter 4.

You can deduct most of the cost to dr i l l or d ig water wel ls in the year you d id the work. However, you have to add some of the costs to Class 8 on your CCA charts . The costs you add to Class 8 are those you incurred to purchase and insta l l :

• the casing and cr ibwork for the wel l ; and

• the system that d is t r ibutes water , inc luding the pump and pipes.

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You can deduct amounts that you paid to have publ ic ut i l i t ies brought to your farm, as long as the insta l la t ions remain the property of the ut i l i ty .

You can deduct amounts that you paid under the CANADA COOPERATIVE ASSOCIAT IONS ACT to bui ld a d is t r ibut ion system under a gas serv ice contract .

Line 9797 – Crop insurance

Enter the amount of deduct ib le premiums to the Crop Insurance Program. Do not inc lude any premiums for pr ivate, business-re lated, or motor vehic le insurance. For in format ion on other types of insurance, see l ine 9760 on page 89 [18] , l ine 9804 on page 96 [20] , and l ine 9819 on page 104 [21] .

Line 9798 – Custom or contract work, and machinery rental

Enter the expenses that you incurred for custom and contract work, and machinery renta l . For example, you may have had a contract wi th someone who c leaned, sor ted, graded, and sprayed the eggs that your hens produced, or someone who had fac i l i t ies to age the cheese that

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you produced. You may have a lso contracted someone to do your harvest ing, combining, crop dust ing, or seed c leaning.

Line 9799 – Electr ici ty

Only the par t of your e lectr ic i ty costs that re lates to your farming business is deduct ib le. To determine the par t that you can deduct , keep a separate record of the amounts that apply to the farmhouse, and to other farm propert ies.

For example, the business par t of your e lectr ic i ty expense wi l l depend on how much electr ic i ty you used for the barns and shops. Because the e lectr ic i ty for the farmhouse is a personal expense, you cannot deduct i t unless you meet the condi t ions that we expla in in "L ine 9945 – Business-use-of-home expenses," on page 158 [30] .

Do not inc lude on Form T2042 the e lectr ic i ty expense for a house that you rented to someone else. This is a renta l expense, which you enter on Form T776, STATEMENT OF REAL ESTATE RENTALS. You can get Form T776 in Guide T4036, RENTAL INCOME.

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Line 9802 – Heating fuel

Enter the tota l amount you paid for natura l gas, coal , and o i l to heat farm bui ld ings. Also enter your expenses for fuel used for cur ing tobacco, crop dry ing, or greenhouses.

You can deduct only the par t of these costs that re lates to your farming business. To determine the par t that you can deduct , keep a separate record of the amounts that you paid for the farmhouse and for other farm propert ies.

For example, the business par t of your heat ing fuel expense wi l l depend on how much heat ing fuel you used for the barns and shops. Because the heat ing fuel for the farmhouse is a personal expense, you cannot deduct i t unless you meet the condi t ions we expla in in "L ine 9945 – Business-use-of-home expenses," on page 158 [30] .

Do not inc lude on your statement of farming act iv i t ies the heat ing fuel expenses for a house that you rented to someone else. This is a renta l expense, which you enter on Form T776. You can get Form T776 in Guide T4036.

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Line 9803 – Insurance program overpayment recapture

Enter the amount of any insurance program overpayment recapture that you incurred. You should receive an AGR-1 s l ip , STATEMENT OF FARM-SUPPORT PAYMENTS, ident i fy ing the amount of the recapture in box 17.

Line 9804 – Insurance

Enter the amount of business-re lated insurance premiums that you paid to insure your farm bui ld ings, farm equipment (excluding machinery and motor vehic les) , l ivestock, and business interrupt ion.

In most cases, you cannot deduct your l i fe insurance premiums. However, i f you use your l i fe insurance pol icy as col la tera l for a loan re lated to your farming business, you may be able to deduct a l imi ted par t of the premiums you paid. For more informat ion, see Interpretat ion Bul let in IT-309, PREMIUMS ON LIFE INSURANCE USED AS COLLATERAL.

In most cases, you cannot deduct the amounts you paid to insure personal property such as your home or car . However, i f you used the personal property for your farming business, you can deduct the

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business par t of these costs. For more informat ion, see "L ine 9945 – Business-use-of-home expenses," on page 158 [30] and "L ine 9819 – Motor vehic le expenses," on page 104 [21] .

Line 9805 – Interest

You can deduct in terest you incurred on money borrowed for farming business purposes or to acquire property for farming business purposes.

However, there are l imi ts on:

• the interest you can deduct on money you borrow to buy a passenger vehic le. For more informat ion, see "L ine 9819 – Motor vehic le expenses," on page 104 [21] .

• the amount of in terest you can deduct for vacant land. Usual ly , you can only deduct in terest up to the amount of income f rom the land that remains af ter you deduct a l l o ther expenses. You cannot use any remaining amounts of in terest to create or increase a loss, and you cannot deduct them from other sources of income.

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You can deduct in terest that you paid on any real estate mortgage you incurred to earn farming income, but you cannot deduct the pr inc ipal par t of loan or mortgage payments. Do not deduct in terest on money that you borrowed for personal purposes or to pay overdue income taxes.

You may be able to deduct in terest expenses for a property that you used for farming business purposes, even i f you have stopped using the property for such purposes because you are no longer in the farming business. For more informat ion, cal l us at 1-800-959-5525.

Line 9808 – Off ice expenses

You can deduct the cost of of f ice expenses. These inc lude smal l i tems such as pens, penci ls , paper c l ips, s tat ionery, and stamps. Of f ice expenses do not inc lude i tems such as calculators, f i l ing cabinets, chai rs , and desks. These are capi ta l i tems. For more informat ion on capi ta l property, see Chapter 5.

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Line 9809 – Legal and accounting fees

Deduct the fees you incurred for external professional advice or serv ices, inc luding consul t ing fees.

You can deduct account ing and legal fees you incur to get advice and help in keeping your records. You can a lso deduct fees you incur for prepar ing and f i l ing your income tax and GST/HST returns.

You can deduct account ing or legal fees you paid to have an object ion or appeal prepared against an assessment for income tax, Canada Pension Plan or Quebec Pension Plan contr ibut ions, or Employment Insurance premiums. However, the fu l l amount of these deduct ib le fees must f i rs t be reduced by any re imbursement of these fees that you have received. Report the d i f fe rence on l ine 232 of your income tax return. I f you received a re imbursement in 2011 for the types of fees that you deducted in a previous year, report the amount you received on l ine 130 of your 2011 income tax return.

You cannot deduct legal and other fees you incur to buy a capi ta l property. Instead, add these fees to the cost of the property. For more informat ion on capi ta l property, see Chapter 5.

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For more informat ion, see Interpretat ion Bul let in IT-99, LEGAL AND ACCOUNTING FEES.

Line 9810 – Property taxes

Enter the amount of land, munic ipal , and real ty taxes that you paid for property used in your farming business. Since the munic ipal tax for the farmhouse is a personal expense, you cannot deduct i t unless you meet the condi t ions we expla in in "L ine 9945 – Business-use-of-home expenses," on page 158 [30] .

I f you are repaying a loan for land dra inage through your property tax payments to your township, you cannot inc lude the amount that you repaid as par t of your property tax expense.

Line 9811 – Rent ( land, bui ldings, and pasture)

You can deduct rent incurred for land, bui ld ings, and pasture used in your farming business.

I f you farmed on a sharecrop basis and paid your landlord a share of the crop, you can do one o f the fo l lowing:

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• Add to your income the fair market value (see "Def in i t ions," on page 12 [5] ) of the crops that you gave your landlord. Deduct the same amount as a rent expense.

• Do not inc lude the fa i r market value in income and do not deduct the amount as a rent expense.

Line 9814 – Salaries, wages, and benefi ts ( including employer's contr ibutions)

You can deduct gross salar ies and other benef i ts you pay to employees. Do not deduct salar ies or drawings paid or payable to yoursel f or to a par tner . For more informat ion, see "Detai ls of equi ty , " on page 161 [31] .

The Canada Pension Plan (CPP) is for a l l workers, inc luding the sel f -employed. Employers, employees, and most sel f -employed indiv iduals have to contr ibute to the CPP fund. The CPP can provide basic benef i ts when you ret i re or i f you become disabled. When you d ie, the CPP can provide benef i ts to your surv iv ing spouse or common- law partner and dependent ch i ldren under the age of 25. For

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more informat ion on contr ibut ions and benef i ts , v is i t the Serv ice Canada Web s i te at www.servicecanada.gc.ca.

Quebec workers inc luding the sel f -employed are covered under the Quebec Pension Plan (QPP).

As the employer, you can deduct your par t of CPP or QPP contr ibut ions, Employment Insurance premiums, Provinc ia l Parenta l Insurance Plan (PPIP) premiums ( the PPIP is an income replacement p lan for res idents of Quebec – for deta i ls , contact Revenu Québec), and workers ' compensat ion amounts payable on employees' remunerat ion. For in format ion on making payrol l deduct ions, go to www.cra.gc.ca/payrol l .

You can a lso deduct any insurance premiums you pay for en employee for a s ickness, an accident , a d isabi l i ty , or an income insurance p lan.

You can deduct the salary that you pay to your chi ld , as long as you meet al l these condi t ions:

• you pay the salary;

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• the work that your chi ld does is necessary for earning farming income; and

• the salary is reasonable when you consider your chi ld 's age, and the amount you pay is what you would pay someone else.

Keep documents to support the salary you pay your chi ld . I f you pay your chi ld by cheque, keep the cancel led cheque. I f you pay cash, have the chi ld s ign a receipt .

Instead of cash, you may pay your chi ld wi th a product f rom your business. When you do th is , c la im the value of the product as an expense and add to your gross sales an amount equal to the value of the product . Your chi ld has to inc lude the value of the product in h is or her income.

You can a lso deduct the salary you pay to your spouse or common- law partner . When you pay your spouse or common- law partner a salary, use the same ru les that apply to paying your chi ld .

Report the salar ies you pay to your chi ldren and spouse or common- law partner on T4 s l ips, the same as you would for other employees. However, you cannot c la im the value of board and lodging you provide

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to your dependent chi ldren and spouse or common- law partner as an expense.

Line 9819 – Motor vehicle expenses (not including CCA)

You can deduct expenses you incur to run a motor vehic le you use to earn farming income. Complete "Chart A – Motor vehic le expenses," on page 28 [5] of Form T2042. The chart wi l l help you calculate the amount of motor vehic le expenses you can deduct . I f you are a par tner in a business par tnersh ip and you incur motor vehic le expenses for the business through the use of your personal vehic le, you may c la im those expenses re lated to the business on "L ine 9943 – Other amounts deduct ib le f rom your share of net par tnership income ( loss) , " on page 11 [3] of the form. For more informat ion, see page 157 [30] .

Keeping records

You can deduct motor vehic le expenses only when they are reasonable and you have receipts to support them. To get the fu l l benef i t o f your c la im for each vehic le, keep a record of the tota l k i lometres you dr ive and the k i lometres you dr ive to earn farming

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income. For each business t r ip , l is t the date, dest inat ion, purpose, and number of k i lometres you dr ive. Record the odometer reading of each vehic le at the star t and end of the f iscal per iod.

I f you change motor vehic les dur ing the f iscal per iod, record the dates of the changes and the odometer readings at the t ime you buy, sel l , or t rade the vehic les.

Simpli f ied logbook for motor vehicle expense provisions

Fol lowing a Federal in i t ia t ive to reduce paper burden on businesses, you can choose to mainta in a fu l l logbook for one complete year to establ ish the business use of a vehic le in a base year.

Af ter one complete year of keeping a logbook (star t ing in 2009 or thereaf ter) to establ ish a base year, a three month sample logbook can be used to extrapolate business use for the ent i re year, provid ing the usage is wi th in the same range (wi th in 10%) of the resul ts of the base year. Businesses wi l l need to demonstrate that the use of the vehic le in the base year remains representat ive of i ts normal use.

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For more informat ion about the sample logbook pol icy, go to www.cra.gc.ca/autolog.

What type of vehicle do you own?

The k ind of vehic le that you own can af fect the expenses that you can deduct . For income tax purposes, there are two def in i t ions of vehic les (see "Def in i t ions," on page 12 [5] ) that you should know about . They are:

• motor vehic les; and

• passenger vehic les.

I f you own or lease a passenger vehic le, there may be a l imi t on the amounts that you can deduct for CCA, in terest , and leasing costs. We expla in the CCA l imi ts in Chapter 4. You wi l l f ind the l imi ts on interest and leasing costs la ter in th is sect ion.

The fo l lowing chart wi l l help you to determine i f you have a motor vehic le or a passenger vehic le. The chart does not cover every s i tuat ion, but i t g ives some of the main def in i t ions for vehic les bought or leased and used to earn business income.

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Vehicle definit ions

Type of vehicle

Seating ( includes

driver)

Business use in year bought

or leased Vehicle

definit ion

Coupe, sedan, s tat ion wagon, sports car , or luxury car

1 to 9 1% to 100% passenger

Pick-up t ruck used to t ransport goods or equipment

1 to 3 more than 50% motor

Pick-up t ruck (other than above)

1 to 3 1% to 100% passenger

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Type of vehicle

Seating ( includes

driver)

Business use in year bought

or leased Vehicle

definit ion

Pick-up t ruck wi th extended cab used to t ransport goods, equipment, or passengers

4 to 9 90% or more motor

Pick-up t ruck wi th extended cab (other than above)

4 to 9 1% to 100% passenger

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Type of vehicle

Seating ( includes

driver)

Business use in year bought

or leased Vehicle

definit ion

Sport ut i l i ty vehic le used to t ransport goods, equipment, or passengers

4 to 9 90% or more motor

Sport ut i l i ty vehic le (other than above)

4 to 9 1% to 100% passenger

Van or min ivan used to t ransport goods or equipment

1 to 3 more than 50% motor

Van or min ivan (other than above)

1 to 3 1% to 100% passenger

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Type of vehicle

Seating ( includes

driver)

Business use in year bought

or leased Vehicle

definit ion

Van or min ivan used to t ransport goods, equipment, or passengers

4 to 9 90% or more motor

Van or min ivan (other than above)

4 to 9 1% to 100% passenger

Deductible expenses

The types of expenses you can c la im on l ine 9819 inc lude:

• l icence and regist rat ion fees;

• fuel costs;

• insurance;

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• in terest on money borrowed to buy a motor vehic le;

• maintenance and repairs; and

• leasing costs.

You can a lso c la im CCA, but you enter th is amount on l ine 9936. For more informat ion about CCA, read see Chapter 4.

Business use of a motor vehicle

I f you use a motor vehic le for business and personal use, you can deduct only the par t of the expenses that you paid to earn income. However, you can deduct the fu l l amount of park ing fees re lated to your business act iv i t ies and supplementary business insurance for your motor vehic le. Farming business use inc ludes th ings such as t r ips to p ick up par ts and farm suppl ies, or to del iver gra in. I f you d id not l ive on your farm, the t ravel between the farm and your home is not considered business t ravel .

To support the amount you can deduct , keep a record of the tota l k i lometres you dr ive and the k i lometres you dr ive to earn income.

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Example Murray 's farming business has a December 31 year-end. He owns a t ruck that is not a passenger vehic le. He uses the t ruck to p ick up suppl ies and equipment. Murray kept the fo l lowing records for h is 2011 f iscal per iod:

Farming business k i lometres 27,000 km

Total k i lometres 30,000 km

Expenses: Gasol ine and o i l $ 3,500

Repairs and maintenance $ 500

Insurance $ 1,000

Interest (on loan to buy t ruck) $ 1,900

Licence and regist rat ion fees $ 100

Total expenses for the t ruck $ 7,000

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This is how Murray determines the motor vehic le expenses he can deduct in h is 2011 f iscal per iod:

27,000 ( farming business k i lometres) × $7,000 = $6,300

30,000 ( tota l k i lometres)

Murray can deduct $6,300 on l ine 9819 of Form T2042 as motor vehic le expenses for h is 2011 f iscal per iod.

I f you received insurance proceeds to help pay for repairs , see "L ine 9604 – Insurance proceeds," on page 71 [15] .

Joint ownership

I f you and another person own or lease a passenger vehic le, the l imi ts on CCA, in terest , and leasing st i l l apply. As a jo int owner, the tota l amount you or any other owners deduct cannot be more than the amount one person owning or leasing the vehic le could deduct .

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More than one vehicle

I f you use more than one motor vehic le for your farming business, for each vehic le keep a separate record that shows the tota l personal-use k i lometres and farming business k i lometres you dr ive, and the cost to run and mainta in each vehic le. Calculate each vehic le 's expenses separate ly .

For more informat ion, see Interpretat ion Bul let in IT-521, MOTOR VEHICLE EXPENSES CLAIMED BY SELF-EMPLOYED INDIV IDUALS.

Interest

You can deduct in terest on the money you borrow to buy a motor vehic le, or passenger vehic le you use to earn farming income. Inc lude the interest as an expense when you calculate your a l lowable motor vehic le expenses.

When you use a passenger vehic le to earn income, there is a l imi t on the amount of in terest you can deduct . To calculate the amount of in terest you can deduct , complete "Chart B – Avai lable in terest expense for passenger vehic les," on page 30 [5] of Form T2042.

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Example Heather 's farming business has a December 31 year-end. On January 1, 2011, she bought a new passenger vehic le that she uses for both personal and business use. She borrowed money to buy the vehic le, and the interest she paid in her 2011 f iscal per iod was $2,200. Since the car that Heather bought is a passenger vehic le, there is a l imi t on the in terest she can deduct . Heather 's avai lable in terest is the lesser of :

• $2,200 ( the tota l in terest she paid in her 2011 f iscal per iod) ; or

• $3,650 ($10 × 365 days) .

Heather 's records for her 2011 f iscal per iod:

Farming business k i lometres 20,000 km

Total k i lometres 25,000 km

Expenses: Gasol ine and o i l $ 2,000

Repairs and maintenance $ 1,000

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Insurance $ 1,900

Interest (on loan to buy vehic le) $ 2,200

Licence and regist rat ion $ 60

Total vehic le expenses $ 7,160

Here is how Heather determines the motor vehic le expenses she can deduct in her 2011 f iscal per iod:

20,000 ( farming business k i lometres) × $7,160 = $5,728

25,000 ( tota l k i lometres)

Heather can deduct $5,728 on l ine 9819 of Form T2042 as motor vehic le expenses for her 2011 f iscal per iod.

Leasing costs for a passenger vehicle

You can deduct amounts you incur to lease a motor vehic le you use to earn farming income. Inc lude these amounts on l ine 9819.

– 117 –

When you use a passenger vehic le to earn farming income, there is a l imi t on the amount of the leasing costs you can deduct . To calculate your e l ig ib le leasing costs, complete the chart "Chart C – El ig ib le leasing costs for passenger vehic les," on page 31 [5] of Form T2042.

I f the lease agreement for your passenger vehic le inc ludes such i tems as insurance, maintenance, and taxes, inc lude them as par t of the lease charges on l ine 1 of Chart C.

Note General ly , leases inc lude taxes (GST/HST, or PST), but not i tems such as insurance and maintenance. You have to pay these amounts separate ly . Inc lude the taxes on l ine 1 of Chart C, and l is t the i tems such as insurance and maintenance on the appropr iate l ines of "Chart A – Motor vehic le expenses".

For your 2011 f iscal per iod, use the GST rate of 5% or the HST rate of your speci f ic province to complete Chart C.

On July 1, 2010, the HST rate for Nova Scot ia increased f rom 13% to 15%. As a resul t , a res ident of Nova Scot ia who is making lease payments in 2010 that are calculated on a monthly basis, wi l l need to

– 118 –

complete the chart twice; one for payments made before July 1, 2010, and the second for payments made af ter June 30, 2010. You wi l l then add the two resul ts together to determine your e l ig ib le leasing costs for the year.

The fo l lowing example wi l l show you how to calculate your e l ig ib le leasing costs. Use the chart of Form T2042 to help you complete the fo l lowing example.

Example On July 1, 2011, Meadow star ted leasing a car that is a passenger vehic le. She used the car to earn farming income. Her business has a December 31 f iscal year end. The PST rate for her province is 8% and GST is 5%. Meadow entered the fo l lowing for 2011:

Monthly lease payment $ 500

Lease payments for 2011 $ 3,000

Manufacturer 's suggested l is t pr ice $ 33,000

Number of days in 2011 she leased the car 184

– 119 –

GST and PST on $30,000 $ 3,900

GST and PST on $35,294 $ 4,588

GST and PST on $800 $ 104

Tota l lease charges incurred in Meadow's 2011 f iscal per iod for the vehic le $ 3,000 1

Total lease payments deducted in f iscal per iods before 2011 for the vehic le $ 0 2

Total number of days the vehic le was leased in 2011 and previous f iscal per iods 184 3

Manufacturer 's l is t pr ice $ 33,000 4

The amount on l ine D ($33,000) or ($35,294 + $4,588), whichever is more $39,882 × 85% $ 33,900 5

($904 × 184) ÷ 30 $ 5,545 6

– 120 –

($33,900 × $3,000) ÷ $33,900 $ 3,000 7

Meadow's e l ig ib le leasing cost is e i ther l ine 6 or 7, whichever amount is less. In th is case, her a l lowable c la im is $3,000.

Repayments and imputed interest

When you lease a passenger vehic le, you may have a repayment owing to you, or you may have imputed interest . I f th is is the case, you wi l l not be able to use the chart .

Imputed interest is in terest that would be owing to you i f in terest were paid on the money that you deposi ted to lease a passenger vehic le. Calculate imputed interest for leasing costs on a passenger vehic le only i f al l the fo l lowing apply:

• one or more deposi ts were made for the leased passenger vehic le;

• the deposi t is , or the deposi ts are, refundable; and

• the tota l of the deposi ts is more than $1,000.

