Restricted farm losses (partly deductible)

The Canada Revenue Agency says...

You may have run your farm as a business. For your farm to be considered a business you must have carried on activities with the intention of making a profit and there must be evidence to support that intention.

However, if farming was not your chief source of income (for example, you did not rely on farming alone to make your living), you may be able to deduct only part of your net farm loss.

Each year you have a farm loss, check your situation carefully to see if farming was your chief source of income. It is important to do this, since a farming loss may be restricted in one year, but not in another year.

How to calculate your restricted farm loss

How to calculate your restricted farm loss

If 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 from your other income. The rest of your net farm loss is your restricted farm loss.

When your net farm loss is less than $15,000, the amount you can deduct from your other income is the lesser of:
A) your net farm loss for the year; or
$2,500 plus 50% × (your net farm loss minus $2,500).
The amount remaining is your restricted farm loss.
Note: When the farm loss you deduct is different from your actual farm loss because of the restricted farm loss calculation, you should indicate this on your income tax return on the line 168, "Farming income." For example, you can do this by noting "restricted farm loss," "RFL," or "Section 31" to the left of line 168.

Example

Example

Sharon ran a cattle farm with the intention of making a profit. However, farming was not her chief source of income in2010. In 2010, she had employment income and a net farm loss of $9,200, which she calculated on line 9946 of Form T2042.

The part of Sharon's net farm loss she can deduct from her other income in 2010 is either amount A or B, whichever is less:
A) $9,200; or

B) $2,500 plus 50% × ($9,200 - $2,500)

= $2,500 plus 50% × $6,700

= $2,500 + $3,350

= $5,850

Therefore, B = $5,850.

Because Sharon can only deduct either A or B, whichever amount is less, she enters $5,850 on line 141 of her income tax and benefit return and deducts this amount from her other income in 2010. Her restricted farm loss is the amount that remains, which is $3,350 ($9,200 minus $5,850). Sharon prints "Section 31" to the left of line 168 on her income tax and benefit return to show that the loss she is deducting is the result of a restricted farm loss calculation.

Applying your 2010 restricted farm loss

Applying your 2010 restricted farm loss

You can carry back your 2010 farm loss for up to 3 years. You can also carry it forward up to 20 years. The amount you deduct in any year cannot be more than your net farming income for that year. If you have no net farming income in any of those years, you cannot deduct any restricted farm loss.

If you choose to carry back your 2010 farm loss to your 2007, 2008, or 2009 income tax and benefit returns, complete Form T1A, Request for Loss Carryback, and file one copy of the form with your 2010 income tax and benefit return. Do not file an amended return for the year to which you apply the loss.

Applying your restricted farm losses from years before 2010

Applying your restricted farm losses from years before 2010

You may have net farming income in 2010. If so, you may be able to apply to your 2010 income tax and benefit return restricted farm losses you had in any year from 2000 to 2009. You can apply these losses as long as you did not already deduct them from your farming income. Also, you can only apply them up to the amount of your net farming income in 2010. You have to apply the loss from the earliest year first, before you apply the losses from other years. Claim this amount on line 252 of your income tax and benefit return.

You may have sold farmland at a time when you had restricted farm losses that you did not claim. When this happens, you may be able to reduce the amount of your capital gain from the sale. In this case, see "Restricted farm losses" in Capital gains rules for farmers.