Farm accountant for London, Ontario and Middlesex County

The rules behind all of this — cash method, inventory adjustments, quota and the rollover — are gathered in the farm and agriculture accounting hub.

The cash method, and the control it gives

Farming is one of the few businesses allowed to report income when cash is received and expenses when they are paid, rather than when they are earned or incurred. For a grain farm that means a bin of soybeans held over the winter is not income until it is sold, and fertilizer bought in December can be deducted in the year it was paid for. That creates real choices about when income lands, which is why year-end planning on a farm starts in the fall rather than at filing time. The method has to be applied consistently, and there are inventory adjustment rules that can apply when a cash-basis loss would otherwise result, so the flexibility has edges. Cash versus accrual explains the difference.

Crops, livestock and the Southwestern Ontario mix

Few farms around London do one thing. A cash-crop operation may also finish hogs, a dairy may grow its own feed and custom-work for neighbours, a vegetable grower may run a farm stand. Each enterprise has its own income, inputs and equipment, and the books should keep them apart so you can see which one carries the farm in a bad year. Custom work and rented land bring their own records: invoices for the work done, and rent paid or received on a written agreement. Settlement statements from the elevator or the processor are the source documents that matter most, and they go into the file as they arrive rather than in a pile in April.

HST: zero-rated sales, recoverable inputs

Most basic farm products — grain, livestock, milk, eggs, vegetables — are zero-rated. You charge no HST on the sale, but you are still making taxable supplies, so the 13% HST paid on fuel, repairs, parts, custom work and many services can be claimed back as input tax credits. The result is often a refund every period, which is why registering is usually worthwhile even for a smaller farm. Not everything a farm sells is zero-rated: firewood, custom work for others and some processed products are taxable, so each line is checked. Refund returns attract more CRA review, so the purchase records need to be complete. Zero-rated versus exempt sets out the difference.

Equipment, buildings and land

Tractors, combines, planters, grain bins, dryers and barns are all written off through capital cost allowance in their own classes, starting in the year they are available for use. Land is not depreciable at all, so the split between land and buildings on a purchase matters. Supply-managed dairy and poultry farms also hold quota, which is a capital asset with its own treatment when it is bought, sold or passed on. Trading in a combine is a disposal, and a large trade value can bring recapture in the year of the trade. Timing the purchase or the trade around year-end is part of the fall conversation.

Part-time farms and the restricted farm loss

A lot of land around London is farmed by people whose main income comes from somewhere else: a shift at a plant, a trade, a professional practice. Where farming is not your chief source of income, the restricted farm loss rules limit how much of a farm loss can be set against that other income, and the unused part carries forward to future farm profits. Whether the rule applies depends on how much time, capital and intention you put into the farm, and on whether it is set up to earn a profit. It is worth settling that question before buying the next piece of equipment on the assumption that the loss will be deductible.

Passing the farm to the next generation

For many Middlesex County families, the transfer of the farm to a son or daughter is the largest tax event the family will ever face. Two rules make it manageable. Qualified farm property can be eligible for the lifetime capital gains exemption when it is sold, and farmland, buildings and equipment used in the business can be transferred to a child under an intergenerational rollover that defers the tax. Both tests look back over years of ownership and use, so they are planned long before the transfer, with the family’s lawyer and lender involved. Farm succession and the rollover covers the mechanics.

What EverStone handles for you

One CPA and one fixed fee, agreed before work starts. See what it costs.

• Farm income on the cash method, with enterprise-level reporting
• HST returns and input tax credits on zero-rated sales
• Equipment, building and quota schedules
• T1 farm statements or the T2 for an incorporated farm
• Seasonal payroll and records of employment
• Succession and capital gains planning alongside your lawyer

Remote farm accounting from Abbotsford

EverStone is a sole practitioner CPA firm at 32615 South Fraser Way in Abbotsford, a farming city itself, serving farms around London, Ontario entirely online. There is no London office and no local staff. Meetings are held by video or phone after chores rather than during them, settlement statements and receipts arrive through a secure upload link, and no trip into town is needed at any point.