For more informat ion, see Interpretat ion Bul let in IT-521, MOTOR VEHICLE EXPENSES CLAIMED BY SELF-EMPLOYED INDIV IDUalS.

– 121 –

Line 9820 – Small tools

I f a tool costs you less than $200, ( less than $500 under proposed changes) you can deduct i ts fu l l cost . I f i t costs you $200 or more, ($500 or more under proposed changes) add the cost to your CCA schedule as Class 8 property. For more informat ion, see Chapter 4.

Note Smal l tools that cost less than $200 ( less than $500 under proposed changes) are fu l ly deduct ib le in the year of purchase. You may c la im them as an expense at l ine 9820 or c la im CCA by inc luding them in Class 12 (wi th a CCA rate of 100%). Ei ther method is acceptable, but do not c la im the amount twice. For more informat ion on CCA, see Chapter 4.

Line 9937 – Mandatory inventory adjustment included in 2010

I f you inc luded an amount for the mandatory inventory adjustment (MIA) on l ine 9942 in your 2010 f iscal per iod, deduct the amount as an expense in your 2011 f iscal per iod. Do not inc lude the valuat ion of inventor ies i f you are us ing the accrual method of account ing. For

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more informat ion about the accrual method, see "Report ing methods," on page 22 [6] .

For more informat ion on MIA, see l ine 9942 on page 140 [27] .

Line 9938 – Optional inventory adjustment included in 2010

I f you inc luded an amount for the opt ional inventory adjustment (OIA) on l ine 9941 in your 2010 f iscal per iod, deduct the amount as an expense in your 2011 f iscal per iod. Do not inc lude the valuat ion of inventor ies i f you are us ing the accrual method of account ing. For more informat ion about the accrual method, see "Report ing methods," on page 22 [6] .

For more informat ion on OIA, see l ine 9941 on page 139 [27] .

Line 9790 – Other expenses

There are expenses you can incur to earn farming income, other than those l is ted on Form T2042. We cover some of them in the fo l lowing sect ions. Enter on th is l ine the tota l of other expenses you incurred to earn income, as long as you d id not inc lude them on a previous l ine. You do not have to l is t these expenses on the form.

– 123 –

You can pay some of your expenses by having them deducted f rom your cash gra in t ickets or gra in stabi l izat ion payments. These expenses inc lude seed, feed, sprays, or fer t i l izers. You can deduct these expenses i f you inc lude in your income the gross amount of the gra in sale or s tabi l izat ion payment.

Disabil i ty-related modif icat ions

You can deduct out lays and expenses you incur for e l ig ib le d isabi l i ty- re lated modi f icat ions made to a bui ld ing in the year you paid them, instead of having to add them to the capi ta l cost of your bui ld ing. El ig ib le d isabi l i ty- re lated modi f icat ions inc lude changes you make to accommodate wheelchairs. For more informat ion, see Guide T4002, BUSINESS AND PROFESSIONAL INCOME.

Payment in kind

I f you made a payment in k ind for a farming business expense, inc lude the fa i r market value of the good or serv ice in income. Deduct the same amount as an expense. For more informat ion, see "Payment in k ind," on page 75 [16] .

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Leasing costs

Deduct the lease payments you incurred in the year for property used in your business. I f you lease a passenger vehic le, see "L ine 9819 – Motor vehic le expenses," on page 104 [21] .

I f you entered into a lease agreement af ter Apr i l 26, 1989, you can choose to t reat your lease payments as combined payments of pr inc ipal and interest . However, you and the person f rom whom you are leasing have to agree to t reat the payments th is way. In th is case, we consider that you:

• bought the property rather than leased i t ; and

• borrowed an amount equal to the fa i r market value (FMV) of the leased property.

You can deduct the interest par t of the payment as an expense. You can a lso c la im CCA on the property.

You can make th is choice as long as the property qual i f ies and the tota l FMV of a l l the property that is subject to the lease is more than $25,000. For example, a combine that you lease wi th a FMV

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of $35,000 qual i f ies. However, of f ice furn i ture and vehic les of ten do not qual i fy .

To t reat your lease th is way, f i le one o f these forms wi th your income tax return for the year you make the lease agreement:

• Form T2145, Elect ion in Respect of the Leasing of Property; or

• Form T2146, Elect ion in Respect of Assigned Leases or Subleased Property.

Advert ising

Deduct the cost of any advert is ing done for your farming business.

Telephone expenses

Do not deduct the basic monthly rate of your home te lephone. However, you can deduct any long d is tance te lephone cal ls you made on your home te lephone for farming business.

I f you have a separate te lephone to use in your business and you use i t for business cal ls only, you can deduct i ts basic monthly rate.

– 126 –

Memberships and subscript ions

Enter the amount of fees you incurred for memberships in farming organizat ions and for subscr ipt ions to farming publ icat ions used in your farming act iv i t ies.

Freight and trucking

Deduct the expenses you incurred for del ivery, shipping, t rucking, and other d is t r ibut ion costs re lated to your farming business.

Premiums to a private health services plan (PHSP)

You can deduct premiums paid to a pr ivate heal th serv ices p lan (PHSP) i f you meet the fo l lowing condi t ions:

• your net income from self-employment (exc luding losses and PHSP deduct ions) for the current or previous year is more than 50% of your total income*; or

• your income from sources other than self -employment** is $10,000 or less for the current or previous year;

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• you are act ive ly engaged in your farming business on a regular and cont inuous basis, indiv idual ly or as a par tner ; and

• the premiums are paid to insure yoursel f , your spouse or common- law partner , or any member of your household.

* For the purpose of th is c la im, calculate your total income as fo l lows:

– the amount f rom l ine 150 of your 2010 or 2011 income tax return, whichever appl ies, before you deduct any amounts for PHSPs; minus

– the amount you entered on l ines 207, 212, 217, 221, 229, 231, and 232 on your 2010 or 2011 income tax return, whichever appl ies.

** For the purpose of th is c la im, calculate your income from sources other than self -employment as fo l lows:

– the amount f rom l ine 150 of your 2010 or 2011 income tax return, whichever appl ies, before you deduct any amounts for PHSPs; minus

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– the amount you entered on l ines 135, 137, 139, 141, 143 (excluding business losses which reduced the amount on those l ines) , 207, 212, 217, 221, 229, 231, and 232 on your 2010 or 2011 income tax return, whichever appl ies.

You cannot c la im a deduct ion for PHSP premiums i f another person deducted the amount , or i f you or anyone else c la imed the premiums as a medical expense. For your premiums to be deduct ib le, your PHSP coverage has to be paid under a contract wi th one of the fo l lowing:

• an insurance company;

• a t rust company;

• a person or par tnership in the business of administer ing PHSPs;

• a tax-exempt t rade union of which you or the major i ty of your employees are members; or

• a tax-exempt business organizat ion or a tax-exempt professional organizat ion of which you are a member.

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For more informat ion on PHSPs, see Interpretat ion Bul let in IT-339, MEANING OF "PRIVATE HEALTH SERVICES PLAN."

For the purposes of th is c la im, the fo l lowing terms apply:

• Arm's length employees are, general ly , employees who are not re lated to you and who are not carry ing on your business wi th you, for example, as your par tners.

• Quali f ied employees are arm's length, fu l l - t ime employees who have three months serv ice s ince they last became employed wi th a business carr ied on by you, a business in which you are a major i ty in terest par tner , or a business carr ied on by a corporat ion af f i l ia ted wi th you. Temporary or seasonal workers are not qual i f ied employees.

• Insurable persons are people to whom coverage is extended and who are e i ther :

– qual i f ied employees;

– people who would be qual i f ied employees i f they had worked for you for three months; or

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– people carry ing on your business ( inc luding yoursel f and your par tners) .

How to calculate your maximum deduction for PHSPs

The fo l lowing sect ions expla in how to calculate your maximum PHSP deduct ion based on whether you had employees and whether you insured them throughout the year or par t of the year. F ind the sect ion that descr ibes your s i tuat ion.

I f you did not have any employees throughout 2011

Your PHSP deduct ion is restr ic ted by a dol lar l imi t on an annual basis. The l imi t is a maximum of :

• $1,500 for yoursel f ;

• $1,500 for each of your spouse or common- law partner and household members who were 18 years of age or o lder at the star t of the per iod when they were insured; or

• $750 for each household member under the age of 18 at the star t of the per iod.

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The maximum deduct ion is a lso l imi ted by the number of days that the person was insured. Calculate your a l lowable maximum for the year by using the fo l lowing formula:

A × (B + C), where:

365

A is the number of days dur ing the per iod of the year when you insured yoursel f and household members, i f appl icable, but insured less than 50% of your employees

B equals $1,500 × the number of household members 18 and over insured dur ing that per iod

C equals $750 × the number of household members under 18 insured dur ing that per iod

Example 1 Edwin was a sole propr ietor who ran h is farm alone in 2011. He had no employees and d id not insure any of h is household members. Edwin paid $2,000 for PHSP coverage in 2011. His coverage lasted

– 132 –

f rom July 1 to December 31, 2011 (a tota l of 184 days) . Edwin 's maximum al lowable PHSP deduct ion is calculated as fo l lows:

184 × $1,500 = $756

365

Even though Edwin paid $2,000 in premiums in 2011, he can only deduct $756, because the annual l imi t is $1,500 and he was only insured for about hal f of the year. I f he had been insured for the ent i re year, h is deduct ion l imi t would be $1,500.

Example 2 Bruce was a sole propr ietor who ran h is farm alone in 2011. He had no employees. From January 1 to December 31, he insured h imsel f , h is wi fe, and h is two sons. Bruce paid $1,800 to insure h imsel f , $1,800 to insure h is wi fe, and $1,000 for each of h is sons. One of h is sons was 15 years o ld and the other turned 18 on September 1. Bruce's PHSP deduct ion is l imi ted to the fo l lowing amounts:

• $1,500 for h imsel f ;

• $1,500 for h is wi fe;

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• $750 for h is 15-year-o ld son; and

• $750 for the son who turned 18. This l imi t appl ies because he d id not turn 18 unt i l a f ter the insured per iod began.

I f you had employees throughout 2011

I f you had at least one quali f ied employee throughout a l l o f 2011, and at least 50% of the insurable persons in your business were qual i f ied employees, your c la im for PHSP premiums is l imi ted in a d i f ferent way. Your l imi t is based on the lowest cost of equivalent coverage for each of your qual i f ied employees.

Use the fo l lowing steps to calculate your maximum al lowable c la im for the PHSP premiums paid for yoursel f , your spouse or common- law partner , and your household members.

For each of your qual i f ied employees, calculate the fo l lowing:

X × Y = Z, where:

X equals the amount you would pay to provide yoursel f , your spouse or common- law partner , and your household members wi th

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coverage equivalent to that prov ided to a par t icu lar employee and h is or her spouse or common- law partner and household members

Y equals the percentage of the premium you pay for that par t icu lar employee

Z equals your l imi t based on that par t icu lar employee

Example 1 You have one qual i f ied employee. To provide yoursel f wi th coverage equivalent to h is or hers, you pay a premium of $1,800. You pay 60% of your employee's premium. Your deduct ion l imi t for yoursel f is $1,080, calculated as fo l lows:

$1,800 (amount X) × 60% (amount Y) = $1,080 (amount Z)

The maximum you can c la im is $1,080, i f you had only one qual i f ied employee.

I f you had more than one qual i f ied employee, you have to do the (X × Y = Z) calculat ion for each employee. Your l imi t is then the least amount you calculate for each and every employee.

– 135 –

Example 2 You have three qual i f ied employees, Jack, J i l l , and Sue. The fo l lowing table shows how much you would pay for coverage equivalent to each of thei rs , and the percentage of each employee's premium that you pay.

Name of employee

Cost of equivalent coverage for yourself

% of the employee's premium you pay

Jack $1,500 20%

Ji l l $1,800 50%

Sue $1,400 40%

You have to do the fo l lowing three calculat ions:

Jack: $1,500 (X) × 20% (Y) = $300 (Z)

J i l l : $1,800 (X) × 50% (Y) = $900 (Z)

Sue: $1,400 (X) × 40% (Y) = $560 (Z)

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Your l imi t is $300, the least of the amounts calculated for the three employees.

Note I f you have a qual i f ied employee wi th no coverage, you cannot c la im your PHSP premiums as a deduct ion f rom sel f -employment income. However, you may be able to c la im them as medical expenses.

I f you had employees throughout 2011 but the number of arm's length employees you insured was less than 50% of a l l o f the insurable persons in your business, your maximum al lowable deduct ion is the lesser o f the fo l lowing two amounts:

Amount 1

Determine th is amount by the using the fo l lowing formula:

A × (B + C), where:

365

– 137 –

A is the number of days dur ing the per iod of the year when you insured yoursel f and household members, i f appl icable, but insured less than 50% of your employees

B equals $1,500 × the number of people covered under the p lan that inc ludes you, your spouse or common- law partner and household members that are 18 years of age or o lder dur ing that per iod

C equals $750 × the number of household members under 18 insured dur ing that per iod

Amount 2

I f you had at least one quali f ied employee, amount 2 is the lowest cost of equivalent coverage for each qual i f ied employee, calculated by us ing the X × Y = Z formula in the previous example. I f you d id not have at least one qual i f ied employee, the l imi t in amount 1 wi l l apply.

I f you had employees for part of the year

For the par t of the year when you had at least one qual i f ied employee and your insurable arm's length employees represented at least 50% of a l l the insurable persons in your business, calculate your l imi t for

– 138 –

that period by us ing the X × Y = Z formula in the previous sect ion, " I f you d id not have any employees throughout 2011."

For the rest of the year when you had no employees or when your insurable arm's length employees represented less than 50% of a l l the insurable persons in your business, your deduct ion l imi t for that remaining period is the lesser of Amount 1 and Amount 2, calculated in the same way as in the previous sect ion.

Undeducted premiums

I f you deduct only a par t of your PHSP premium at l ine 9804, and you paid the premium in the year, you can inc lude the undeducted balance in the calculat ion of your non-refundable medical expense tax credi t . For more informat ion, see l ine 330 in your GENERAL INCOME TAX AND BENEFIT GUIDE.

Line 9935 – Al lowance on el igible capital property

We expla in how to determine th is a l lowance in Chapter 5.

– 139 –

Line 9936 – Capital cost al lowance

Enter the amount of CCA you calculate on the charts found on pages 17 to 27 [4 and 5] of Form T2042. For more informat ion on how to complete these charts , see Chapter 4.

Line 9898 – Total farm expenses

Enter the tota l of l ines 9790, 9935, and 9936. Enter the business par t only.

Line 9899 – Net income ( loss) before adjustments

Enter the gross income minus the tota l farm expenses. I f you are a par tner in a par tnership, th is amount is the net farming business income of a l l par tners. I f you have a loss, enter the amount in brackets.

Line 9941 – Optional inventory adjustment included in 2011

I f you want to inc lude an inventory amount in income, read th is sect ion.

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By making the opt ional inventory adjustment (OIA), you can inc lude in your income an amount up to the fa i r market value of your inventory minus the mandatory inventory adjustment (MIA). You can only make the OIA i f you use the cash method. For the meaning of inventory and fa i r market value, see "L ine 9942" below.

For the OIA, unl ike for the MIA, the inventory does not have to be purchased inventory. I t is the ent i re inventory you st i l l have at the end of your 2011 f iscal per iod.

Enter the amount of your OIA on l ine 9941. You must deduct th is amount as an expense in your next f iscal per iod.

Line 9942 – Mandatory inventory adjustment included in 2011

The mandatory inventory adjustment (MIA) decreases your net loss i f you held inventory at the end of your f iscal per iod. Read th is sect ion, even i f you do not have to make the MIA. This sect ion wi l l show you how to determine the value of the farm inventory you bought and st i l l have at the end of your 2011 f iscal per iod. You wi l l need to know th is value i f you have to make the MIA th is year or in the future.

– 141 –

You have to make the MIA i f al l o f the fo l lowing apply:

• you use the cash method to report your income;

• you have a net loss on l ine 9899 of Form T2042; and

• you bought inventory and st i l l have i t a t the end of your 2011 f iscal per iod. This does not refer only to inventory that you bought in 2011. I t inc ludes inventory that you had previously bought and st i l l owned at the end of your 2011 f iscal per iod.

Your MIA is the lesser of:

• the net loss before adjustments on l ine 9899; or

• the value of the purchased inventory that you st i l l have at the end of your 2011 f iscal per iod.

To calculate your MIA, complete charts 1, 2, 3, and 4 star t ing on page 286 [54] . Once you have completed chart 4, enter the amount on l ine 9942. For more informat ion, see Interpretat ion Bul let in IT-526, FARMING – CASH METHOD INVENTORY ADJUSTMENTS.

– 142 –

In your 2012 f iscal per iod, deduct the MIA that you added to your net loss in your 2011 f iscal per iod.

Note I f you bought a speci f ied animal (as def ined on page 143 [below] ) in a non-arm's length transaction (see "Def in i t ions," on page 12 [5] ) , we consider that you bought the animal in the same year and at the same pr ice for which the sel ler bought i t . A non-arm's length t ransact ion is , for example, a t ransact ion between members of a fami ly , such as a husband and wi fe, or a parent and chi ld .

To value your inventory, you need to know the meaning of the fo l lowing terms.

Inventory is a group of i tems that a business holds and intends to consume or sel l to i ts customers.

Farm inventory is tangib le property that is :

• held for sale, such as harvested gra in;

• used in the product ion of saleable goods, such as seed and feed; or

– 143 –

• in the process of being produced, such as standing crops, or feeder l ivestock.

Seed that you have a l ready p lanted, and fer t i l izer or chemicals that you have a l ready appl ied, are no longer par t of your inventory i tems, but are inc luded in the value of the standing crop that may be inc luded in the Opt ional Inventory Adjustment (OIA).

Purchased inventory is inventory that you have bought and paid for .

Specif ied animals are horses. You may also choose to designate cat t le that you registered under the ANIMAL PEDIGREE ACT as speci f ied animals. To make th is choice, put a note on your income tax return saying that you want to designate the animal th is way. I f you indicate on your return that i t is a speci f ied animal , we wi l l cont inue to consider i t as such unt i l you sel l i t .

Cash cost is the amount you paid to buy your inventory.

Fair market value (FMV) is general ly the h ighest dol lar value you can get for your property in an open and unrestr ic ted market between an

– 144 –

in formed and wi l l ing buyer and an informed and wi l l ing sel ler who are deal ing wi th each other at arm's length.

Valuing your purchased inventory

To value your purchased inventory, read the text that fo l lows and the example of how to complete the MIA charts . There are b lank charts for you to use on page 286 [54] of th is guide. Keep these charts as par t of your records.

Except for speci f ied animals, you have to value any purchased inventory that you bought before or dur ing your 2011 f iscal per iod at the lesser of :

• the cash cost ; or

• the fa i r market value.

To determine which amount is less, compare separate ly each i tem or group of i tems in the inventory.

– 145 –

Value, at one of the fo l lowing amounts, the speci f ied animals that you bought in your 2011 f iscal per iod and st i l l have at the end of th is per iod:

• the cash cost ;

• 70% of the cash cost ; or

• any amount between these two amounts.

Value, at one of the fo l lowing amounts, the speci f ied animals that you bought before your 2011 f iscal per iod and st i l l have at the end of th is per iod:

• the cash cost ;

• 70% of :

– the value of the speci f ied animals for MIA purposes as determined at the end of your 2010 f iscal per iod; plus

– any amounts you paid in your 2011 f iscal per iod toward the purchase pr ice; or

– any amount between these two amounts.

– 146 –

Example Doug star ted h is farming business in 2008 and uses the cash method to report h is income. His year-end is December 31. Doug shows a net loss of $55,000 in 2011 on l ine 9899. Doug has purchased inventory at the end of h is 2011 f iscal per iod. This means he has to decrease h is net loss by the MIA. Doug made a chart for the cash cost of h is l ivestock that is purchased inventory at the end of h is 2011 f iscal per iod.

Livestock

Year of purchase

Cost of purchase

Amount Doug paid by the end of his 2010 f iscal period

2011 $30,000 $25,000

2010 $26,000 $26,000*

2009 $22,000 $22,000

2008 $20,000 $20,000

– 147 –

* For l ivestock bought in h is 2010 f iscal per iod, Doug paid $19,000 in 2010 and $7,000 in 2011.

Doug's other inventory is fer t i l izer , seed, and fuel . The cash cost is the same as the fa i r market value for th is inventory. I ts value is as fo l lows:

• bought in h is 2011 f iscal per iod: $ 15,000

• bought in h is 2010 f iscal per iod: $ 6,000

• bought in h is 2009 f iscal per iod: $ 5,000

At the end of h is 2011 f iscal per iod, Doug did not have any other inventory that he bought before h is 2009 f iscal per iod.

Doug has registered h is l ivestock under the ANIMAL PEDIGREE ACT. He wants to designate these animals as speci f ied animals. Doug completes chart 1 as fo l lows.

– 148 –

Chart 1 Cash cost of purchased inventory

Doug enters the amount he paid by the end of h is 2011 f iscal per iod for the speci f ied animals he bought :

Fiscal period Cash cost

• in h is 2011 f iscal per iod $ 25,000 1

• in h is 2010 f iscal per iod $ 26,000 2

• in h is 2009 f iscal per iod $ 22,000 3

• in h is 2008 f iscal per iod $ 20,000 4

• before h is 2008 f iscal per iod $ 0 5

Doug enters the amount he paid by the end of h is 2009 f iscal per iod for a l l o ther inventory he bought :

Fiscal period Cash cost

• in h is 2011 f iscal per iod $ 15,000 6

• in h is 2010 f iscal per iod $ 6,000 7

– 149 –

• in h is 2009 f iscal per iod $ 5,000 8

• in h is 2008 f iscal per iod $ 0 9

• before h is 2008 f iscal per iod $ 0 10

Doug now knows that the cash cost of h is purchased inventory, inc luding h is speci f ied animals. He uses these amounts to calculate the value of h is purchased inventory at the end of h is 2011 f iscal per iod. To do th is , he completes charts 2, 3, and 4 as fo l lows:

Chart 2 Value of purchased inventory for specif ied animals

The smal l le t ters in f ront of each l ine match the paragraphs at the end of th is char t . These paragraphs expla in how Doug calculates the number on each l ine.

