This article is going to serve as a reference point for future writings.
The first overview of the 2021 Canadian Census of Agriculture came out this month. Along with it came an interesting update. StatsCan updated its definition of a farm to a business "that produces agricultural products and reports revenues or expenses for tax purposes to the Canada Revenue Agency." Previously this was "an operation that produced at least one agricultural product intended for sale." This means they're applying the CRA's definition of a farm which is "farming activities undertaken in the pursuit of profit" and "carried out in a sufficiently commercial manner."
Most people have a mental image of a farm that depends on their culture, background and demographic. That image probably ranges from something resembling Old MacDonald’s farm to the Dutton family’s Yellowstone ranch to the big cropping outfits of the prairies. Somewhere in that range is what people consider a farm. This can lead to some entertaining conversations when we get into what a farm is for taxation purposes.
There are three main categories for needing to define a farm for taxation purposes:
Property tax rebates
Business/income taxes
Capital gains (qualified farm property)
They do overlap but each one is a bit different. The infamous $7,000 of gross revenue to qualify as a farm comes from property taxes. Business taxes defines what activities are considered agriculture and which are not. The last one, capital gains, is whether or not your farm is actually a qualified farm property. They all work together but each one has its own set of criteria. You can file a farm statement without having $7,000 of gross revenue. You can be a farm for property taxes, file a farm statement on your tax return and still fail to meet qualified farm property criteria.
Agricultural Activities
The first part of defining a farm business involves determining what activities are actually part of farming for taxation (and now statistics) purposes.
Under agricultural crops, there are grains, oilseeds, leguminous crops, potatoes, vegetables, fruits, berries, greenhouse products, mushrooms, sod, nursery products, Christmas trees, maple tree taps, hay and fodder crops, cannabis, hemp, and other crops.
Meanwhile, agricultural livestock production includes dairy and beef cattle (including feedlots), pigs, poultry and eggs (including hatcheries), turkeys, ducks, geese, sheep, goats, horses and other equines, bison (buffalo), elk (wapiti), deer, llamas and alpacas, rabbits, mink, bees, and other animals.
Notable Exclusions
While it is common knowledge that equine activities (horse boarding, riding lessons, and training) are not considered agriculture, there are a number of other exclusions including:
forestry and logging (with some exceptions for woodlots),
hunting and trapping,
fishing and aquaculture (again with some exceptions for aquaculture),
support activities for agriculture and post-harvest activities (i.e. custom operator outfits, elevators),
operations making products that are not for human consumption (i.e., genetic operations, insect farms for pet food, raising any livestock for pets)
manufacturing and processing unless it is necessary to sell the product
land rent and most sharecropping arrangements
Commercial Criteria
The key part of being a farm business is operating it with the intention of earning profit. Yes, there are all the jokes about farms and profit but technically speaking if you want to operate a farm business for taxation purposes and not as a homesteader, you will have to demonstrate commercial activity and an intent to profit (operate in a business-like manner). There are numerous factors that go into this including:
the gross revenue and income or losses generated by the farm in the past (if you are always in a loss, are you really trying to be profitable?)
the extent and type of activity compared to other farms in the same sector with similar size and location. To quote the CRA “if the size of the operation or property is too small to make a profit, the activity would not generally be considered to be carried out in a commercial or business-like manner.”
time spent on the farm compared to time spent in employment. If you are not farming full-time and operating in a loss, there’s a ‘restricted farm loss’ option on your personal tax return for this situation.
growth and expansion plans including capital invested.
Property Taxes vs Income Taxes vs Capital Gains
Keeping the above criteria in mind, and referring to the taxation mentioned at the start, there are some subtle differences. It is essentially a progression of the definition focusing on gross revenue.
Meeting the criteria to be a farm business for income taxes is fairly straightforward. If your farm meets the aforementioned criteria, and you have generated sales in a commercial manner, then you can file a farm business statement (T2042 or T1163).
Property tax rate reductions take that one step further and set minimums for the amount of gross revenue from agricultural activities you must generate to be considered a farm. This varies by province but it’s generally between $5,000 (Quebec) and a percentage of your property value (British Colombia).
If you ever want to sell your farm then you should be concerned about the last one, capital gains tax. Capital gains tax is expensive and as farmland prices increase, you definitely want to make sure you can use your lifetime capital gains exemption which hinges on your farm being qualified farm property. I will expand on this in a future article but in short, you need to farm for at least 24 months prior to the sale and you may need to pass a revenue test. If you have off-farm income, this revenue test can be hard to meet.
Wrap-up
In short, there’s a fairly detailed list of what is a farm and what is not a farm. It’s not based on Instagram photos, it is based on running a business. Statistics Canada will now be using a definition that matches across all areas of government.
Thanks for reading! If this was not your cup of tea, no worries, this was mainly published as a reference article for other articles that are in the editing stages. I had originally planned to include this information in those articles, however, it would make it really long and repetitive.