Inventory bought in his 2011 f iscal period Doug enters an amount that is not more than the amount on l ine 1, but not less than 70% of th is amount . a) $ 20,000 11

– 150 –

Inventory bought in his 2010 f iscal period Doug enters an amount that is not more than the amount on l ine 2, but not less than 70% of the tota l of the value at the end of h is 2010 f iscal per iod, p lus any amounts he paid in h is 2011 f iscal per iodtoward the purchase pr ice. b) $ 14,210 12

Inventory bought in his 2009 f iscal period Doug enters an amount that is not more than the amount on l ine 3, but not less than 70% of the tota l of the value at the end of h is 2010 f iscal per iod, p lus any amounts he paid in h is 2011 f iscal per iod toward the purchase pr ice. c) $ 7,546 13

Inventory bought in his 2008 f iscal period Doug enters an amount that is not more than the amount on l ine 4, but not less than 70% of the tota l of the value at the end of h is 2010 f iscal per iod, p lus any amounts he paid in h is 2011 f iscal per iod toward the purchase pr ice. d) $ 4,802 14

Inventory bought before his 2008 f iscal period e) $ 0 15

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a) Doug chose $20,000, which is between the cash cost of $25,000 and $17,500 (70% of the cash cost) .

b) Doug chose to value the inventory he bought in h is 2010 f iscal per iod at 70% of the cash cost . Therefore, the value of th is inventory at the end of h is 2010 f iscal per iod was $13,300 ($19,000 × 70%). Remember, Doug paid $19,000 for these speci f ied animals in 2010. He paid $7,000 in 2011.

For h is 2011 f iscal per iod, Doug chose to value the inventory that he bought in h is 2010 f iscal per iod at 70% of the tota l of the value at the end of the 2010 f iscal per iod p lus any amounts that he paid in h is 2011 f iscal per iod toward the purchase pr ice. Therefore, the amount that he enters on l ine 12 is $14,210 [70% × ($13,300 + $7,000)] . He could choose any amount between the cash cost of $26,000 and the lowest acceptable inventory value of $14,210.

c) Doug chose to value the inventory that he bought in h is 2009 f iscal per iod at 70% of the cash cost . Therefore, the value of th is inventory at the end of h is 2009 f iscal per iod was $15,400 ($22,000 × 70%).

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For h is 2010 f iscal per iod, Doug chose to value the inventory that he bought in h is 2009 f iscal per iod at 70% of the tota l of the value at the end of h is 2009 f iscal per iod. Therefore, the value of th is inventory at the end of h is 2010 f iscal per iod was $10,780 ($15,400 × 70%).

For h is 2011 f iscal per iod, Doug chose to value the inventory that he bought in h is 2009 f iscal per iod at 70% of the tota l of the value at the end of h is 2010 f iscal per iod. Therefore, the amount he enters on l ine 13 is $7,546 ($10,780 × 70%). He could choose any amount between the cash cost of $22,000 and the lowest acceptable inventory value of $7,546.

d) Doug chose to value the inventory that he bought in h is 2008 f iscal per iod at 70% of the cash cost . Therefore, the value of th is inventory at the end of h is 2008 f iscal per iod was $14,000 ($20,000 × 70%).

For h is 2009 f iscal per iod, Doug chose to value the inventory that he bought in h is 2008 f iscal per iod at 70% of the tota l of the value at the end of h is 2008 f iscal per iod. Therefore, the value of th is inventory at the end of h is 2009 f iscal per iod was $9,800 ($14,000 × 70%).

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For h is 2010 f iscal per iod, Doug chose to value the inventory that he bought in h is 2008 f iscal per iod at 70% of the tota l of the value at the end of h is 2009 f iscal per iod. Therefore, the value of th is inventory at the end of h is 2010 f iscal per iod was $6,860 ($9,800 × 70%).

For h is 2011 f iscal per iod, Doug chose to value the inventory that he bought in h is 2008 f iscal per iod at 70% of the tota l of the value at the end of h is 2010 f iscal per iod. Therefore, the amount he enters on l ine 14 is $4,802 ($6,860 × 70%). He could choose any amount between the cash cost of $20,000 and the lowest acceptable inventory value of $4,802.

e) Doug had not purchased any speci f ied animals before h is 2008 f iscal per iod.

Chart 3 Value of purchased inventory for al l other inventory

Inventory bought in his 2011 f iscal period: Doug enters the amount on l ine F or the fa i r market value, whichever is less. $ 15,000 16

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Inventory bought in his 2010 f iscal period: Doug enters the amount on l ine G or the fa i r market value, whichever is less. 6,000 17

Inventory bought in his 2009 f iscal period: Doug enters the amount on l ine H or the fa i r market value, whichever is less. 5,000 18

Inventory bought in his 2008 f iscal period: Doug enters the amount on l ine I or the fa i r market value, whichever is less. 0 19

Inventory bought before his 2008 f iscal period: Doug enters the amount on l ine J or the fa i r market value, whichever is less. 0 20

Chart 4 Calculat ion of MIA

Doug enters the amount of h is net loss f rom l ine 9899 of Form T2042. $ 55,000 21

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Doug enters the value of h is inventory f rom charts 2 and 3:

• the amount on l ine 11 $ 20,000

• the amount on l ine 12 14,210

• the amount on l ine 13 7,546

• the amount on l ine 14 4,802

• the amount on l ine 15 0

• the amount on l ine 16 15,000

• the amount on l ine 17 6,000

• the amount on l ine 18 5,000

• the amount on l ine 19 0

• the amount on l ine 20 0

Total va lue of inventory $ 72,558 $ 72,558 22

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MIA – Doug enters the amount on l ine 21 or l ine 22, whichever is less. $ 55,000 23

The MIA that Doug uses for h is 2011 f iscal per iod wi l l be the same amount that he deducts f rom his farming income when he calculates h is income for h is next f iscal per iod.

Enter the f igure f rom l ine 23 of char t 4 on l ine 9942 of Form T2042.

Your share of l ine c

Enter your share of the tota l of l ines 9899, 9941, and 9942 of Form T2042. This is the amount le f t a f ter you subtract the amounts that the other par tners are responsib le for report ing. On the chart "Deta i ls of other par tners" on page 14 [3] of Form T2042, show the fu l l names and addresses of the other par tners, as wel l as a breakdown of thei r shares of the income and thei r percentages of the par tnership.

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Line 9974 – GST/HST rebate for partners received in the year

I f you received a GST/HST rebate for par tners, report the amount of the rebate that re lates to e l ig ib le expenses other than CCA on l ine 9974 of Form T2042 in the year that you receive i t .

Enter the tota l of l ines d and 9974 on l ine e.

In the chart , "Detai ls of other partners," on page 14 [3] of Form T2042, show the fu l l names and addresses of the other par tners, as wel l as a breakdown of thei r shares of the net income or loss f rom l ine 9369 and thei r percentages of ownership shares in the par tnership.

Line 9943 – Other amounts deductible from your share of net partnership income ( loss)

I f you are a par tner in a business par tnership and you incur motor vehic le expenses for the business through the use of your personal vehic le, you may c la im those expenses re lated to the business on th is l ine. These expenses must not have been c la imed anywhere e lse on the form.

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Cla im th is amount only i f the par tnership d id not repay you for these expenses. The l imi ts d iscussed ear l ier in th is chapter a lso apply to these expenses.

Complete the chart "Other amounts deduct ib le f rom your share of net par tnership income ( loss)" on page 12 [3] of Form T2042 to l is t the other amounts you can deduct f rom your share of the par tnership 's net income.

Line 9945 – Business-use-of-home expenses

You can deduct expenses for the business use of a work space in your home, i f you meet one o f the fo l lowing condi t ions:

• i t is your pr inc ipal p lace of business; or

• you use the space only to earn your farming business income, and you use i t on a regular and ongoing basis to meet your c l ients or customers.

You can deduct par t of your maintenance costs such as heat ing, home insurance, e lectr ic i ty , and c leaning mater ia ls . You can a lso deduct par t of your property taxes, mortgage interest , and CCA. To calculate

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the par t that you can deduct , use a reasonable basis, such as the area of the workspace div ided by the tota l area of your home.

I f you use par t of your home for both your business and personal l iv ing, calculate how many hours in the day you use the rooms for your business, and then d iv ide that amount by 24 hours. Mul t ip ly the resul t by the business par t of your tota l home expenses. This wi l l g ive you the household cost you can deduct . I f you run the business for only par t of the week or year , reduce your c la im accordingly.

For more informat ion, see Interpretat ion Bul let in IT-514, WORK SPACE IN HOME EXPENSES.

The capi ta l gain and recapture ru les wi l l apply i f you deduct CCA on the business-use par t of your home and you later sel l your home. For more informat ion about these ru les, see chapters 4 and 7.

I f you rent your home, you can deduct the par t of the rent and any expenses that you incur that re late to the work space.

The amount that you can deduct for business-use-of-home expenses cannot be more than your net income f rom the farming business

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before you deduct these expenses. In other words, you cannot use these expenses to increase or create a business loss. You can deduct the lesser of the fo l lowing amounts:

• any amount you carry forward f rom your 2010 f iscal per iod, p lus the business-use-of-home expenses that you incur in 2011; or

• the income amount on l ine f of Form T2042.

In your next f iscal per iod, you can use any expense that you could not deduct in 2011, as long as you meet one of the previous two condi t ions. The same ru les apply.

You can use the chart "Calculat ion of business-use-of-home expenses" on page 12 [3] of Form T2042 to calculate your a l lowable c la im for business-use-of-home expenses. Enter on l ine 9945 your share of the amount in the chart . The expenses you c la im on l ine 9945 must not be c la imed elsewhere on Form T2042.

Line 9946 – Your net income ( loss)

Enter your net farming income or loss on th is l ine, and a lso on l ine 141 of your income tax return. I f you have a loss, enter the

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amount in brackets. For more informat ion about losses, see Chapter 6.

Note You may have to adjust the f igure f rom l ine 9946 before enter ing i t on your income tax return. You may have f i led Form T1139, RECONCIL IAT ION OF 2010 BUSINESS INCOME FOR TAX PURPOSES, wi th your 2010 income tax return. I f so, you wi l l probably have to complete the same form for 2011. To f ind out i f you have to f i le Form T1139, and calculate the amount of farming income to report on your 2011 income tax return, see Guide RC4015, RECONCIL IAT ION OF BUSINESS INCOME FOR TAX PURPOSES. The guide inc ludes Form T1139.

Details of equity (chart on page 16 [3] of Form T2042) Line 9931 – Total business l iabi l i t ies

A l iabi l i ty is a debt or an obl igat ion of a business. Tota l business l iab i l i t ies are the tota l of a l l amounts that your farming business owes at the end of i ts f iscal per iod. This inc ludes accounts payable, notes payable, taxes payable, unpaid salar ies, wages and benef i ts , in terest

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payable, deferred or unearned revenues, loans payable, mortgages payable, and any other outstanding balance re lated to the business.

Line 9932 – Drawings in 2011

A drawing is any wi thdrawal of cash ( inc luding salar ies) or other assets, or serv ices of a business by the propr ietor or par tners. This inc ludes t ransact ions by the propr ietor or par tners (or fami ly members) , such as wi thdrawing cash for non-business use, and using business assets and serv ices for personal use. Inc lude the cost or value of personal use of business assets or serv ices in your drawings for the year.

Line 9933 – Capital contr ibutions in 2011

A capi ta l contr ibut ion is cash or other assets you added to the farming business dur ing i ts f iscal per iod. This inc ludes personal funds you added to the business account , business debts you paid wi th personal funds, and personal assets you t ransferred to the farming business.

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Details of other partners (chart on page 14 [3] of Form T2042) I f you are a par tner in a par tnership that does not have to f i le a par tnership in format ion return (see "Fi l ing requirements for par tnerships," on page 40 [10] ) , complete the chart "Detai ls of other par tners" on Form T2042. I f you are a par tner in a par tnership that does have to f i le a par tnership in format ion return, you do not need to complete the chart .

Chapter 4 – Capital cost allowance (CCA) What is CCA? You might acquire a depreciable property, such as a bui ld ing, machinery, or equipment, to use in your farming business. You cannot deduct the cost of the property when you calculate your net farming income for the year.

However, s ince these propert ies may wear out or become obsolete over t ime, you can deduct thei r cost over a per iod of several years. The deduct ion for th is is cal led capi ta l cost a l lowance (CCA).

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You can usual ly c la im CCA on a property only when i t becomes avai lable for use (see "Def in i t ions," on page 12 [5] ) .

Available for use rules Property other than a bui lding usual ly becomes avai lable for use on the ear l ier of :

• the date you f i rs t use i t to earn income;

• the second tax year af ter the year you acquire the property;

• the t ime just before you d ispose of the property; or

• the t ime the property is del ivered or made avai lable to you and is capable of producing a saleable product or serv ice.

A building or part of a bui lding usual ly becomes avai lable for use on the ear l ier of :

• the date you star t us ing 90% or more of the bui ld ing in your business;

• the second tax year af ter the year you acquire the bui ld ing; or

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• the t ime just before you d ispose of the bui ld ing.

A building that you are constructing, renovating, or al ter ing usual ly becomes avai lable for use on the ear l ier of :

• the date you complete the construct ion, renovat ion, or a l terat ion;

• the date you star t us ing 90% or more of the bui ld ing in your business;

• the second tax year af ter the year you acquire the bui ld ing; or

• the t ime just before you d ispose of the bui ld ing.

How much CCA you can claim The CCA you can c la im depends on the type of property you own and the date you acquired i t . You group the depreciable property you own into c lasses. A speci f ic rate of CCA general ly appl ies to each c lass.

We expla in the most common c lasses of property in "Classes of depreciable property," on page 187 [35] . We l is t most of the c lasses and thei r rates in the chart "Capi ta l cost a l lowance (CCA) rates," on page 276 [53] .

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Base your CCA c la im on your f iscal per iod ending in 2011, and not the calendar year.

Basic information about CCA

• To decide whether an amount is a current expense or a capi ta l expense, see the chart in "Chapter 3 – Expenses," on page 78 [16] .

• General ly , use the decl in ing balance method to calculate your CCA. This means that you c la im CCA on the capital cost (see "Def in i t ions," on page 12 [5] ) of the property minus the CCA, i f any, that you c la imed in prev ious years. The remaining balance decl ines over the years as you c la im CCA.

Example Last year Al f ie bought a bui ld ing fo r $60,000 to use in h is farming operat ion. On his income tax return for last year , he c la imed CCA of $1,200 on the bui ld ing. This year, Al f ie bases h is CCA c la im on h is balance of $58,800 ($60,000 – $1,200).

• You do not have to c la im the maximum amount of CCA in any g iven year. You can c la im any amount you l ike, f rom zero to the maximum al lowed for the year. For example, i f you do not have to pay income

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tax for the year, you may not want to c la im CCA. Cla iming CCA reduces the balance of the c lass by the amount of CCA c la imed. As a resul t , the avai lable CCA for future years wi l l be reduced.

• In the year that you acquire a depreciable property, you can usual ly c la im CCA only on one-hal f of your net addi t ions to a c lass. We expla in th is hal f -year ru le in "Column 6 – Adjustment for current-year addi t ions," on page 182 [35] . The avai lable for use ru les d iscussed previously may a lso af fect the amount of CCA that you can c la im.

• You cannot c la im CCA on most land or on l iv ing th ings such as t rees, shrubs, or animals. However, you can c la im CCA on t imber l imi ts , cut t ing r ights, and wood assets. For more informat ion, see interpretat ion bul let ins IT-481, T IMBER RESOURCE PROPERTY AND TIMBER L IMITS, and IT-501, CAPITAL COST ALLOWANCE – LOGGING ASSETS, and i ts Specia l Release.

• I f you c la im CCA and you later d ispose of the property , you may have to add an amount to your income as a recapture of CCA. Al ternat ive ly , you may be able to deduct an addi t ional amount f rom your income as a terminal loss. For more informat ion, see

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"Column 5 – UCC af ter addi t ions and d isposi t ions," on page 180 [34] .

• I f you receive income f rom a quarry, sand, or gravel p i t , or a woodlot , you can c la im a type of a l lowance known as a deplet ion a l lowance. For more informat ion, see interpretat ion bul le t ins IT-373, WOODLOTS, and IT-492, CAPITAL COST ALLOWANCE – INDUSTRIAL MINERAL MINES.

• I f you used depreciable property in 2011 that you used in your farming business before January 1, 1972, complete "Area A – Part XVII propert ies" on Form T2042.

• I f you are a par tner in a par tnersh ip that g ives you a T5013 s l ip , STATEMENT OF PARTNERSHIP INCOME, or T5013A s l ip , STATEMENT OF PARTNERSHIP INCOME FOR TAX SHELTERS AND RENOUNCED RESOURCE EXPENSES, you cannot personal ly c la im CCA for property owned by the par tnership. The T5013 or T5013A s l ip that you receive wi l l have a l ready a l located to you a share of the par tnership 's CCA on the property.

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You were asking?

Q. How do I ca lculate my CCA cla im i f I s tar t a farming business and my f i rs t f iscal per iod is f rom June 1, 2011, to December 31, 2011?

A. S ince your f iscal per iod is less than 365 days, you have to prorate your CCA c la im. Calculate your CCA using the ru les that we discuss in th is chapter . However, base your CCA c la im on the number of days in your f iscal per iod compared to 365 days.

In th is case, your f iscal per iod is 214 days. Suppose you calculate your CCA to be $3,500. The amount of CCA you can c la im is $2,052 ($3,500 × 214/365).

For more informat ion, see Interpretat ion Bul let in IT-285, CAPITAL COST ALLOWANCE – GENERAL COMMENTS.

How to calculate your CCA To calculate your 2011 deduct ion for CCA, and any recaptured CCA and terminal loss, use Area A on page 17 [4] of Form T2042.

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You may have acquired or d isposed of bui ld ings or equipment dur ing the f iscal per iod. I f so, complete the appl icable areas B, C, D, or E before complet ing Area A.

Note Even i f you are not c la iming a deduct ion for CCA for 2011, complete the appropr iate areas of the form to show any addi t ions or d isposals dur ing the year. They are located on pages 17 to 27 [4 and 5] of Form T2042. For in format ion on how to complete a l l these areas, see the fo l lowing sect ions.

Column 1 – Class number

Enter the c lass numbers of your propert ies in th is column. I f th is is the f i rs t year you are c la iming CCA, see "Column 3 – Cost of addi t ions in the year," on page 172 [33] before complet ing column 1. I f you c la imed CCA last year , you can get the c lass numbers of your propert ies f rom last year 's form.

We discuss the more common types of depreciable propert ies in "Classes of depreciable property," on page 187 [35] , and we l is t most of the c lasses and thei r rates in the chart on page 276 [53] .

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Column 2 – Undepreciated capital cost (UCC) at the start of the year

I f th is is the f i rs t year that you are c la iming CCA, sk ip th is column. Otherwise, enter in th is column the UCC for each c lass at the end of last year . Enter these amounts f rom column 10 of your 2010 form.

From your UCC at the star t of 2011, subtract any investment tax credi t you c la imed or were refunded in 2010. Also, subtract any 2010 investment tax credi t you carr ied back to a year before 2010.

You may have received in 2010 a GST/HST input tax credi t for a passenger vehic le you used less than 90% for your business. In th is case, subtract the amount of the credi t you received f rom your 2011 opening UCC. See "Grants, subsid ies, and rebates," on page 206 [39] .

Note In 2011, you may be c la iming, carry ing back, or get t ing a refund of an investment tax credi t . I f you st i l l have depreciable property in the c lass, you have to adjust , in 2012, the UCC of the c lass to which the property belongs. To do th is , subtract the amount of the credi t f rom the UCC at the star t of 2012. When there is no property le f t in the

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c lass, report the amount of the investment tax credi t as income in 2012.

Column 3 – Cost of addit ions in the year

I f you acquire or make improvements to depreciable property in the year, we consider them to be addi t ions to the c lass in which the property belongs. You should:

• complete Area B and Area C of your Form T2042; as expla ined on page 174 [ the next page] ; and

• enter in column 3 of Area A for each c lass, the f igure f rom column 5 of each c lass in Area B and Area C.

I f a char t asks for the personal par t of a property, th is refers to the par t that you use personal ly , separate f rom the par t you use for business. For example, i f you use 25% of the bui ld ing you l ive in for your farming business, your personal par t is the remaining 75%.

Do not inc lude the value of your labour in the cost of a property that you bui ld or improve. Inc lude the cost of surveying or valu ing a property you acquire Remember that a property usual ly has to be

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avai lable for use (see "Def in i t ions," on page 12 [5] ) before you can c la im CCA.

I f you received insurance proceeds to re imburse you for the loss or destruct ion of depreciable property, enter the amount that you spent to replace the property in column 3 of Area A, and a lso in Area B or C, whichever appl ies. Inc lude the amount of insurance proceeds considered as proceeds of disposit ion (see "Def in i t ions," on page 12 [5] ) in column 4 of Area A and in Area D or E, whichever appl ies. For more informat ion, see "L ine 9604 – Insurance proceeds," on page 71 [15] .

I f you replace lost or destroyed property, specia l ru les for replacement property may apply. The replacement property must be acquired wi th in two years of the end of the taxat ion year in which i t was lost or destroyed. For more informat ion, see interpretat ion bul le t ins IT-259, EXCHANGES OF PROPERTY, and IT-491, FORMER BUSINESS PROPERTY, and i ts Specia l Release.

To f ind out i f any of these specia l s i tuat ions apply, read see "Specia l s i tuat ions," on page 202 [38] .

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Area B – Detai ls of equipment addit ions in the year

List the deta i ls of a l l equipment ( inc luding motor vehic les) you acquired or improved in 2011. Group the equipment in to the appl icable c lasses and put each c lass on a separate l ine.

Equipment inc ludes i tems you acquire to use in your farm business to earn income or for maintenance. Examples are a cement mixer , a snow blower, or a lawn mower.

Enter on l ine 9925, the tota l business par t of the cost of the equipment.

Area C – Detai ls of bui lding addit ions in the year

List the deta i ls of a l l bui ld ings you acquired or improved in 2011. Group the bui ld ings into the appl icable c lasses and put each c lass on a separate l ine.

Enter on l ine 9927, the tota l business par t of the cost of the bui ld ings. The cost inc ludes the purchase pr ice of the bui ld ing, p lus any re lated expenses that you should add to the capi ta l cost of the bui ld ing, such as legal fees, land t ransfer taxes, and mortgage fees.

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Land

General ly , land is not a depreciable property. Therefore, you cannot c la im CCA on i ts cost . I f you acqui re a farm property that inc ludes both land and a bui ld ing, enter in column 3 of Area C only the cost that re lates to the bui ld ing. To ca lculate the bui ld ing 's capi ta l cost , you have to spl i t any fees that re late to buying the property between the land and the bui ld ing. Related fees may inc lude legal and account ing fees.

Calculate the par t of the re lated fees that you can inc lude in the capi ta l cost of the bui ld ing as fo l lows:

bui ld ing value ×

legal , account ing, or other fees

=

the par t of the fees you can inc lude in the bui ld ing 's cost to ta l purchase

pr ice

You do not have to spl i t a fee i f i t re lates speci f ica l ly to the land or the bui ld ing. In th is case, you would add the amount of the fee to the cost to which i t re lates; e i ther the land or the bui ld ing.

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Area F – Detai ls of land addit ions and disposit ions in the year

Enter on l ine 9923, the tota l cost of acquir ing land in 2011. The cost inc ludes the purchase pr ice of the land, p lus any re lated expenses that you should add to the capi ta l cost of the land, such as legal fees, land t ransfer taxes, and mortgage fees.

You cannot c la im CCA on land. Do not enter th is amount in column 3 of Area A.

Area G – Detai ls of quota addit ions and disposit ions in the year

Enter on l ine 9929, the tota l cost of acquir ing quotas in 2011.

Column 4 – Proceeds of disposit ion in the year

Enter the deta i ls of your 2011 d isposi t ions on your Form T2042 as expla ined below.

I f you d isposed of a depreciable property dur ing the 2011 f iscal per iod, enter in column 3 of the appropr iate d isposi t ions area (Area D or Area E) one of the fo l lowing amounts, whichever is less:

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• your proceeds of d isposi t ion minus any re lated expenses; or

• the capi ta l cost of the property.

Note I f a char t asks for the personal par t of a property, th is refers to the par t that you use personal ly , separate f rom the par t you use for business. For example, i f you use 25% of the bui ld ing you l ive in for business, your personal par t is the other 75%.

Copy the numbers f rom column 5 for each c lass in Area D and Area E to column 4 of Area A for each c lass.

I f you received insurance proceeds to re imburse you for the loss or destruct ion of depreciable property, enter the amount you spent to replace the property in column 3 of Area A, and a lso in Area B or Area C, whichever appl ies. Inc lude the amount of insurance proceeds considered as proceeds of d isposi t ion in column 4 of Area A, and in Area D or Area E, whichever appl ies. This could inc lude compensat ion you receive for property that someone destroys, expropr iates, s teals, or damages. For more informat ion, see "L ine 9604 – Insurance proceeds," on page 71 [15] .

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I f you sel l a property for more than i t cost , you wi l l have a capi ta l gain. You may be able to postpone or defer adding a capi ta l gain or recapture of CCA to income. For more informat ion, see the sect ions "Capi ta l gains," on page 212 [40] and "Replacement property," on page 220 [42] .

I f you replaced a lost or destroyed property wi th in a year of the loss, specia l ru les for replacement proper ty may apply. See interpretat ion bul le t ins IT-259, EXCHANGES OF PROPERTY, and IT-491, FORMER BUSINESS PROPERTY, and i ts Specia l Release.

Specia l ru les may apply i f you d ispose of a bui ld ing for less than both i ts undepreciated capi ta l cost and your capi ta l cost . I f th is is the case, see "Specia l ru les for d isposing of a bui ld ing in the year," on page 213 [40] . I f you d ispose of a depreciable property for more than i ts cost , you wi l l have a capi ta l gain. For more informat ion on capi ta l gains, see Chapter 7. You cannot have a capi ta l loss when you sel l depreciable property. However, you may have a terminal loss. For an explanat ion of terminal losses, see "Column 5 – UCC af ter addi t ions and d isposi t ions," on page 180 [34] .

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For more informat ion about proceeds of d isposi t ion, see Interpretat ion Bul let in IT-22, CAPITAL COST ALLOWANCE – PROCEEDS OF DISPOSIT ION OF DEPRECIABLE PROPERTY, and i ts Specia l Release, and Interpretat ion Bul let in IT-285, CAPITAL COST ALLOWANCE – GENERAL COMMENTS.

Area D – Detai ls of equipment disposit ions in the year

List in th is chart the deta i ls of a l l equipment ( inc luding motor vehic les) you d isposed of in your 2011 f iscal per iod. Group the equipment in to the appl icable c lasses and put each c lass on a separate l ine. Enter on l ine 9926, the tota l business par t of the proceeds of d isposi t ion of the equipment.

Area E – Detai ls of bui lding disposit ions in the year

List in th is chart the deta i ls of a l l bui ld ings you d isposed of in your 2011 f iscal per iod. Group the bui ld ings into the appl icable c lasses, and put each c lass on a separate l ine. Enter on l ine 9928, the tota l business par t of the proceeds of d isposi t ion of the bui ld ings.

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Area F – Detai ls of land addit ions and disposit ions in the year

Enter on l ine 9924, the tota l of a l l amounts you received or wi l l receive for d isposing of land in the f iscal per iod.

Area G – Detai ls of quota addit ions and disposit ions in the year

Enter on l ine 9930, the tota l of a l l amounts that you received or wi l l receive for d isposing of quotas in the f iscal per iod.

Column 5 – UCC after addit ions and disposit ions

You cannot c la im CCA when the amount in column 5 is :

• negat ive (see "Recapture of CCA," on page 181 [below] ) ; or

• posi t ive and you do not have any property le f t in that c lass at the end of your 2011 f iscal per iod (see "Terminal loss," on page 181 [ th is page] ) .

In e i ther case, enter "0" in column 10.

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Recapture of CCA

I f the amount in column 5 is negat ive, you have a recapture of CCA. Enter your recapture on l ine 9600, "Other income." A recapture of CCA can happen i f the proceeds f rom the sale of depreciable property are more than the tota l of :

• the UCC of the c lass at the star t of the per iod; and

• the capi ta l cost of any new addi t ions dur ing the per iod.

A recapture of CCA can also occur, for example, when you get a government grant or c la im an investment tax credi t .

In some cases, you may be able to postpone a recapture of CCA. For example, you may sel l a property and replace i t wi th a s imi lar one, someone may expropr iate your property, or you may t ransfer property to a corporat ion, a par tnership or a chi ld .

Terminal loss

I f the amount in column 5 is posi t ive and you no longer own any property in that c lass, you may have a terminal loss. More precisely, you may have a terminal loss when, at the end of a f iscal per iod, you

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have no more property in the c lass but s t i l l have an amount that you have not deducted as CCA. You can usual ly subtract th is terminal loss f rom your gross farming income in the year that you d isposed of the depreciable property. Enter your terminal loss on l ine 9790, "Other expenses."

For more informat ion on recapture of CCA and terminal loss, see Interpretat ion Bul let in IT-478, CAPITAL COST ALLOWANCE – RECAPTURE AND TERMINAL LOSS.

Note The ru les for recapture of CCA and terminal loss do not apply to passenger vehic les in Class 10.1. To calculate your CCA c la im, see the comments in "Column 7 – Base amount for CCA."

Column 6 – Adjustment for current-year addit ions

In the year you acquire or make addi t ions to a property, you can usual ly c la im CCA on one hal f of your net addi t ions ( the amount in column 3 minus the amount in column 4) . We cal l th is the half -year rule.

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Calculate your CCA cla im only on the net adjusted amount . Do not reduce the cost of the addi t ions in column 3, or the CCA rate in column 8. For example, i f you acquired a property in your 2011 f iscal per iod for $30,000, you would base your CCA cla im on $15,000 ($30,000 × 50%).

I f you acquired and d isposed of depreciable property of the same c lass in your 2011 f iscal per iod, the calculat ion in column 6 restr ic ts your CCA c la im. Calculate the CCA you can c la im as fo l lows:

• Determine which of the fo l lowing amounts is less:

– the proceeds of d isposi t ion of the property sold, minus any re lated costs or expenses; or

– the capi ta l cost .

• Subtract the above amount f rom the capi ta l cost of your addi t ion.

• Enter 50% of the resul t in column 6. I f the resul t is negat ive, enter "0."

In some cases, you do not make an adjustment in column 6. For example, in a non-arm's length (see "Def in i t ions," on page 12 [5] )

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t ransact ion, you may buy depreciable property that the sel ler cont inuously owned f rom the day that is at least 364 days before the end of your 2011 f iscal per iod to the day the property was purchased. However, i f you t ransfer personal property, such as a car or a personal computer , in to your business, the hal f -year ru le appl ies to the par t icu lar property t ransferred.

Also, some propert ies are not subject to the hal f -year ru le. Some examples are those in c lasses 13, 14, 23, 24, 27, 34, and 52, as wel l as some of those in Class 12, such as smal l tools. The hal f -year ru le does not apply when the avai lable for use ru les d iscussed on page 164 [31] , deny a CCA c la im unt i l the second tax year af ter you acquire the property.

For more informat ion on the specia l ru les that apply to Class 13, see Interpretat ion Bul let in IT-464, CAPITAL COST ALLOWANCE – LEASEHOLD INTERESTS, and for more informat ion on the hal f -year ru le, see Interpretat ion Bul let in IT-285, CAPITAL COST ALLOWANCE – GENERAL COMMENTS.

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Column 7 – Base amount for CCA

Base your CCA c la im on th is amount .

For a Class 10.1 vehic le that you d isposed of in your 2011 f iscal per iod, you may be able to c la im 50% of the CCA that would be a l lowed i f you st i l l owned the vehic le at the end of your 2011 f iscal per iod. This is known as the half-year rule on sale.

You can use the hal f -year ru le on sale i f , a t the end of your 2010 f iscal per iod, you owned the Class 10.1 vehic le you d isposed of in 2011. I f th is appl ies to you, enter 50% of the amount f rom column 2 in column 7.

Column 8 – Rate (%)

In th is column, enter the rate for each c lass of property in Area A. For more informat ion on cer ta in k inds of property, see "Classes of depreciable property," on page 187 [35] . For a l is t of rates, see "Capi ta l cost a l lowance (CCA) rates," on page 276 [53] .

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Column 9 – CCA for the year

In column 9, enter the CCA you choose to deduct for 2011. The CCA you can deduct cannot be more than the amount you get when you mul t ip ly the amount in column 7 by the rate in column 8. You can deduct any amount up to the maximum.

I f th is is your f i rs t year of business, you may have to prorate your CCA c la im. See "You were asking?," on page 169 [32] .

Add up a l l o f the amounts in column 9. Enter the tota l on l ine 9936, "Capi ta l cost a l lowance." To f ind out how to calculate your CCA c la im i f you are us ing the property for both business and personal use, see "Personal use of property ," on page 202 [38] .

Column 10 – UCC at the end of the year

This is the undepreciated capi ta l cost (UCC) at the end of your 2011 f iscal per iod. This is the amount you wi l l enter in column 2 when you calculate your CCA c la im next year.

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Enter "0" in column 10 i f you have a terminal loss or a recapture of CCA. There wi l l not be an amount in column 10 for a Class 10.1 passenger vehic le you d ispose of in the year.

Classes of depreciable property In th is par t , we d iscuss the more common c lasses of depreciable property. We also l is t most of the c lasses and thei r rates in the chart "Capi ta l cost a l lowance (CCA) rates," on page 276 [53] .

Class 1 (4%)

A building may belong to c lass 1, 3, or 6, depending on what the bui ld ing is made of and the date you acquired i t . You a lso inc lude in these c lasses the par ts that make up the bui ld ing, such as:

• e lectr ica l wi r ing;

• l ight ing f ix tures;

• p lumbing;

• spr ink ler systems;

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• heat ing equipment;

• a i r -condi t ioning equipment (other than window uni ts) ;

• e levators; and

• escalators.

Note Most land is not depreciable property. Therefore, when you acquire property, only inc lude the cost that re lated to the bui ld ing in Area A and Area C. Enter on l ine 9923, in Area F the cost of a l l land addi t ions in 2011. For more informat ion, see "Area F – Detai ls of land addi t ions and d isposi t ions in the year," on page 176 [33] and "Column 3 – Cost of addi t ions in the year," on page 172 [33] .

I f you need more informat ion, see Interpretat ion Bul let in IT-79, CAPITAL COST ALLOWANCE – BUILDINGS OR OTHER STRUCTURES.

Class 1 inc ludes most bui ld ings acquired af ter 1987, unless they speci f ica l ly belong in another c lass. Class 1 a lso inc ludes the cost of cer ta in addi t ions or a l terat ions you made to a Class 1 bui ld ing or cer ta in bui ld ings of another c lass af ter 1987.

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The CCA rate for e l ig ib le non-residential bui ldings acquired by a taxpayer af ter March 18, 2007, used for the manufactur ing or processing in Canada of goods for sale or lease, inc ludes an addi t ional a l lowance of 6% for a tota l rate of 10%. The CCA rate for other e l ig ib le non-residential bui ldings inc ludes an addi t ional a l lowance of 2% for a tota l rate of 6%.

To be e l ig ib le for one of the addi t ional a l lowances, you must e lect to p lace a bui ld ing in a separate c lass. To make the e lect ion, at tach a let ter to your return for the tax year in which you acquired i t . I f you do not f i le an e lect ion to put i t in a separate c lass, the rate of 4% wi l l apply.

The addi t ional a l lowance appl ies to bui ld ings acquired af ter March 18, 2007, ( inc luding a new bui ld ing, i f any por t ion of i t is acquired af ter March 18, 2007, where the bui ld ing was under construct ion on March 19, 2007,) that have not been used or acquired for use before March 19, 2007.

To be e l ig ib le for the 6% addi t ional a l lowance, at least 90% of a bui ld ing (measured by square footage) must be used for the designated purpose at the end of the tax year. Manufactur ing and

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processing bui ld ings that do not meet the 90% use test wi l l be e l ig ib le for the addi t ional 2% a l lowance i f a t least 90% of the bui ld ing is used for non-resident ia l purposes at the end of the tax year.

Class 3 (5%)

Most bui ld ings acquired before 1988 were inc luded in Class 3 or Class 6.

I f you acquired a bui ld ing before 1990 that does not fa l l in to Class 6, you can inc lude i t in Class 3 wi th a CCA rate of 5% i f one o f the fo l lowing appl ies:

• you acquired the bui ld ing under the terms of a wr i t ten agreement entered into before June 18, 1987; or

• the bui ld ing was under construct ion by you, or for you, on June 18, 1987.

Inc lude in Class 3 the cost of any addi t ions or a l terat ions made af ter 1987 to a Class 3 bui ld ing that does not exceed the lesser of the fo l lowing two amounts:

• $500,000; or

– 191 –

• 25% of the bui ld ing 's capi ta l cost ( inc luding the cost of addi t ions or a l terat ions to the bui ld ing inc luded in Class 3, Class 6, or Class 20 before 1988).

Any amount that exceeds the lesser amount above is inc luded in Class 1.

Class 6 (10%)

Inc lude in Class 6, wi th a CCA rate of 10% a bui ld ing i f i t is made of f rame, log, s tucco on f rame, galvanized i ron, or corrugated metal . In addi t ion, one o f the fo l lowing condi t ions has to apply:

• you acquired the bui ld ing before 1979.

• the bui ld ing must be used to gain or produce income f rom farming or f ish ing; or

• the bui ld ing must have no foot ings or other base supports below ground level .

I f one of the above condi t ions appl ies, you a lso add the fu l l cost of a l l addi t ions and a l terat ions to the bui ld ing to Class 6.

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I f none of the [above] condi t ions on page 191 appl ies, inc lude the bui ld ing in Class 6 i f one o f the fo l lowing condi t ions appl ies:

• you entered into a wr i t ten agreement before 1979 to acquire the bui ld ing, and the foot ings or other base supports of the bui ld ing were star ted before 1979; or

• you star ted construct ion of the bui ld ing before 1979 (or i t was star ted under the terms of a wr i t ten agreement you entered into before 1979), and the foot ings or other base supports of the bui ld ing were star ted before 1979.

Also inc lude in Class 6, cer ta in greenhouses and fences.

For addi t ions or a l terat ions to such a bui ld ing:

• Add to Class 6:

– the f i rs t $100,000 of addi t ions or a l terat ions made af ter 1978.

• Add to Class 3:

– the par t of the cost of a l l addi t ions or a l terat ions above $100,000 made af ter 1978 and before 1988; and

– 193 –

– the par t of the cost of addi t ions or a l terat ions above $100,000 made af ter 1987, but only up to $500,000 or 25% of the cost of the bui ld ing, whichever is less.

• Add to Class 1 any addi t ions or a l terat ions above these l imi ts .

For more informat ion, see Interpretat ion Bul let in IT-79, CAPITAL COST ALLOWANCE – BUILDINGS OR OTHER STRUCTURES.

Class 8 (20%)

Class 8 wi th a CCA rate of 20% inc ludes cer ta in property that is not inc luded in another c lass. Examples are furn i ture, appl iances, and tools cost ing $200 or more ($500 or more under proposed changes) per tool , some f ix tures, machinery, outdoor advert is ing s igns, ref r igerat ion equipment, and other equipment you use in business.

Photocopiers and e lectronic communicat ions equipment, such as fax machines and e lectronic te lephone equipment are a lso inc luded in Class 8.

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Note I f th is equipment cost $1,000 or more, you can e lect to have i t inc luded in a separate c lass. The CCA rate wi l l not change but a separate CCA deduct ion can now be calculated for a f ive year per iod. When al l the property in the c lass is d isposed of , the UCC is fu l ly deduct ib le as a terminal loss. Any UCC balance remain ing in the separate c lass at the end of the f i f th year has to be t ransferred back to the general c lass in which i t would otherwise belong. To make an e lect ion, at tach a let ter to your income tax return for the tax year in which you acquired the property.

Inc lude data network inf rastructure equipment and systems sof tware for that equipment acquired before March 23, 2004. I f acquired af ter March 22, 2004, inc lude i t in Class 46. See "Class 46 (30%)," on page 199 [38] .

Inc lude bui ld ings that you use to store f resh f ru i t or vegetables by or for the person or persons by whom they were grown, at a contro l led temperature in Class 8 instead of Class 1, Class 3, or Class 6. Also inc lude in Class 8 any bui ld ings that you use to store s i lage.

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Class 10 (30%)

Inc lude in Class 10 wi th a CCA rate of 30% general -purpose e lectronic data processing equipment (commonly cal led computer hardware) and systems sof tware for that equipment, inc luding anci l lary data processing equipment, i f you acquired them before March 23, 2004, or af ter March 22, 2004, and before 2005, and you made an e lect ion.

Also inc lude in Class 10 motor vehic les and some passenger vehic les. We def ine motor vehicle and passenger vehicle on pages 14 and 15 [5] .

Inc lude a passenger vehic le in Class 10 unless i t meets a Class 10.1 condi t ion.

Class 10.1 (30%)

Your passenger vehicle (see "Def in i t ions," on page 12 [5] ) can belong to e i ther Class 10 or Class 10.1.

To determine the c lass to which your passenger vehic le belongs, you have to use the cost of the vehic le before you add GST/HST, or PST.

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Inc lude your passenger vehic le in Class 10.1 i f you bought i t in your 2011 f iscal per iod and i t cost more than $30,000. L is t each Class 10.1 vehic le separate ly .

We consider the capi ta l cost of a Class 10.1 vehic le to be $30,000 p lus the re lated GST/HST, or PST. The $30,000 amount is the capi ta l cost l imi t for a passenger vehic le.

Note Use the GST rate of 5% and the appropr iate PST rate for your province or terr i tory. I f your province is a par t ic ipat ing province, use HST. For more informat ion on GST and HST, see Guide RC4022, GENERAL INFORMATION FOR GST/HST REGISTRANTS.

Example Viv ienne owns a farming business. On June 21, 2011, she bought two passenger vehic les to use in her farming business. The PST rate for her province is 8%. Viv ienne kept the fo l lowing records for 2011:

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Cost GST PST Total

Vehic le 1 $33,000 $1,650 $2,640 $37,290

Vehic le 2 $28,000 $1,400 $2,240 $31,640

Viv ienne puts vehic le 1 in Class 10.1, s ince she bought i t in 2011 and i t cost her more than $30,000. Before Viv ienne enters an amount in column 3 of Area B, she has to calculate the GST and PST on $30,000. She does th is as fo l lows:

• GST at 5% of $30,000 = $1,500

• PST at 8% of $30,000 = $2,400

Therefore, Viv ienne's capi ta l cost is $33,900 ($30,000 + $1,500 + $2,400). She enters th is amount in column 3 of Area B.

Viv ienne puts vehic le 2 in to Class 10, s ince she bought i t in 2011 and i t d id not cost her more than $30,000. Viv ienne's capi ta l cost is $31,640 ($28,000 + $1,400 + $2,240). She enters th is amount in column 3 of Area B.

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Class 12 (100%)

Under proposed changes, the cost l imi t for access to the Class 12 (100%) t reatment wi l l increase to $500 f rom $200 for tools acquired on or af ter May 2, 2006.

Most smal l tools in Class 12 are not subject to the hal f -year ru le. They are fu l ly deduct ib le in the year of purchase. I f the tool costs $500 or more, inc lude i t in Class 8 wi th a CCA rate of 20%.

Class 12 tools that are subject to the hal f -year ru le inc lude d ies, j igs, pat terns, moulds or lasts, and the cut t ing or shaping par t of a machine. For more informat ion, see Interpretat ion Bul let in IT-285, CAPITAL COST ALLOWANCE – GENERAL COMMENTS.

Inc lude in Class 12 wi th a CCA rate of 100% computer sof tware that is not systems sof tware. Sof tware in Class 12 is subject to the hal f -year ru le.

Class 45 (45%)

Inc lude general -purpose e lectronic data processing equipment (commonly cal led computer hardware) and systems sof tware for that

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equipment, inc luding anci l lary data processing equipment, in Class 45 wi th a CCA rate of 45% i f you acquired them af ter March 22, 2004, and before March 19, 2007.

Note I f you acquired the equipment or sof tware before 2005 and made the separate Class 8 e lect ion, as d iscussed in the Class 8 note, the property does not qual i fy for the 45% rate.

Class 46 (30%)

Inc lude in Class 46 wi th a CCA rate of 30% data network inf rastructure equipment and systems sof tware for that equipment i f acquired af ter March 22, 2004. I f acquired before March 23, 2004, inc lude i t in Class 8. See "Class 8 (20%)," on page 193 [36] .

Class 50 (55%)

Inc lude in Class 50 wi th a CCA rate of 55% property acquired af ter March 18, 2007, that is general -purpose e lectronic data processing equipment and systems sof tware for that equipment, inc luding anci l lary data processing equipment, but not inc luding property that is

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inc luded in Class 29 or Class 52 or that is pr inc ipal ly or is used pr inc ipal ly as:

a) e lectronic process contro l or moni tor equipment;

b) e lectronic communicat ions contro l equipment;

c) systems sof tware for equipment referred to in a) or b) ; or

d) data handl ing equipment (other than data handl ing equipment that is anci l lary to general -purpose electronic data processing equipment) .

Class 52 (100%)

Inc lude in Class 52 wi th a CCA rate of 100% (wi th no hal f -year ru le) general -purpose e lectronic data processing equipment (commonly cal led computer hardware) and systems sof tware for that equipment, inc luding anci l lary data processing equipment i f acquired af ter January 27, 2009, and before February 2011, but not inc luding property that is pr inc ipal ly or is used pr inc ipal ly as:

a) e lectronic process contro l or moni tor equipment;

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b) e lectronic communicat ions contro l equipment;

c) systems sof tware for equipment referred to in a) or b) ; or

d) data handl ing equipment (other than equipment that is anci l lary to general -purpose e lectronic data processing equipment) .

To qual i fy for th is rate the asset must a lso:

• be s i tuated in Canada;

• have not been used, or acquired for use, for any purpose before i t is acquired by the taxpayer; and

• be acquired by the taxpayer:

– for use in a business carr ied on by the taxpayer in Canada or for the purposes of earning income f rom property s i tuated in Canada; or

– for lease by the taxpayer to a lessee for use by the lessee in a business carr ied on by the lessee in Canada or for the purpose of earning income f rom proper ty s i tuated in Canada.

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Special situations Personal use of property

I f you buy property for both business and personal use, you can show the business par t of the property in Area B or C in one of two ways:

• I f your business use stays the same f rom year to year, enter the tota l cost of the property in column 3, the personal par t in column 4, and the business par t in column 5. To calculate the CCA that you can c la im, enter the amount f rom column 5 in column 3 of Area A.

• I f your business use changes f rom year to year, enter the tota l cost of the property in column 3 and column 5, and enter "0" in column 4. Enter the amount f rom column 5 in column 3 of Area A to calculate the CCA you can c la im. When you c la im CCA, you wi l l have to calculate the a l lowable par t that you can c la im for business use.

Example Jenni fer owns a business. She bought a car in 2011 that she uses for both personal and business use. The car cost $20,000, inc luding

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a l l charges and taxes. Therefore, she inc ludes the car in Class 10. Her business use var ies f rom year to year. She calculates her CCA on the car for 2011 as fo l lows:

She enters $20,000 in column 3 and column 5 of Area B. She also enters $20,000 in column 3 of Area A. By complet ing the other columns in the chart , she calculates a CCA c la im of $3,000. Because Jenni fer used her car par t ly for personal use, she calculates her CCA c la im as fo l lows:

12,000 (business k i lometres) × $3,000 = $2,000

18,000 ( tota l k i lometres)

Jenni fer enters $2,000 on l ine 9936.

Note The capi ta l cost l imi ts on a Class 10.1 vehic le (a passenger vehic le) s t i l l apply when you spl i t the capi ta l cost between business and personal use. For more informat ion, see "Class 10.1 (30%)," on page 195 [37] .

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Changing from personal to business use

I f you bought a property for personal use and star ted using i t in your farming business in your 2011 f iscal per iod, there is a change in use. You need to determine the capi ta l cost for business purposes.

Enter the fa i r market value (FMV) of the property in column 3 of Area B or C, whichever appl ies, i f , a t the t ime of change in use, the FMV of the depreciable property is less than i ts or ig inal cost .

When you star t to use your property for farming business use, you are considered to have d isposed of i t . I f the FMV of the property is greater than i ts cost , you may have a capi ta l gain unless you f i le an e lect ion. For an explanat ion of capi ta l gains, see Chapter 7. Use the fo l lowing chart to determine the amount to enter in column 3 when the FMV is more than i ts or ig inal cost .

Capital cost calculat ion

Actual cost of the property $ 1

FMV of the property $ 2

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Amount on l ine 1 $ 3

Line 2 minus l ine 3 ( i f negat ive, enter "0") $ 4

Enter a l l capi ta l gains deduct ions c la imed for the amount on l ine 4* $ × 2 = $

5

Line 4 minus l ine 5 ( i f negat ive, enter "0") $ × 1/2 = $

6

Capital cost ( l ine 1 plus l ine 6) $ 7

* Enter the amount that re lates to the depreciable property only.

Enter the capi ta l cost of the property f rom l ine 7 in column 3 of Area B or C.

Note We consider that you acquire the land for an amount equal to i ts FMV when you change i ts use. Inc lude th is amount on l ine 9923, "Tota l cost of a l l land addi t ions in the year," in Area F.

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Grants, subsidies, and rebates

You should subtract f rom the appl icable expense any rebate, grant , or assis tance you received. Enter the net expense on the appropr iate l ine on Form T2042.

You may get a grant , subsidy or rebate f rom a government or a government agency to buy depreciable property. When th is happens, subtract the amount of the grant , subsidy or rebate f rom the property 's capi ta l cost . Do th is before you enter the capi ta l cost in column 3 of Area B or C.

You may have paid GST or HST on some of the depreciable property that you acquired for your business. I f so, you may have a lso received an input tax credi t f rom us. The input tax credi t is government assistance. Therefore, subtract i t f rom the property 's capi ta l cost . Do th is before you enter the capi ta l cost in column 3 of Area B or C, whichever appl ies. I f you receive an input tax credi t for a passenger vehic le you use in your business, use one o f the fo l lowing methods:

• For a passenger vehic le you used 90% or more for your business, subtract the amount of the credi t f rom the vehic le 's cost before you enter i ts capi ta l cost in column 3 of Area B.

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• For a passenger vehic le you used less than 90% o f the t ime for your business, do not make an adjustment in 2011. In 2012, subtract the amount of the credi t f rom your beginning undepreciated capi ta l cost (UCC).

You may get an incent ive f rom a non-government agency to buy depreciable property. I f th is happens, you can inc lude the amount in income at l ine 9570, or subtract the amount f rom the capi ta l cost of the property. I f the rebate is more than the remain ing undepreciated capi ta l cost in the par t icu lar c lass, add the excess to income at l ine 9570, "Rebates."

For more informat ion about government assistance see Interpretat ion Bul let in IT-273, GOVERNMENT ASSISTANCE – GENERAL COMMENTS.

Non-arm's length transactions

When you acquire property in a non-arm's length transaction (see "Def in i t ions," on page 12 [5] ) , there are specia l ru les to fo l low to determine the property 's cost . These specia l ru les do not apply i f you acquire the property because of someone's death.

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You can acquire depreciable property in a non-arm's length t ransact ion f rom an indiv idual res ident of Canada, a par tnership wi th at least one partner who is an indiv idual res ident in Canada, or a par tnership wi th at least one par tner who is in another par tnership.

I f you pay more for the property than the sel ler paid for the same property, ca lculate the capi ta l cost as fo l lows:

Capital cost calculat ion Non-arm's length transaction – Resident of Canada

The sel ler 's cost or capi ta l cost $ 1

The sel ler 's proceeds of d isposi t ion $ 2

Amount f rom l ine 1 $ 3

Line 2 minus l ine 3 ( i f negat ive, enter "0") $ 4

Enter any capi ta l gains deduct ion c la imed for the amount on l ine 4 $ × 2 = $

5

– 209 –

L ine 4 minus l ine 5 ( i f negat ive, enter "0") $ × 1/2 = $

6

Capital cost ( l ine 1 plus l ine 6) $ 7

Enter th is amount in column 3 of e i ther Area B or C, whichever appl ies. Do not inc lude the cost of the re lated land. Inc lude the cost of the re lated land on l ine 9923, "Tota l cost of a l l land addi t ions in the year," in Area F.

You can a lso buy depreciable property in a non-arm's length t ransact ion f rom a corporat ion or f rom an indiv idual who is not a res ident in Canada, or a par tnership wi th no par tners who are indiv iduals res ident in Canada or wi th no par tners that are other par tnerships.

I f you pay more for the property than the sel ler paid for the same property, ca lculate the capi ta l cost as fo l lows:

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Capital cost calculat ion Non-arm's length transaction – Non-resident of Canada

The sel ler 's cost or capi ta l cost $ 1

The sel ler 's proceeds of d isposi t ion $ 2

Amount f rom l ine 1 $ 3

Line 2 minus l ine 3 ( i f negat ive, enter "0") $ × 1/2 = $

4

Capital cost ( l ine 1 plus l ine 4) $ 5

Enter th is amount in column 3 of e i ther Area B or C, whichever appl ies. Do not inc lude the cost of the re lated land. Inc lude the cost of the re lated land on l ine 9923, "Tota l cost of a l l land addi t ions in the year," in Area F.

I f you buy depreciable property in a non-arm's length t ransact ion and pay less for i t than the sel ler paid , your capi ta l cost is the same amount as the sel ler paid. We consider you to have deducted as CCA the d i f ference between what you paid and what the sel ler paid. Enter

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the amount that you paid in column 3 of Area A. Enter the same amount in Area B or C, whichever appl ies.

Example Bruce bought a t ractor for $16,000 f rom his father , Paul , in h is 2011 f iscal per iod. Paul paid $40,000 fo r the t ractor in 1997. Since the amount Bruce paid is less than the amount Paul paid, we consider Bruce's cost to be $40,000. We also consider Bruce to have deducted CCA of $24,000 in the past ($40,000 – $16,000).

Bruce completes the CCA chart as fo l lows:

• in Area B, "Detai ls of equipment addi t ions in the year," he enters $40,000 in column 3, "Tota l cost" ; and

• in Area A, "Calculat ion of capi ta l cost a l lowance (CCA)," he enters $16,000 in column 3, "Cost of addi t ions in the year," as the addi t ion for the 2011 f iscal per iod.

There is a l imi t on the cost of a passenger vehic le that you buy in a non-arm's length t ransact ion. The cost is the least of the fo l lowing three amounts:

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• the FMV when you buy i t ;

• $30,000 plus any GST/HST, or PST you would pay on $30,000, i f you bought i t in your 2011 f iscal per iod; or

• the sel ler 's cost amount of the vehic le when you buy i t .

The cost amount can vary depending on what the sel ler used the vehic le for before you bought i t . I f the sel ler used the vehic le to earn income, the cost amount wi l l be the undepreciated capi ta l cost (UCC) of the vehic le when you buy i t . I f the sel ler d id not use the vehic le to earn income, the cost amount wi l l usual ly be the or ig inal cost of the vehic le.

For more informat ion on non-arm's length t ransact ions, see Interpretat ion Bul let in IT-419, MEANING OF ARM'S LENGTH.

Capital gains

I f you sel l a property for more than i ts cost , you may have a capi ta l gain. L is t the d isposi t ions of a l l your propert ies on Schedule 3, CAPITAL GAINS (OR LOSSES) IN 2011. You wi l l f ind a copy of th is schedule in your GENERAL INCOME TAX AND BENEFIT GUIDE package.

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For in format ion on how to calculate your taxable capi ta l gain, see Guide T4037, CAPITAL GAINS and see "Chapter 7 – Capi ta l gains," beginning on page 252 [48] .

You may be a par tner in a par tnersh ip that g ives you a T5013 s l ip , STATEMENT OF PARTNERSHIP INCOME, or a T5013A s l ip , STATEMENT OF PARTNERSHIP INCOME FOR TAX SHELTERS AND RENOUNCED RESOURCE EXPENSES. I f the par tnership has a capi ta l ga in, i t wi l l a l locate par t of that gain to you. The gain wi l l show on the par tnership 's f inancia l s tatements or on your T5013 or T5013A s l ip .

Note You cannot have a capi ta l loss when you sel l depreciable property. However, you may have a terminal loss. For an explanat ion of terminal losses, see "Column 5 – UCC af ter addi t ions and disposi t ions," on page 180 [34] .

Special rules for disposing of a bui lding in the year

I f you d isposed of a bui ld ing in the year, specia l ru les may apply that make the proceeds of d isposi t ion an amount other than the actual

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proceeds of d isposi t ion. This happens when you meet both o f the fo l lowing condi t ions:

• you d isposed of the bui ld ing for an amount less than both i ts cost amount , as calculated below, and i ts capi ta l cost to you; and

• you, or a person wi th whom you do not deal at arm's length (see "Def in i t ions," on page 12 [5] ) owned the land that the bui ld ing is on, or the land next to i t , which was necessary for the bui ld ing 's use.

To calculate the cost amount:

• I f the bui ld ing was the only property in the c lass, the cost amount is the undepreciated capi ta l cost (UCC) of the c lass before you d isposed of the bui ld ing.

• I f more than one property is in the same c lass, you have to calculate the cost amount of each bui ld ing as fo l lows:

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capi ta l cost of the bui ld ing ×

UCC of the c lass =

cost amount of the

bui ld ing capi ta l cost of a l l property in the c lass not previously

d isposed of

Note I f any property in the c lass of the bui ld ing that was acquired at non-arm's length was previously used for a purpose other than gain ing or producing income, or i f the par t of a property used for gain ing or producing income has changed, the capi ta l cost of such property has to be recalculated to determine the cost amount of the property.

For more informat ion about proceeds of d isposi t ion, see Interpretat ion Bul let in IT-220, CAPITAL COST ALLOWANCE – PROCEEDS OF DISPOSIT ION OF DEPRECIABLE PROPERTY, and i ts Specia l Release, and Interpretat ion Bul let in IT-285, CAPITAL COST ALLOWANCE – GENERAL COMMENTS.

I f you d isposed of a bui ld ing under these condi t ions and you or a person wi th whom you do not deal at arm's length d isposed of the land

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in the same year, calculate your deemed proceeds of d isposi t ion as shown in Calculat ion A on th is page.

I f you, or a person wi th whom you do not deal at arm's length, d id not d ispose of the land in the same year as the bui ld ing, calculate your deemed proceeds of d isposi t ion as shown in Calculat ion B on page 219 [ th is page] .

Calculat ion A Land and bui lding sold in the same year

Fair market value of the bui ld ing when you d isposed of i t $

1

Fair market value of the land just before you d isposed of i t $

2

Line 1 plus l ine 2 $ 3

Sel ler 's adjusted cost base of the land $ 4

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Tota l capi ta l gains (wi thout reserves) f rom any d isposi t ion of the land (such as a change in use) in the three-year per iod before you d isposed of the bui ld ing (by you, or a person not deal ing at arm's length wi th you, to you or to another person not deal ing at arm's length wi th you) $

5

Line 4 minus l ine 5 ( i f negat ive, enter "0") $ 6

Line 2 or l ine 6, whichever amount is less $ 7

Line 3 minus l ine 7 ( i f negat ive, enter "0") $ 8

Cost amount of the bui ld ing just before you d isposed of i t $

9

Capi ta l cost of the bui ld ing just before you d isposed of i t $

10

Line 9 or l ine 10, whichever amount is less $ 11

Line 1 or l ine 11, whichever amount is more $ 12

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Deemed proceeds of disposit ion for the bui lding L ine 8 or l ine 12, whichever amount is less (enter th is amount in column 3 of Area E and in column 4 of Area A) $

13

Deemed proceeds of disposit ion for the land Proceeds of d isposi t ion of the land and bui ld ing $ 14

Amount f rom l ine 13 $ 15

Line 14 minus l ine 15 (enter th is amount on l ine 9924 of Area F on your form) $

16

I f you have a terminal loss on the bui ld ing, inc lude i t on l ine 9790, "Other expenses."

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Calculat ion B Land and bui lding sold in dif ferent years

Cost amount of the bui ld ing just before you d isposed of i t $

1

Fair market value of the bui ld ing just before you d isposed of i t $

2

Line 1 or l ine 2, whichever amount is more $ 3

Actual proceeds of d isposi t ion, i f any $ 4

Line 3 minus l ine 4 $ 5

Line 5 $ × 1/2 $ 6

Amount f rom l ine 4 $ 7

Deemed proceeds of disposit ion for the bui lding: Line 6 plus l ine 7

Enter th is amount in column 3 of Area E and in column 4 of Area A. $

8

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I f you have a terminal loss on the bui ld ing, inc lude i t on l ine 9790, "Other expenses."

Ordinar i ly , you can deduct the fu l l amount of a terminal loss, but only par t of a capi ta l loss. Calculat ion B ensures that you use the same factor to calculate a terminal loss on a bui ld ing as you use to calculate a capi ta l loss on land. As a resul t of th is calculat ion, you add a par t of the amount on l ine 5 to the actual proceeds of d isposi t ion f rom the bui ld ing. For in format ion, see "Terminal loss," on page 181 [34] .

Replacement property

In a few cases, you can postpone or defer adding a capi ta l gain or recapture of CCA to income. You might sel l a business property and replace i t wi th a s imi lar one, or your property might be sto len, destroyed, or expropr iated, and you replace i t wi th a s imi lar one. You can defer tax on the sale proceeds i f you re invest them in replacement property wi th in a reasonable per iod of t ime. To defer report ing the gain or recapture of CCA, you (or a person re lated to

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you) must acquire and use the new property for the same or s imi lar purpose as the one that you are replac ing.

For more informat ion, see Interpretat ion Bul let in IT-259, EXCHANGES OF PROPERTY, and Interpretat ion Bul let in IT-491, FORMER BUSINESS PROPERTY, and i ts Specia l Release. You can a lso defer a capi ta l gain or recapture of CCA when you t ransfer property to a corporat ion, a par tnership, or your chi ld . For more informat ion on t ransferr ing property to your chi ld , see page 266 [50] .

For in format ion on t ransfers to a corporat ion or a par tnership, see:

• In format ion Circular 76-19, Transfer of Property to a Corporat ion Under Sect ion 85

• In terpretat ion Bul let in IT-291, Transfer of Property to a Corporat ion Under Subsect ion 85(1)

• In terpretat ion Bul let in IT-378, Winding-up of a Partnership

• In terpretat ion Bul let in IT-413, Elect ion by Members of a Partnership Under Subsect ion 97(2)

The fo l lowing example summarizes th is chapter on CCA.

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Example In 2011, Trevor bought a bui ld ing to use for h is farming business. The tota l cost was $95,000 ( the sum of the $90,000 tota l purchase pr ice and the $5,000 tota l expenses connected wi th the purchase) as fo l lows:

Bui ld ing value $ 75,000

Land value $ 15,000

Total purchase pr ice $ 90,000

Expenses connected with the purchase: Legal fees $ 3,000

Land t ransfer taxes $ 2,000

Total fees $ 5,000

Trevor 's farming business has a December 31 year-end. In 2011, Trevor 's farming income was $6,000 and h is expenses were $4,900. Therefore, h is net income before deduct ing CCA was $1,100 ($6,000 – $4,900).

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Before Trevor can complete h is CCA schedule, he has to calculate the capi ta l cost of the bui ld ing. Since land is not depreciable farm property, he has to calculate the par t of the expenses connected wi th the purchase that re lates only to the bui ld ing. To do th is , he has to use the fo l lowing formula, which we expla in under the heading "Land," on page 175 [33] .

$75,000 × $5,000 = $4,166.67

$90,000

This $4,166.67 represents the par t of the $5,000 in legal fees and land t ransfer taxes that re lates to the purchase of the bui ld ing. The remaining $833.33 re lates to the purchase of the land. Therefore, the capi ta l cost of the bui ld ing is :

Bui ld ing value $ 75,000.00

Related expenses $ 4,166.67

Capi ta l cost of the bui ld ing $ 79,166.67

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Trevor enters $79,166.67 in column 3 of Area C and $15,833.33 ($15,000 + $833.33) on l ine 9923 of Area F as the capi ta l cost of the land.

Note Trevor d id not own farm property before 2011. Therefore, he has no undepreciated capi ta l cost to enter in column 2 of Area A.

Trevor acquired h is farm property in 2011. Therefore, he is subject to the hal f -year ru le that we expla in under the heading "Column 6 – Adjustment for current-year addi t ions," on page 182 [35] .

Chapter 5 – Eligible capital expenditures What is an eligible capital expenditure? You may buy property that does not physical ly ex is t but g ives you a last ing economic benef i t . Some examples are mi lk and egg quotas. We cal l th is k ind of property el igible capital property. The pr ice you pay to buy th is type of property is an el igible capital expenditure.

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What is an annual allowance? You cannot fu l ly deduct an e l ig ib le capi ta l expendi ture because the expendi ture is considered to be capi ta l in nature and provides a last ing economic benef i t . However, you can deduct par t of i ts cost each year. We cal l the amount you can deduct your annual al lowance.

What is a cumulative eligible capital (CEC) account? This is the bookkeeping record you establ ish to determine your annual a l lowance. You a lso use your CEC account to keep t rack of the property you buy and sel l . We cal l the property in your CEC account your e l ig ib le capi ta l property. You base your annual a l lowance on the balance in your account at the end of your f iscal per iod. Keep a separate account for each business, but inc lude a l l e l ig ib le capi ta l property for the one business in the same CEC account .

How to calculate your annual allowance Complete the fo l lowing chart to calculate your annual a l lowance and the balance in your CEC account at the end of your 2011 f iscal per iod.

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Calculat ing your annual al lowance and your CEC account balance at the end of your 2011 f iscal period

Balance in the account at the star t of your 2011 f iscal per iod $

1

El ig ib le capi ta l expendi tures you made or incurred in your 2011 f iscal per iod × 75% $

2

Line 1 plus l ine 2 $ 3

Al l the amounts you received or are ent i t led to receive f rom the sale of e l ig ib le capi ta l property in your 2011 f iscal per iod $

4

Al l the amounts that became receivable in your 2011 f iscal per iod f rom the sale of e l ig ib le capi ta l propert ies before June 18, 1987 $

5

Line 4 plus l ine 5 $ 6

Line 6 × 75% $ 7

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CEC account balance L ine 3 minus l ine 7 $

8

Annual al lowance 7% × l ine 8 $

9

CEC account balance at the end of your 2011 f iscal period L ine 8 minus l ine 9 $

10

Note An el ig ib le capi ta l expendi ture is reduced by the amount of any assistance received or receivable f rom a government for the expendi ture. Also, an amount forg iven (or ent i t led to be forg iven) on government debt reduces your CEC account . Specia l condi t ions may apply to non-arm's length t ransact ions. For more informat ion, see Interpretat ion Bul let in IT-123, TRANSACTIONS INVOLVING ELIGIBLE CAPITAL PROPERTY.

You can deduct an annual a l lowance i f there is a posit ive balance in your CEC account at the end of your 2011 f iscal per iod. You do not

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have to c la im the fu l l amount of the maximum annual a l lowance for a g iven year. You can deduct any amount you want , up to the maximum al lowable of 7%. I f your f iscal per iod is less than 365 days, you have to prorate your c la im. Base your c la im on the number of days in your f iscal per iod compared to 365 days.

I f there is a negative balance in your CEC account , see "Sale of e l ig ib le capi ta l property in the 2011 f iscal per iod," on page 229 [ th is page] . The fo l lowing is an example of how to calculate the annual a l lowance and account balance.

Example Sylv ie star ted her farming business on January 1, 2011. Her business has a December 31 year-end. Dur ing 2011, she bought a mi lk quota for $135,000. To calculate her annual a l lowance and her CEC account balance at the end of her f iscal year, she completes the chart as fo l lows:

Sylvie's CEC account

Balance at the star t of her 2011 f iscal per iod $ 0 1

– 229 –

Sylv ie 's e l ig ib le capi ta l expendi ture

Mi lk quota cost for the 2011 f iscal per iod $135,000 × 75% $ 101,250 2

Line 1 plus l ine 2 $ 101,250 3

Sylv ie has not sold any e l ig ib le capi ta l property dur ing the 2011 f iscal per iod. Therefore, she wi l l not have any amounts on l ines 4 to 8.

Her maximum annual a l lowance on e l ig ib le capi ta l property is 7% × l ine 3 $ 7,087 9

Balance at the end of 2011 Line 3 minus l ine 9 $ 94,163 10

Sale of eligible capital property in the 2011 fiscal period When you sel l e l ig ib le capi ta l property, you have to subtract par t of the proceeds of d isposi t ion f rom your CEC account .

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You have to do th is calculat ion i f you sold e l ig ib le capi ta l property:

• in your 2011 f iscal per iod; or

• before June 18, 1987, and the proceeds of d isposi t ion become due to you in your 2011 f iscal per iod.

For 2011, the amount you have to subtract is 75% of the total of these amounts:

• the proceeds of d isposi t ion of a l l the e l ig ib le capi ta l property you sel l in your 2011 f iscal per iod; and

• the amount of any proceeds that become due to you in your 2011 f iscal per iod f rom el ig ib le capi ta l property you sold before June 18, 1987.

There may be a negat ive amount (excess) in your CEC account af ter you subtract the required amount . In th is case, you wi l l have to inc lude par t of the negat ive amount in your business income.

Mul t ip ly by 2/3 the par t of the negat ive amount in your CEC account that exceeds the annual a l lowances deducted. To that resul t , add whichever is less, the excess or annual a l lowances deducted. This is

– 231 –

the amount to inc lude in your business income. The fo l lowing example shows how to calculate the amount to inc lude in your farming income.

Example Carol s tar ted her farming business on January 1, 2005, wi th a December 31 year-end. In 2005 she bought an egg quota for $25,000. Carol sold her farming business on September 1, 2011. She sold her egg quota for $65,000 and she does not have any other e l ig ib le capi ta l property in her farming business. She deducted annual a l lowances each year as fo l lows:

2005 $ 1,313

2006 1,220

2007 1,135

2008 1,056

2009 982

2010 913

Total $ 6,619

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The amount to inc lude in Carols farming income is calculated as fo l lows:

Calculat ion of amount A Excess amount calculated as fo l lows:

Proceeds of d isposi t ion × 75% $65,000 × 75%

$ 48,750

Plus: Total annual a l lowances deducted $ 6,619 ( i )

$ 55,369

Minus: E l ig ib le capi ta l expendi tures × 75% $25,000 × 75% $ 18,750

Excess amount $ 36,619 ( i i )

The lesser of ( i ) or ( i i ) $ 6,619 A

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Calculat ing amount B Excess amount $ 36,619

Minus: Total annual deduct ions taken $ 6,619

$ 30,000 B

Calculat ing amount C Line B × 2/3 $ 20,000 C

Taxable amount from the sale of the egg quota: Line A plus l ine C $ 26,619

Carol inc ludes $26,619 on l ine 9600, "Other income," of Form T2042.

I f the property is considered to be a qual i f ied farm property, par t of the farming income may be e l ig ib le for the capi ta l gains deduct ion.

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Farming income from the sale of eligible capital property eligible for the capital gains deduction Part of your farming income f rom the sale of e l ig ib le capi ta l property (ECP) that is qual i f ied farm property may be e l ig ib le for the capi ta l gains deduct ion. You wi l l f ind more informat ion on quali f ied farm property on page 262 [50] . I f you have more than one business, do a separate calculat ion for each. Complete the chart below [on the fo l lowing page] to calculate the amount e l ig ib le for the capi ta l gains deduct ion f rom the sale of ECP.

Farming income el igible for the capital gains deduction

Farming income f rom the sale of ECP (other than recapture of annual a l lowances deducted in previous years) for 2011 1

Al l proceeds of d isposi t ion f rom the sale of ECP that is QFP dur ing f iscal per iods that began af ter 1987 and ended before February 28, 2000 2

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A l l e l ig ib le capi ta l expendi tures made or incurred for QFP sold dur ing f iscal per iods that began af ter 1987 and ended before February 28, 2000 3

Out lays and expenses re lated to d isposi t ions descr ibed on l ine B not deducted in calculat ing income 4

Line 3 plus l ine 4 5

Line 2 minus l ine 5 6

Amount f rom l ine 6 × 3/4 = 7

Al l proceeds of d isposi t ion f rom the sale of ECP that is QFP dur ing f iscal per iods ending af ter February 27, 2000, and before October 18, 2000 8

Al l e l ig ib le capi ta l expendi tures made or incurred for QFP sold dur ing f iscal per iods ending af ter February 27, 2000, and before October 18, 2000 9

– 236 –

Out lays and expenses re lated to d isposi t ions descr ibed on l ine 8 not deducted in calculat ing income 10

Line 9 plus l ine 10 11

Line 8 minus l ine 11 12

Amount f rom l ine 12 × 2/3 = 13

Al l proceeds of d isposi t ion f rom the sale of ECP that is QFP dur ing f iscal per iods ending af ter October 17, 2000 14

Al l e l ig ib le capi ta l expendi tures made or incurred for QFP sold dur ing f iscal per iods ending af ter October 17, 2000 15

Out lays and expenses re lated to d isposi t ions descr ibed on l ine 14 not deducted in calculat ing income 16

Line 15 plus l ine 16 17

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L ine 14 minus l ine 17 18

Amount f rom l ine 18 × 1/2 = 19

Line 7 plus l ine 13 plus l ine 19 20

Al l taxable capi ta l gains f rom the d isposi t ion of ECP for the farming business that is QFP for f iscal per iods that began af ter 1987 and ended before February 23, 1994 21

Farming income el ig ib le for the capi ta l gains deduct ion f rom the sale of ECP that is QFP for f iscal per iods that began af ter February 22, 1994, and ended before January 1, 2011 22

Line 21 plus l ine 22 23

Line 20 minus l ine 23 24

Farming income el ig ib le for the capi ta l gains deduct ion for 2011 ( the lesser of l ine 1 and l ine 24) 25

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I f you are a sole proprietor: – claim the amount on l ine 25 26

I f you are a partner: – claim your share of the amount on l ine 25 27

Enter the amount f rom l ine 26 or l ine 27 (above) on l ine 173 of Schedule 3, CAPITAL GAINS (OR LOSSES) IN 2011. To c la im the capi ta l gains deduct ion, use Form T657, CALCULATION OF CAPITAL GAINS DEDUCTION FOR 2011.

Election Under cer ta in condi t ions, you can e lect to t reat the d isposi t ion of e l ig ib le capi ta l property (ECP), (other than goodwi l l ) , as a capi ta l gain instead of inc luding i t in the chart "Calculat ing your annual a l lowance and your CEC account balance at the end of your 2011 f iscal per iod," on page 226 [43] .

I f you make the e lect ion, the proceeds of d isposi t ion on l ines 4 and 5 of the chart are considered to be equal to the or ig inal cost .

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You can then declare a capi ta l gain equal to your actual proceeds of d isposi t ion minus the cost of acquis i t ion. Report the deta i ls on the "Real estate, depreciable proper ty, and other propert ies" l ine on Schedule 3, CAPITAL GAINS (OR LOSSES) IN 2011. This e lect ion wi l l benef i t you i f you have unused capi ta l losses to apply against the capi ta l gain.

The e lect ion is only avai lable i f you meet a l l o f the fo l lowing condi t ions:

• you d isposed of an e l ig ib le capi ta l property other than goodwi l l ;

• the cost of the e l ig ib le capi ta l property can be determined;

• the proceeds of d isposi t ion exceed the cost ; and

• you do not have an exempt gains balance.

The e lect ion may also help i f you are e l ig ib le to c la im a capi ta l gains deduct ion and you d isposed of an ECP that is a qual i f ied farm property. I f you d isposed of an ECP that was a qual i f ied farm property, any deemed gain reported under the e lect ion is a lso considered to be f rom a d isposi t ion of qual i f ied farm property.

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I f th is is the case, report the deta i ls on the "Qual i f ied farm property" l ine on Schedule 3, CAPITAL GAINS (OR LOSSES) IN 2011, instead of the "Real estate, depreciable property , and other propert ies" l ine. See "Qual i f ied farm property and capi ta l gains deduct ion," on page 262 [50] .

At tach a note to your income tax return stat ing that you are e lect ing under subsect ion 14(1.01) of the INCOME TAX ACT.

Replacement property

I f you sel l an e l ig ib le capi ta l property and replace i t wi th another one for the same or s imi lar use, you can choose to postpone al l or par t of any gain on the sale. This happens i f you acquire a replacement e l ig ib le capi ta l property wi th in a cer ta in per iod of t ime. To do th is , you have to replace the property no later than one year af ter the end of the tax year in which you sel l the or ig inal property. For more informat ion, see Interpretat ion Bul let in IT-259R4, EXCHANGES OF PROPERTY.

For more informat ion about e l ig ib le capi ta l expendi tures, see interpretat ion bul let ins IT-123, TRANSACTIONS INVOLVING ELIGIBLE

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CAPITAL PROPERTY, and IT-143, MEANING OF ELIGIBLE CAPITAL EXPENDITURES.

Eligible capital property of a deceased taxpayer Upon death, a taxpayer is deemed to have d isposed of e l ig ib le capi ta l property immediate ly pr ior to death, for proceeds of d isposi t ion equal to 4/3 of the cumulat ive e l ig ib le capi ta l property at that t ime.

The person who acquires the e l ig ib le capi ta l property f rom the deceased is deemed to acquire i t a t the deemed disposi t ion amount ment ioned in the previous paragraph.

Chapter 6 – Farm losses When your farming business expenses are more than the farming business income in a year, you have a net loss. However, before you can calculate your net farm loss for the year, you may have to increase or decrease the loss by cer ta in adjustments expla ined in "L ine 9941 – Opt ional inventory adjustment inc luded in 2011," on

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page 139 [27] , and "L ine 9942 – Mandatory inventory adjustment inc luded in 2011," on page 140 [27] .

I f you show a net farm loss for the year, read th is chapter for in format ion on how to t reat your loss. For more informat ion on farm losses, see Interpretat ion Bul let in IT-322, FARM LOSSES.

The amount of the net farm loss that you can deduct depends on the nature and extent of your business. Your farm loss may be:

• fu l ly deduct ib le;

• restr ic ted (par t ly deduct ib le) ; or

• non-deduct ib le.

Non-deductible farm losses I f you d id not run your farm as a business, you cannot deduct any par t of your net farm loss.

The s ize and scope of your farm may make i t impossib le for the farm to make a prof i t , e i ther now or in the near future. In th is case, you

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cannot deduct your farm loss. We consider th is k ind of farm to be personal . Therefore, any farm expenses are personal expenses.

Fully deductible farm losses I f you made your l iv ing f rom farming, we consider farming to be your chief source of income. As long as farming was your chief source of income, you can deduct the fu l l amount of your net farm loss f rom other income. Farming can st i l l be your chief source of income even i f your farm did not show a prof i t . Other income could come f rom investments, par t - t ime employment, and so on.

To determine i f farming was your ch ief source of income, you need to consider such factors as:

• gross income;

• net income;

• capi ta l invested;

• cash f low;

• personal involvement;

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• your farm's abi l i ty to make a prof i t (both actual and potent ia l ) ; and

• p lans to mainta in or develop your farm and how you carr ied out these p lans.

Al though you may have been a par tner in a farming business, you st i l l have to determine i f farming was your own chief source of income.

When farming is your chief source of income and you show a net farm loss in 2011, you may have to reduce the loss when you have other income in 2011. Any loss that is le f t is your farm loss for 2011.

Example Rick 's farming business, which is h is chief source of income, has a December 31 f iscal year-end. His farm loss before adjustments is $50,000. He wants to reduce h is loss by the opt ional inventory adjustment (OIA). Rick kept the fo l lowing records for 2011:

Net farm loss before adjustments $ 50,000

Opt ional inventory adjustment $ 15,000

Other income $ 2,000

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To reduce the loss amount , Rick adds back h is OIA. He determines h is farm loss for 2011 as fo l lows:

Farm loss before adjustments ($ 50,000)

Add opt ional inventory adjustment $ 15,000

Farm loss af ter adjustments ($ 35,000)

Add o ther income $ 2,000

Farm loss for 2011 ($ 33,000)

Applying your 2011 farm loss

You may have a farming loss in 2011. I f you do, you can carry i t back for up to 3 years or carry i t forward for up to 20 years for a l l non-capi ta l losses incurred af ter 2005.

In both cases, you can deduct i t f rom your income f rom al l sources in those years.

I f you choose to carry back your 2011 farm loss to your 2008, 2009, or 2010 income tax returns, complete Form T1A, REQUEST FOR LOSS

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CARRYBACK, and f i le one copy of the form wi th your 2011 income tax return. Do not f i le an amended return for the year to which you apply the loss.

Applying your farm losses from years before 2011

You may be able to apply farm losses that you had in any year f rom 2001 to 2010 on your 2011 income tax return. You can apply these losses i f you d id not a l ready deduct them, and you have net income in 2011. To apply these losses to 2011, you have to apply the loss f rom the ear l iest year f i rs t . Enter the amount that you wish to deduct on l ine 252 on your income tax return.

Restricted farm losses (partly deductible) You may have run your farm as a business. For your farm to be considered a business, you must have carr ied on act iv i t ies wi th the intent ion of making a prof i t and there must be evidence to support that in tent ion.

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However, i f farming was not your chief source of income ( for example, you d id not re ly on farming a lone to make your l iv ing) , you may be able to deduct only par t of your net farm loss.

Each year you have a farm loss, rev iew your s i tuat ion carefu l ly to see i f farming was your chief source of income. I t is important to do th is , s ince a farming loss may be restr ic ted in one year, but not in another year.

How to calculate your restr icted farm loss

I f farming was not your chief source of income and you had a net farm loss, the loss you can deduct depends on the amount of your net farm loss.

When your net farm loss is $15,000 or more, you can deduct $8,750 f rom your other income. The rest of your net farm loss is your restr ic ted farm loss.

When your net farm loss is less than $15,000, the amount that you can deduct f rom your other income is the lesser of:

A) your net farm loss for the year; or

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B) $2,500 plus 50% × (your net farm loss minus $2,500).

The amount remain ing is your restr ic ted farm loss.

Note When the farm loss that you deduct is d i f ferent f rom your actual farm loss because of the restr ic ted farm loss calculat ion, you should indicate th is on your income tax return on l ine 168, "Farming Income." For example, you can do th is by not ing " restr ic ted farm loss," "RFL," or "Sect ion 31" to the lef t o f l ine 168.

Example Sharon ran a cat t le farm wi th the intent ion of making a prof i t . However, farming was not her chie f source of income in 2011. In 2011, she had employment income and a net farm loss of $9,200, which she calculated on l ine 9946 of Form T2042.

The par t of Sharon's net farm loss that she can deduct f rom her other income in 2011 is e i ther amount A or B, whichever is less:

A) $9,200; or

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B) $2,500 plus 50% × ($9,200 – $2,500) $2,500 plus 50% × $6,700

Therefore, B = ($2,500 + $3,350) = $5,850.

Because Sharon can only deduct e i ther A or B, whichever amount is less, she enters $5,850 on l ine 141 of her income tax return and deducts th is amount f rom her other income in 2011. Her restr ic ted farm loss is the amount that remains, which is $3,350 ($9,200 minus $5,850). Sharon pr ints "Sect ion 31" to the lef t o f l ine 168 on her income tax return to show that the loss she is deduct ing is the resul t of a restr ic ted farm loss calculat ion.

Applying your 2011 restr icted farm loss

You can carry back your 2011 restr ic ted farm loss up to three years. You can a lso carry i t forward up to 20 years. The amount that you deduct in any year cannot be more than your net farming income for that year . I f you have no net farming income in any of those years, you cannot deduct any restr ic ted farm loss.

To carry back your 2011 restr ic ted farm loss to your 2008, 2009, or 2010 income tax returns, use Form T1A, REQUEST FOR LOSS

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CARRYBACK, and f i le one copy of the form wi th your 2011 income tax return. Do not f i le an amended return for the year to which you would l ike the loss appl ied.

Applying your restr icted farm losses from years before 2011

You may have net farming income in 2011. I f so, you may be able to apply to your 2011 income tax return restr ic ted farm losses that you had in any year f rom 2001 to 2010. You can apply these losses as long as you d id not a l ready deduct them from your farming income. Also, you can only apply them up to the amount of your net farming income in 2011. You have to apply the loss f rom the ear l iest year f i rs t before you apply the losses f rom other years. Cla im th is amount on l ine 252 of your income tax return.

You may have sold farmland at a t ime when you had restr ic ted farm losses that you d id not c la im. When th is happens, you may be able to reduce the amount of your capi ta l gain f rom the sale. In th is case, see "Restr ic ted farm losses (par t ly deduct ib le) , " on page 246 [47] .

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Non-capital losses You may have incurred a loss in 2011 f rom a business other than farming. I f th is loss is more than your other income for the year, you may have a non-capi ta l loss. Use Form T1A, REQUEST FOR LOSS CARRYBACK to calculate your 2011 non-capi ta l loss.

You can carry back your non-capi ta l loss up to three years. You can carry forward non-capi ta l losses incurred before March 23, 2004, up to seven years. Non-capi ta l losses incurred af ter March 22, 2004, and before 2006 can be carr ied forward 10 years. Non-capi ta l losses incurred af ter 2005 can be carr ied forward up to 20 years.

I f you choose to carry back your 2011 non-capi ta l loss to your 2008, 2008, or 2010 income tax returns, complete Form T1A and at tach one copy of the form to your 2011 re turn. Do not f i le an amended return for the year to which you apply the loss.

For more informat ion about non-capi ta l losses, see Interpretat ion Bul let in IT-232, LOSSES – THEIR DEDUCTIB IL ITY IN THE LOSS YEAR OR IN OTHER YEARS.

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Chapter 7 – Capital gains This chapter expla ins the capi ta l gains ru les for people who farm. General capi ta l gains ru les are covered in Guide T4037, CAPITAL GAINS.

Throughout th is chapter , we use the terms sel l , sold, buy, or bought. These words descr ibe most capi ta l t ransact ions. However, the informat ion in th is chapter a lso appl ies to deemed disposi t ions or acquis i t ions. When reading th is chapter , you can use the terms sold instead of disposed of, and bought instead of acquired, i f they more c lear ly descr ibe your s i tuat ion.

Did you sel l capital property in 2011 that you owned before 1972?

I f you d id, you have to apply a spec ia l set of ru les when you calculate your capi ta l gain or loss because you d id not have to pay tax on capi ta l gains before 1972. To help you calculate your gain or loss f rom the sale of property that you owned before 1972, use Form T1105, SUPPLEMENTARY SCHEDULE FOR DISPOSIT IONS OF CAPITAL PROPERTY ACQUIRED BEFORE 1972.

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Disposing of farmland that includes your principal residence

Your home is usual ly your pr inc ipal res idence. I f your home was your pr inc ipal res idence for every year that you owned i t , you general ly do not pay tax on any capi ta l gains when you d ispose of i t . Therefore, i f you sold farmland that inc luded your home in 2011, only par t of the gain is taxable. You can choose one of two methods to determine your taxable capi ta l gain. Try both methods to see which one is best for you.

We usual ly consider approximately one acre of land on which your res idence is s i tuated to be par t of your pr inc ipal res idence. We wi l l a l low you more i f you can prove that you needed more land to use and enjoy your pr inc ipal res idence.

Method 1

Separate ly calculate the capi ta l gain on your pr inc ipal res idence and each of your farm propert ies. To do th is , apport ion the proceeds of d isposi t ion, the ACB, and any sel l ing expenses between:

• your pr inc ipal res idence; and

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• each of your farm propert ies.

Then, calculate the taxable capi ta l gain on your pr inc ipal res idence, i f any, and each of the farm propert ies.

Value the land that is par t of your pr inc ipal res idence at one of the fo l lowing two amounts, whichever is more:

• the FMV of the land; or

• the FMV of a comparable res ident ia l bui ld ing s i te in the area.

Note I f your home was not your pr inc ipal res idence for every year that you owned i t , there could be a capi ta l gain on i t that you have to inc lude in your income. Form T2091(IND), DESIGNATION OF A PROPERTY AS A PRINCIPAL RESIDENCE BY AN INDIV IDUAL (OTHER THAN A PERSONAL TRUST) , wi l l help you to calculate the number of years that you are ent i t led to designate your home as your pr inc ipal res idence and calculate the par t of your gain, i f any, that is taxable.

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Example On February 1, 2011, Helena sold her 32-acre farm, which inc luded her pr inc ipal res idence. One acre of land is par t of her pr inc ipal res idence. Helena has these deta i ls :

Value of land when she purchased her farm FMV of s imi lar farmland per acre $ 3,750

FMV of a typ ical res ident ia l bui ld ing s i te in the area $ 15,000

Value of land when she sold her farm FMV of s imi lar farmland per acre $ 6,250

FMV of a typ ical res ident ia l bui ld ing s i te in the area $ 25,000

Adjusted cost base (ACB) – actual purchase price

Land $ 120,000

House 60,000

Barn 16,000

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S i lo 4,000

Total $ 200,000

Proceeds of disposit ion – actual sale price

Land $ 200,000

House 75,000

Barn 20,000

Si lo 5,000

Total $ 300,000

Proceeds of disposit ion

Principal residence

Farm propert ies Total

Land $ 25,000* $ 175,000 $ 200,000

House 75,000 75,000

Barn 20,000 20,000

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Proceeds of disposit ion

Principal residence

Farm propert ies Total

Si lo 5,000 5,000

$ 100,000 $ 200,000 $ 300,000

Minus ACB: Land $ 15,000* $ 105,000 $ 120,000

House 60,000 60,000

Barn 16,000 16,000

Si lo 4,000 4,000

$ 75,000 $ 125,000 $ 200,000

Gain on sale $ 25,000 $ 75,000 $ 100,000

Minus: Gain on pr inc ipal res idence** 25,000

25,000

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Proceeds of disposit ion

Principal residence

Farm propert ies Total

Capital gain $ 0 $ 75,000 $ 75,000

Taxable capital gain (1 /2 × $75,000) $ 37,500

* Helena uses the value of a typ ical res ident ia l bui ld ing s i te for the land that is par t of her pr inc ipal res idence, because the FMV of a typ ical s i te in the area is more than the FMV of one acre of farmland.

** Because Helena's home was her pr inc ipal res idence dur ing a l l the years she owned i t , the capi ta l gain is not taxable.

Method 2

Determine the capi ta l gain on your land and your pr inc ipal res idence. Then subtract $1,000 f rom the gain. Subtract an addi t ional $1,000 for each year af ter 1971 that the property was your pr inc ipal res idence and you were a res ident of Canada. Us ing Method 2, you can reduce a gain to n i l , but you cannot create a loss.

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To calculate your capi ta l ga in, use the fo l lowing formula:

Proceeds of d isposi t ion $ A

Adjusted cost base $ B

A minus B $ C

Out lays and expenses $ D

Capi ta l gain before reduct ion (C minus D) $ E

Method 2 reduct ion $ F

Capi ta l gain af ter reduct ion (E minus F) $ G

Note Transfer the entr ies on l ines A, B, D, and G to the re levant columns on Schedule 3, CAPITAL GAINS (OR LOSSES) IN 2011, under "Qual i f ied farm property" or "Real estate, depreciable propert ies, and other property."

I f you choose th is method, at tach a le t ter to your income tax return that inc ludes the fo l lowing informat ion:

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• a statement by you that you sold your farm and are e lect ing under subparagraph 40(2)(c)( i i ) o f the INCOME TAX ACT;

• a descr ipt ion of the property that you sold; and

• the number of years af ter 1971 that the farmhouse was your pr inc ipal res idence dur ing which you were a res ident of Canada ( i f you purchased your farm af ter 1971, g ive the date that you purchased i t ) .

As proof of the value of your property, regardless of the method you choose, keep documents that have the fo l lowing informat ion:

• a descr ipt ion of the farm, inc luding the s ize of the bui ld ings and construct ion type;

• the cost of the property and the date of purchase;

• the cost of any addi t ions or improvements that you made to the property;

• the assessment for property tax purposes;

• any insurance coverage;

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• the type of land (arable, bush, or scrub) ; and

• the type of farm operat ion.

For more informat ion, see Interpretat ion Bul let in IT-120, PRINCIPAL RESIDENCE.

Restricted farm losses You may have a capi ta l gain f rom farmland that you sel l in 2011. You may also have restr ic ted farm losses f rom previous years that you have not yet used. In th is case, you can deduct par t of these losses f rom the gain. The par t that you can deduct is the property taxes and the interest on money that you borrowed to buy the land, i f you inc luded these amounts in the calculat ion of the restr ic ted farm loss in quest ion.

You cannot use the restr ic ted farm loss to create or increase a capi ta l loss on the sale of your farmland.

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Qualif ied farm property and capital gains deduction I f you have a taxable capi ta l gain f rom the sale of qual i f ied farm property, you may be able to c la im a capi ta l gains deduct ion. We expla in quali f ied farm property on page 263 [ th is page] .

For d isposi t ions of qual i f ied farm property made af ter March 18, 2007, the l i fe t ime capi ta l gains exempt ion was increased f rom $500,000 to $750,000.

For more informat ion on how to calculate your capi ta l gains deduct ion, see Form T657, CALCULATION OF CAPITAL GAINS DEDUCTION FOR 2011, and Form T936, CALCULATION OF CUMULATIVE NET INVESTMENT LOSS (CNIL) TO DECEMBER 31, 2011.

You may be a par tner in a par tnersh ip that sold capi ta l property . In th is case, the par tnership inc ludes any taxable capi ta l gain in i ts income. However, as a par tner , you can only c la im the capi ta l gains deduct ion for your share of the gain on qual i f ied farm property.

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What is qual i f ied farm property?

Qual i f ied farm property is cer ta in property you, your spouse, or common- law partner own. I t is a lso cer ta in property owned by a fami ly- farm partnership in which you, your spouse, or common- law partner holds an interest . We def ine spouse and common- law partner in the GENERAL INCOME TAX AND BENEFIT GUIDE.

Qual i f ied farm property inc ludes:

• a share of the capi ta l s tock of a fami ly- farm corporat ion that you, your spouse, or common- law partner own;

• an interest in a fami ly- farm partnership that you, your spouse, or common- law partner own;

• real property, such as land and bui ld ings; or

• e l ig ib le capi ta l property, such as mi lk and egg quotas.

– 264 –

Real property or el igible capital property

Real property or e l ig ib le capi ta l property is qual i f ied farm property only i f i t is used to carry on a farming business in Canada by any one o f the fo l lowing:

• you, your spouse or common- law partner , or any of your parents or chi ldren (we def ine chi ldren on page 267 [51] ) ;

• the benef ic iary of a personal t rust , or the spouse or common- law partner , parent , or chi ld of such a benef ic iary;

• a fami ly- farm corporat ion where any of the above persons owns a share of the corporat ion; or

• a fami ly- farm partnership where any of the above persons (except a fami ly- farm corporat ion) owns an interest in the par tnership.

You may have bought or entered in to an agreement to buy real or e l ig ib le capi ta l property before June 18, 1987.

We consider you to have used th is property in carry ing on a farming business in Canada i f you meet one o f the fo l lowing condi t ions:

– 265 –

• throughout the per iod of at least 24 months preceding the d isposi t ion in the year you d isposed of i t , the property or the one i t replaced was used in a farming business in Canada by any of the above persons on page 264, a fami ly- farm partnership, or corporat ion, or by a personal t rust f rom which one of the above indiv iduals on page 264 acquired the property; or

• the property, or the property i t replaced, was used in a farming business in Canada for at least f ive years by any of the above persons, a fami ly- farm partnership, or corporat ion, or by a personal t rust f rom which one of the above indiv iduals on page 264 acquired the property. Dur ing th is t ime, the property was owned by any of the above persons on page 264 or a fami ly- farm partnership or corporat ion.

We wi l l consider real or e l ig ib le capi ta l property to be used to carry on a farming business in Canada i f you meet the fo l lowing condi t ions:

• throughout the 24 months before the sale, you, your spouse or common- law partner , any of your ch i ldren or parents, a personal t rust f rom which one of these persons acquired the property, or a fami ly- farm partnership ( in which any of these persons has an interest) must have owned the property; and

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• you meet one o f the fo l lowing two condi t ions:

– the property or the property i t replaced was mainly used in a farming business in Canada in which any of the above persons on page 264 was act ive ly engaged on a regular and ongoing basis. Also, in any 24 months of ownership, the person's gross income f rom the farming business was larger than the person's income f rom al l o ther sources in the year; or

– a fami ly- farm partnership or corporat ion used the property for at least 24 months, to carry on a farming business in Canada. Also, dur ing th is t ime, you, your spouse or common- law partner , any of your chi ldren, or your parents must have been act ive ly engaged on a regular and ongoing basis in the farming business.

Transfer of farm property to a child You may be able to t ransfer Canadian farm property to your chi ld . When you do th is , you can postpone tax on any taxable capi ta l gain and any recapture of capi ta l cost a l lowance unt i l the chi ld sel ls the property. To do th is , both o f these condi t ions have to be met:

• your chi ld is a res ident of Canada just before the t ransfer ; and

– 267 –

• the farm property was, land in Canada, or depreciable property in Canada of a prescr ibed c lass, or e l ig ib le capi ta l property in respect of a farming business carr ied on in Canada, and has been used in a farming business in which you, your spouse or common- law partner , or any of your chi ldren were act ive ly engaged on a regular and ongoing basis before the t ransfer .

Your children inc lude:

• your natura l ch i ld , your adopted chi ld , or your spouse's or common- law partner 's chi ld ;

• your grandchi ld or great-grandchi ld;

• your chi ld 's spouse or common- law partner ; or

• another person who is whol ly dependent on you for support and who is , or was immediate ly before the age of 19, in your custody and under your contro l .

The fo l lowing types of property qual i fy for th is t ransfer :

• farmland;

• depreciable property, inc luding bui ld ings; or

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• e l ig ib le capi ta l property.

Fur thermore, a share of the capi ta l s tock of a fami ly- farm corporat ion and an interest in a fami ly- farm partnership a lso qual i fy for th is t ransfer i f your chi ld is a res ident of Canada just before the t ransfer .

For most property, the t ransfer pr ice can be any amount between the adjusted cost base (ACB) and i ts fa i r market value (FMV). For depreciable property, the t ransfer pr ice can be any amount between i ts undepreciated capi ta l cost (UCC) and FMV. For e l ig ib le capi ta l property , the t ransfer pr ice can be any amount between:

• i ts FMV; and

• 4/3 × your cumulat ive e l ig ib le capi ta l property f rom the farming business

× FMV of the property

FMV of a l l your e l ig ib le capi ta l property f rom the farming business

Example Wade wants to t ransfer these farm propert ies to Vicky, h is 19-year-o ld daughter .

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Land ACB $ 85,000

FMV at the t ime of t ransfer $ 100,000

Combine FMV $ 9,000

UCC at the t ime of t ransfer $ 7,840

Therefore, Wade can t ransfer :

• the land at any amount between $85,000 (ACB) and $100,000 (FMV); and

• the combine at any amount between $7,840 (UCC) and $9,000 (FMV).

I f Wade chooses to t ransfer the land at i ts ACB and the combine at i ts UCC, he postpones any taxable capi ta l gain and any recapture of CCA. Also, i f he does th is , we cons ider that Vicky acquires the land at $85,000 and the combine at $7,840. When Vicky d isposes of the

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land and the combine, she inc ludes in her income any taxable capi ta l gain and recapture that Wade postpones.

For more informat ion about t ransfers of e l ig ib le capi ta l property, see Interpretat ion Bul let in IT-268, INTER VIVOS TRANSFER OF FARM PROPERTY TO CHILD, and i ts Specia l Release.

Transfer of farm property to a chi ld i f a parent dies in the year

We al low a tax- f ree t ransfer of a deceased taxpayer 's Canadian farm property to a chi ld i f al l o f these condi t ions are met:

• the chi ld was res ident in Canada just before the parent 's death.

• the property was used in a farming business on a regular and ongoing basis by the deceased, the deceased's spouse or common- law partner , or any of the chi ldren before the parent 's death; and

• the property was t ransferred to the chi ld no later than 36 months af ter the parent 's death. In some cases, we may al low the t ransfer even i f i t took p lace later than 36 months af ter the parent 's death.

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The fo l lowing types of farm proper ty qual i fy for th is t ransfer :

• land and bui ld ings, or other depreciable property used in a farming business;

• e l ig ib le capi ta l property re lated to a farming business; and

• a share of the capi ta l s tock of a fami ly- farm corporat ion, and an interest in a fami ly- farm partnership.

For most property, the t ransfer pr ice can be any amount between the ACB and i ts FMV.

For depreciable property, the t ransfer pr ice can be an amount between the property 's FMV and a specia l amount . For more informat ion, see Chapter 4, "Deemed Disposi t ion of Property , " in Guide T4011, PREPARING RETURNS FOR DECEASED PERSONS.

The deceased's legal representat ive wi l l choose the amount in the year of death. We consider the chi ld to acquire these propert ies at the amount chosen.

Simi lar ru les apply for property that a deceased person leased to the fami ly- farm corporat ion or par tnership.

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For e l ig ib le capi ta l property, the t ransfer amount is equal to 4/3 of the cumulat ive e l ig ib le capi ta l property at that t ime. See "El ig ib le capi ta l property of a deceased taxpayer," on page 241 [46] .

I f a chi ld gets a farm f rom a parent and the chi ld la ter d ies, the property can be t ransferred to the surv iv ing parent based on the same ru les.

Shares or other property of a fami ly- farm hold ing corporat ion can a lso be t ransferred, based on the same ru les, f rom a spouse or common- law partner t rust to a chi ld of the set t lor . The set t lor is the person who sets up a t rust , or the person who t ransfers property to a t rust .

For more informat ion on these t ransfers, see Interpretat ion Bul let in IT-349, INTERGENERATIONAL TRANSFERS OF FARM PROPERTY ON DEATH.

– 273 –

Transfer of farm property to a spouse or common-law partner A farmer can t ransfer farm proper ty to a spouse or common- law partner or to a spousal or common- law partner t rust dur ing the farmer 's l i fe t ime. At the t ime of the t ransfer , the farmer can postpone any taxable capi ta l gain or recapture of CCA.

I f the spouse or common- law partner la ter d isposes of the property, the farmer, not the spouse or common- law partner , general ly has to report any taxable capi ta l gain. This ru le appl ies to t ransfers made af ter 1971 where the farmer is l iv ing at the t ime the spouse or common- law partner sel ls the property . However, there are except ions to th is ru le. For more informat ion, see Interpretat ion Bul let in IT-511, INTERSPOUSAL AND CERTAIN OTHER TRANSFERS AND LOANS OF PROPERTY.

A t ransfer of farm property can a lso occur af ter the farmer d ies. For more informat ion, see Chapter 4, "Deemed Disposi t ion of Property" in Guide T4011.

– 274 –

The ro l lover provis ions avai lable for farm property are now extended to land and depreciable property used pr inc ipal ly in a woodlot farming business. They wi l l apply where the deceased, the deceased's spouse or common- law partner , or any of the deceased's chi ldren was engaged in the woodlot operat ion as required by a prescribed forest management plan in respect of the woodlot . These provis ions apply to t ransfers of property that occur af ter December 10, 2001.

Other special rules You may also be able to postpone paying tax on capi ta l gains in the fo l lowing s i tuat ions.

Reserves

When you d ispose of a capi ta l property, you usual ly receive fu l l payment at that t ime. However, somet imes you receive the amount over a number of years. General ly , a reserve a l lows you to defer report ing par t of the capi ta l gain to the year in which you receive the proceeds.

– 275 –

For example, you may sel l a capi ta l property for $50,000 and receive $10,000 at the t ime of the sale. You receive the remaining $40,000 over four years. In th is s i tuat ion, you can c la im a reserve. However, there is a l imi t to the number of years you can do th is .

For more informat ion on reserves, see Guide T4037, CAPITAL GAINS, and Form T2017, SUMMARY OF RESERVES ON DISPOSIT IONS OF CAPITAL PROPERTY.

Exchanges or expropriat ions of property

There are specia l ru les that apply when you d ispose of a property and replace i t wi th a s imi lar one, or when someone expropr iates your property. For more informat ion, see interpretat ion bul le t ins IT-259, EXCHANGES OF PROPERTY and IT-491, FORMER BUSINESS PROPERTY, and i ts Specia l Release.

– 276 –

Capital cost allowance (CCA) rates Below you wi l l f ind the more common depreciable propert ies that a farming business may use. The CCA rates appear at the end of the l is t . For more information on Classes 13, 14, 34, and 43.1, and Part XVII of the Income Tax Act, cal l us at 1-800-959-5525.

Depreciable property Class No.

Aircraf t – Acquired before May 26, 1976 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Aircraf t – Acquired af ter May 25, 1976 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Bee equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Boats and component par ts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Breakwaters

Cement or s tone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Brooders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

– 277 –

Depreciable property Class No.

Bui ld ings and component par ts

Wood, galvanized, or por table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Other:

Acquired af ter 1978 and before 1988* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Acquired af ter 1987. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Fru i t and vegetable storage (af ter Feb. 19, 1973) . . . . . . . . . . . . . . . . . . . . . . . . 8

Casing, cr ibwork for water wel ls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Chain-saws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Cleaners – gra in or seed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Combines

Drawn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Sel f -propel led . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

– 278 –

Depreciable property Class No.

Computer equipment and systems sof tware

Acquired before 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Acquired af ter March 22, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Acquired af ter January 27, 2009 and before February 2011 . . . . . . . . . 52

Computer sof tware (other than systems sof tware) . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Coolers – Mi lk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Cream separators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Cul t ivators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Dams

Cement, s tone, wood, or ear th . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Data network inf rastructure equipment – Acquired af ter March 22, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Diggers – Al l types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

– 279 –

Depreciable property Class No.

Discs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Docks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Dr i l ls – Al l types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Dugouts, d ikes, and lagoons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Electr ic-generat ing equipment – por table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Electr ic motors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Elevators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Engines – Stat ionary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Fences – Al l types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Forage harvesters

Drawn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Sel f -propel led . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Graders – Frui t or vegetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

– 280 –

Depreciable property Class No.

Grain-dry ing equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Grain loaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Grain separators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Grain-storage bui ld ing

Wood, galvanized steel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Greenhouses (a l l except as noted below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Greenhouses of r ig id f rames covered wi th replaceable f lex ib le p last ic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Gr inder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Harness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Harrows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

– 281 –

Depreciable property Class No.

Hay balers and stookers

Drawn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Sel f -propel led . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Hay loaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Ice machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Incubators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

I r r igat ion equipment – Overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

I r r igat ion ponds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Leasehold interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Manure spreaders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Mi lk ing machines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Mixers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Mowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

– 282 –

Depreciable property Class No.

Nets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Of f ice equipment inc luding photocopiers, fax machines . . . . . . . . . . . . . . . . . . . 8

Outboard motors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Passenger vehic les (see Chapter 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 or 10.1

Pip ing – Permanent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Planters – Al l types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Ploughs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Pumps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Rakes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Roads or other sur face areas – Paved or concrete . . . . . . . . . . . . . . . . . . . . . . . . 17

Si lo f i l lers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Si los . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

– 283 –

Depreciable property Class No.

Sleighs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Sprayers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Stable c leaners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Sta lk cut ters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Swathers

Drawn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Sel f -propel led . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Threshers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

T i le or concrete dra inage system – Acquired before 1965 . . . . . . . . . . . . . . 13

Ti l lers – Al l types . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Tools (see "Class 12," on page 198 [37] for proposed changes)

Less than $500 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

$500 and more . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

– 284 –

Depreciable property Class No.

Tractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Trai lers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Trucks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Trucks ( f re ight) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Wagons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Water towers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Weeders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Welding equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Wel l equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Wharves

Cement, s teel , or s tone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Wood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Wind chargers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

– 285 –

Depreciable property Class No.

Wind-energy convers ion equipment

Acquired before February 22, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Acquired af ter February 21, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.1

(Note: Class 43.1 can be used for other than wind energy.)

* You may add to or a l ter a Class 3 bui ld ing af ter 1987. In th is case, there is a l imi t on the amount that you can inc lude in Class 3. The most that you can inc lude in Class 3 is the lower of $500,000 or 25% of the bui ld ing 's cost on December 31, 1987. In Class 1, inc lude any costs that you incur that are over th is l imi t .

Rates Rates Rates

Class 1 4% Class 7 15% Class 10.1 30%

Class 2 6% Class 8 20% Class 12 100%

Class 3 5% Class 9 25% Class 16 40%

Class 6 10% Class 10 30% Class 17 8%

– 286 –

Rates Rates Rates

Class 45 45% Class 46 30% Class 52 100%

How to calculate the mandatory inventory adjustment (MIA)

For inst ruct ions on how to complete the fo l lowing charts , see page 140 [27] in Chapter 2.

Chart 1 Cash cost of purchased inventory

Enter the amount that you paid by the end of the 2011 f iscal per iod for the speci f ied animals that you bought :

Fiscal period Cash cost

• in your 2011 f iscal per iod $ 1

• in your 2010 f iscal per iod $ 2

– 287 –

Fiscal period Cash cost

• in your 2009 f iscal per iod $ 3

• in your 2008 f iscal per iod $ 4

• before your 2008 f iscal per iod $ 5

Enter the amount that you paid by the end of your 2010 f iscal per iod for a l l o ther inventory that you bought :

• in your 2011 f iscal per iod $ 6

• in your 2010 f iscal per iod $ 7

• in your 2009 f iscal per iod $ 8

• in your 2008 f iscal per iod $ 9

• before your 2008 f iscal per iod $ 10

– 288 –

Chart 2 Value of purchased inventory for specif ied animals

Inventory bought in your 2011 f iscal period Enter an amount that is not more than the amount on l ine 1, but not less than 70% of th is amount . $

11

Inventory bought in your 2010 f iscal period Enter an amount that is not more than the amount on l ine 2, but not less than 70% of the tota l of the value at the end of your 2010 f iscal per iod plus any amounts that you paid in your 2011 f iscal per iod toward the purchase pr ice. $

12

Inventory bought in your 2009 f iscal period Enter an amount that is not more than the amount on l ine 3, but not less than 70% of the tota l of the value at the end of your 2010 f iscal per iod plus any amounts that you paid in your 2011 f iscal per iod toward the purchase pr ice. $

13

– 289 –

Inventory bought in your 2008 f iscal period Enter an amount that is not more than the amount on l ine 4, but not less than 70% of the tota l of the value at the end of your 2010 f iscal per iod plus any amounts that you paid in your 2011 f iscal per iod toward the purchase pr ice. $

14

Inventory bought before your 2008 f iscal period Enter an amount that is not more than the amount on l ine 5, but not less than 70% of the tota l of the value at the end of your 2010 f iscal per iod plus any amounts that you paid in your 2011 f iscal per iod toward the purchase pr ice. $

15

Chart 3 Value of purchased inventory for al l other inventory

Inventory bought in your 2011 f iscal period Enter the amount on l ine 6 or the fa i r market value, whichever is less. $

16

– 290 –

Inventory bought in your 2010 f iscal period Enter the amount on l ine 7 or the fa i r market value, whichever is less. $

17

Inventory bought in your 2009 f iscal period Enter the amount on l ine 8 or the fa i r market value, whichever is less. $

18

Inventory bought in your 2008 f iscal period Enter the amount on l ine 9 or the fa i r market value, whichever is less. $

19

Inventory bought before your 2008 f iscal period Enter the amount on l ine 10 or the fa i r market value, whichever is less. $

20

Chart 4 Calculat ion of MIA

Enter the amount of your net loss f rom l ine 9899 of Form T2042. $

21

– 291 –

Enter the value of your inventory f rom Chart 2 and Chart 3:

• the amount on l ine 11 $

• the amount on l ine 12 $

• the amount on l ine 13 $

• the amount on l ine 14 $

• the amount on l ine 15 $

• the amount on l ine 16 $

• the amount on l ine 17 $

• the amount on l ine 18 $

• the amount on l ine 19 $

• the amount on l ine 20 $

Total value of inventory $ $ 22

– 292 –

MIA – enter the amount on l ine 21 or l ine 22, whichever is less. $

23

GST/HST Farm goods and serv ices subject to GST or HST inc lude:

• crop dust ing;

• contract work, inc luding f ie ld c lear ing, t i l l ing, and harvest ing done by one farmer on behal f of another ;

• road-c lear ing serv ices;

• s tud or ar t i f ic ia l inseminat ion serv ices;

• s tor ing goods ( for example, s tor ing gra in in a gra in e levator) ;

• beeswax;

• maple sugar candy;

• canary seed, lawn seed, and f lower seed;

– 293 –

• bedding p lants, sod, cut f lowers, l iv ing t rees, and f i rewood;

• furs, animal h ides, and dead animals not sui table for human consumpt ion;

• fer t i l izer in bulk quant i t ies of less than 500 k i lograms, or any quant i t ies of soi l or soi l mixture whether or not they conta in fer t i l izer ;

• gravel , s tones, rock, soi l , and soi l addi t ives;

• l ivestock or poul t ry not normal ly ra ised as food or to produce food for human consumpt ion ( for example, horses, mules, and mink) ; and

• processed wool , feathers, and down.

Many farm products and purchases are taxable but at 0%. We refer to these as zero-rated goods. You do not pay GST/HST when you buy these products and you do not charge GST/HST when you sel l them to your customers.

Zero-rated farm products are:

• f ru i t and vegetables;

– 294 –

• gra ins or seeds in thei r natura l s tate, t reated for seeding purposes or i r radiated for s torage purposes, and hay or s i lage, or other fodder crops, when they are sold in quant i t ies larger than ord inar i ly of fered for sale to consumers, except gra ins and seeds packaged, prepared and sold to use as feed for wi ld b i rds or pet food;

• feed sold by a feedlot operator , as long as the pr ice is separate ly ident i f ied on the invoice or wr i t ten agreement;

• hops, bar ley, f lax seed, s t raw, sugar cane, or sugar beets;

• l ivestock such as cat t le , hogs, poul t ry , bees or sheep that are ra ised or kept to produce food, or to be used as food, for human consumpt ion, or to produce wool ;

• poul t ry or f ish eggs that are produced for hatching;

• rabbi ts , except those suppl ied by a person in the course of a business in the course of which the person regular ly suppl ies animals as pets to consumers;

• fer t i l izer sold in indiv idual bags of at least 25 kg when the tota l quant i ty is at least 500 kg;

• wool that is not fur ther processed than washed; and

– 295 –

• tobacco leaves that are not fur ther processed than dr ied and sor ted.

Zero-rated farm purchases are:

• t ractors designed for farm use that have a rat ing of at least 44.74 kW at power takeof f (60 PTO horsepower) ;

• pul l and sel f -propel led combines, swathers, and wind-rowers;

• headers for combines, forage harvesters, swathers or wind-rowers;

• combine or forage harvester p ickups;

• forage harvesters, and sel f -propel led, t ractor-mounted, or pul l - type mechanical f ru i t or vegetable p ickers or harvesters;

• mould board and d isc p loughs (3 or more furrows), and chisel p loughs and subsoi l ch isels (at least 8 feet or 2.44 metres) ;

• d iscers, rod weeders, or bean rods (at least 8 feet or 2.44 metres) ;

• f ie ld and row crop cul t ivators (at least 8 feet or 2.44 metres) ;

• combinat ion d iscer-cul t ivators (at least 8 feet or 2.44 metres) ;

– 296 –

• rotot i l lers and rotavators (at least 6 feet or 1.83 metres) ;

• harrows sold in complete uni ts and pulver izers (at least 8 feet or 2.44 metres) ;

• land packers, mulchers, and rotary hoes (at least 8 feet or 2.44 metres) ;

• a i r f low seeders, gra in and seed dr i l ls (at least 8 feet or 2.44 metres) , and farm-type row-crop or toolbar seeders or p lanters designed to seed two or more rows at a t ime;

• mower condi t ioners, hay balers, hay cubers, hay rakes, hay condi t ioners, hay crushers, hay cr impers, hay tedders, swath turners, and wind-row turners;

• bale throwers, e levators, or conveyors, s i lage baggers, and round bale wrapping machines;

• gra in b ins or tanks wi th capaci ty of 181 m3 or less (5,000 bushels) ;

• t ransportable gra in augers wi th bel ts less than 76.2 cm (30 inches) wide and 0.48 cm (3/16 inch) th ick, t ransportable farm grain augers, t ransportable ut i l i ty augers and t ransportable e levators;

– 297 –

• b in sweep or c leaner at tachments for por table gra in augers;

• t ractor-powered pneumat ic gra in conveyors;

• feed mi l ls , inc luding ro l ler mi l ls and hammer mi l ls ;

• feed mixers, gr inders, gr inder mixers, and tub gr inders;

• ensi lage mixers and sel f -propel led feed or ensi lage car ts ;

• gra in toasters to use in l ivestock feed product ion;

• gra in dryers;

• assembled and fu l ly operat ional mi lk ing systems or indiv idual components of these systems;

• automated and computer ized farm l ivestock or poul t ry feeding systems, or indiv idual components of these systems;

• se l f -propel led, t ractor-mounted, or pul l - type agr icu l tura l wagons or t ra i lers designed for of f - road handl ing and t ransport ing of gra in, forage, l ivestock feed, or fer t i l izer , and to be used at speeds not exceeding 40 km per hour;

– 298 –

• mechanical rock or s tone p ickers, rock or root rakes, and rock or root wind-rowers, forage blowers, s i lo un loaders, and shredders wi th an operat ional width of at least 3.66 m or 12 feet ;

• t ractor-mounted, sel f -propel led, or pul l - type f ie ld sprayers wi th tank capaci t ies of at least 300 l i t res or 66 gal lons;

• granular fer t i l izer or pest ic ide appl icators wi th operat ional capaci ty of at least 0.2265 m3 or 8 cubic feet ;

• l iqu id box, tank, or f la i l manure spreaders, and in ject ion systems for l iqu id manure spreaders;

• leaf-cut ter bees;

• complete feeds, supplements, micro-premixes, macro-premixes, and mineral feeds other than t race mineral sa l t feeds, label led in accordance wi th the FEEDS REGULATIONS, 1983 and designed for rabbi ts or a speci f ic type of farm l ivestock, f ish, or poul t ry ord inar i ly ra ised or kept for human consumpt ion or to produce wool , and sold in 20 kg or more bulk quant i t ies or bags that conta in at least 20 kg;

• feed sold in 20 kg or more bulk quant i t ies or bags that conta in at least 20 kg designed for ostr iches, rheas, emus, or bees;

– 299 –

• farm bulk mi lk coolers;

• food processing by-products sold in 20 kg or more bulk quant i t ies or bags that conta in at least 20 kg used as feed or as ingredients in feed for farm l ivestock, f ish, or poul try that is ord inar i ly ra ised or kept for human consumpt ion or to produce wool , or for rabbi ts , ostr iches, rheas, emus, or bees;

• pest ic ides having a purpose that inc ludes agr icul tura l use and having a product c lass of other than domest ic label led in accordance wi th the PEST CONTROL PRODUCTS REGULATIONS;

• sa les of quotas between farmers for zero-rated products ( inc luding dai ry , turkey, chicken, eggs, and tobacco leaves) ; and

• farmland rented to a regist rant under a sharecropping arrangement to the extent that considerat ion for the supply is a share of the product ion that is zero-rated is par t of the pr ice (any other extra payments are taxable) .

GST/HST regist rants can c la im an input tax credit for the GST/HST that they paid or owe for expenses used to provide taxable goods and serv ices at the rates of 0%, 5%, 12%, 13% and 15%.

– 300 –

A l imi ted number of goods and serv ices that you purchase are exempt f rom GST/HST. Because you do not pay GST/HST on these goods and serv ices, there is no input tax credi t to c la im.

Examples of exempt goods and serv ices inc lude:

• insurance serv ices sold by insurance companies, agents, or brokers;

• most serv ices provided by f inancia l inst i tu t ions, such as arranging loans or mortgages; and

• most heal th, medical , and denta l serv ices.

El ig ib le regist rants can f i le thei r GST/HST returns onl ine, by us ing GST/HST NETFILE or the Fi le a return serv ice in My Business Account . For in format ion about GST/HST, go to www.cra.gc.ca/gsthst. To v iew your GST/HST account in format ion onl ine, make onl ine requests, t ransfer payments, or use the insta lment calculator serv ice in My Business Account , go to www.cra.gc.ca/mybusinessaccount.

– 301 –

For more information What if you need help? I f you need help af ter reading th is publ icat ion, v is i t www.cra.gc.ca or ca l l 1-800-959-5525.

Forms and publications To get any forms or publ icat ions, go to www.cra.gc.ca/forms or ca l l 1-800-959-2221.

My Account My Account is a secure, convenient , and t ime-saving way to access and manage your tax and benef i t in format ion onl ine, seven days a week! I f you are not registered wi th My Account but need informat ion r ight away, use Quick Access to get fast , easy, and secure access to some of your in format ion. For more informat ion, go to www.cra.gc.ca/myaccount or see Pamphlet RC4059, MY ACCOUNT FOR INDIV IDUALS.

– 302 –

My Business Account My Business Account is a secure and convenient way to access and manage your business accounts onl ine.

You can:

• v iew your account balance and t ransact ions

• request addi t ional remit tance vouchers

• f i le your return and v iew i ts s tatus

• ca lculate your insta lment payments

• v iew not ices, le t ters, and statements

• v iew address and banking informat ion

• t ransfer payments and immediate ly v iew an updated balance

Quick. Easy. Secure. For more informat ion, go to www.cra.gc.ca/mybusinessaccount.

– 303 –

Represent a Client Author ized representat ives can v iew account in format ion and t ransact onl ine for thei r business c l ients through the Represent a Cl ient serv ice. Business owners can author ize thei r representat ives through My Business Account , or wi th Form RC59, BUSINESS CONSENT FORM. For more informat ion, go to www.cra.gc.ca/representat ives.

Electronic payments Make your payment onl ine using the CRA's My Payment serv ice at www.cra.gc.ca/mypayment or us ing your f inancia l inst i tu t ion 's te lephone/ Internet banking serv ices. For more informat ion, go to www.cra.gc.ca/electronicpayments or contact your f inancia l inst i tu t ion.

Tax Information Phone Service (TIPS) For personal and general tax in format ion by te lephone, use our automated serv ice, TIPS, by cal l ing 1-800-267-6999.

– 304 –

Teletypewriter users TTY users can cal l 1-800-665-0354 for b i l ingual assistance dur ing regular business hours.

Our service complaint process I f you are not sat is f ied wi th the service that you have received, p lease contact the CRA employee you have been deal ing wi th or cal l the te lephone number that you have been given. I f you are not p leased wi th the way your concerns are addressed, you can ask to d iscuss the matter wi th the employee's superv isor .

I f the matter is not set t led, you can then f i le a serv ice complaint by complet ing Form RC193, SERVICE-RELATED COMPLAINT. I f you are st i l l not sat is f ied, you can f i le a complaint wi th the Off ice of the Taxpayers ' Ombudsman.

For more informat ion, go to www.cra.gc.ca/complaints or see Booklet RC4420, INFORMATION ON CRA – SERVICE COMPLAINTS.

– 305 –

Your opinion counts I f you have any comments or suggest ions that could help us improve our publ icat ions, we would l ike to hear f rom you. Please send your comments to:

Taxpayer Serv ices Directorate Canada Revenue Agency 750 Heron Road Ottawa ON K1A 0L5

– 306 –

Index Page

Accrual method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 [7]

Al lowance on e l ig ib le capi ta l property – L ine 9935 . . . . . . . . . . . . . . . . . 138 [27]

B reeding animals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 [13]

Bui ld ing and fence repairs – L ine 9795 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 [18]

Business l iab i l i t ies (Tota l ) – L ine 9931 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161 [31]

Business use of a motor vehic le . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 [22]

Business-use-of-home expenses – L ine 9945 . . . . . . . . . . . . . . . . . . . . . . . . 158 [30]

Calculat ing capi ta l cost a l lowances (CCA) – Area E on Form T2042

Adjustment for current-year addi t ions – Column 6 . . . . . . . . . . . . . . 182 [35]

Base amount for CCA – Column 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 [35]

CCA for the year – Column 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 [35]

– 307 –

Page

Class number – Column 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170 [32]

Cost of addi t ions in the year – Column 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 [33]

Proceeds of d isposi t ions in the year – Column 4 . . . . . . . . . . . . . . . . 176 [33]

Rate (%) – Column 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 [35]

UCC af ter addi t ions and d isposi t ions – Column 5 . . . . . . . . . . . . . . . 180 [34]

UCC at the end of the year – Column 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . 186 [35]

Undepreciated capi ta l cost (UCC) at the star t of the year – Column 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 [32]

Capi ta l contr ibut ions in 2011 – L ine 9933 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 [31]

Capi ta l cost a l lowance (CCA) – L ine 9936 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 [27]

Cash method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 [7]

Changing your method of report ing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 [7]

Clear ing, level l ing and drain ing land – L ine 9796 . . . . . . . . . . . . . . . . . . . . . 90 [19]

– 308 –

Page

Containers and twine – L ine 9661 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 [18]

Crop insurance – L ine 9542 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 [15]

Crop insurance – L ine 9797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 [19]

Custom or contract work, and machine renta ls –

L ine 9601 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 [15]

Custom or contract work, and machinery renta ls –

L ine 9798 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 [19]

Dairy subsid ies – L ine 9541 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 [15]

Destroy ing l ivestock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 [15]

Drawings in 2011 – L ine 9932 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 [31]

Eggs – L ine 9477 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 [14]

Electr ic i ty – L ine 9799 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 [19]

El ig ib le d isabi l i ty- re lated modi f icat ions made to a bui ld ing . . . . . 123 [24]

– 309 –

Page

Feed, supplements, s t raw and bedding – L ine 9711 . . . . . . . . . . . . . . . . . 88 [18]

Fer t i l izers and l ime – L ine 9662 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 [18]

F iscal per iod . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 [6]

Forage crops or seeds – L ine 9426 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 [13]

Gasol ine, d iesel fuel and o i l – L ine 9764 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 [18]

Greenhouse and nursery products – L ine 9425 . . . . . . . . . . . . . . . . . . . . . . . . 58 [13]

Gross income – L ine 9659 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 [16]

GST/HST rebate for par tners received in the year –

L ine 9974 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 [30]

Heat ing fuel – L ine 9802 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 [19]

Improving land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 [19]

Industry code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 [12]

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Insurance – L ine 9804 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 [20]

Insurance proceeds – L ine 9604 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 [15]

Insurance program overpayment recapture – L ine 9803 . . . . . . . . . . . . 96 [20]

Interest – L ine 9805 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 [20]

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 [33]

Legal and account ing fees – L ine 9809 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 [20]

L ivestock purchased – L ine 9712 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 [18]

L ivestock sold – L ines 9471 to 9474 ( inc lus ive) . . . . . . . . . . . . . . . . . . . . . . . 59 [13]

Mandatory inventory adjustment inc luded in 2010 –

L ine 9937 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 [24]

Mandatory inventory adjustment inc luded in 2011 –

L ine 9942 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 [27]

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Milk and cream (not inc lud ing dai ry subsid ies) –

L ine 9476 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 [14]

More than one vehic le . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 [22]

Motor vehic le expenses (not inc luding CCA) – L ine 9819 . . . . . . . . 104 [21]

Net income ( loss) before adjustments – L ine 9899 . . . . . . . . . . . . . . . . . 139 [27]

Net income ( loss) (Your) – L ine 9946 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 [31]

O f f ice expenses – L ine 9808 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 [20]

Opt ional inventory adjustment inc luded in 2010 –

L ine 9938 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 [24]

Opt ional inventory adjustment inc luded in 2011 –

L ine 9941 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 [27]

Other amounts deduct ib le f rom your share of net par tnership income ( loss) – L ine 9943 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 [30]

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Other animal specia l t ies – L ine 9470 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 [13]

Other commodi t ies – L ine 9520 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 [14]

Other crops – L ine 9420 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 [13]

Other expenses – L ine 9790 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 [24]

Other income – L ine 9600 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 [16]

Other payments – L ine 9540 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 [15]

Patronage div idends – L ine 9605 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 [15]

Payment in k ind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 [16]

Pest ic ides (herbic ides, insect ic ides, fungic ides) –

L ine 9663 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 [18]

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 [18]

Premiums to a Pr ivate Heal th Serv ices Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 126 [25]

Prescr ibed drought region (PDR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 [13]

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Program payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66, 69 [14, 15]

Property taxes – L ine 9810 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 [20]

Rebates – L ine 9570 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 [15]

Recapture of capi ta l cost a l lowance (CCA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 [34]

Rent ( land, bui ld ings, and pasture) – L ine 9811 . . . . . . . . . . . . . . . . . . . . . 100 [20]

Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 [16]

Repairs, l icenses, and insurance – L ine 9760 . . . . . . . . . . . . . . . . . . . . . . . . . . 89 [18]

Salar ies, wages, and benef i ts ( inc luding employer 's contr ibut ions) – L ine 9814 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 [20]

Seeds and p lants – L ine 9664 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 [18]

Smal l tools – L ine 9820 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 [24]

Terminal loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 [34]

Tota l farm expenses – L ine 9898 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 [27]

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Valu ing your purchased inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 [28]

Veter inary fees, machine, and breeding fees – L ine 9713 . . . . . . . . . 88 [18]