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Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Full Document:  

Act current to 2022-11-16 and last amended on 2022-10-18. Previous Versions

PART IIncome Tax (continued)

DIVISION BComputation of Income (continued)

SUBDIVISION BIncome or Loss from a Business or Property (continued)

Marginal note:Farming or fishing business

  •  (1) For the purpose of computing the income of a taxpayer for a taxation year from a farming or fishing business, the income from the business for that year may, if the taxpayer so elects, be computed in accordance with a method (in this section referred to as the “cash method”) whereby the income therefrom for that year shall be deemed to be an amount equal to the total of

    • (a) all amounts that

      • (i) were received in the year, or are deemed by this Act to have been received in the year, in the course of carrying on the business, and

      • (ii) were in payment of or on account of an amount that would, if the income from the business were not computed in accordance with the cash method, be included in computing income from the business for that or any other year,

    • (b) with respect to a farming business, such amount, if any, as is specified by the taxpayer in respect of the business in the taxpayer’s return of income under this Part for the year, not exceeding the amount, if any, by which

      • (i) the fair market value at the end of the year of inventory owned by the taxpayer in connection with the business at that time

      exceeds

      • (ii) the amount determined under paragraph 28(1)(c) for the year,

    • (c) with respect to a farming business, the amount, if any, that is the lesser of

      • (i) the taxpayer’s loss from the business for the year computed without reference to this paragraph and to paragraph 28(1)(b), and

      • (ii) the value of inventory purchased by the taxpayer that was owned by the taxpayer in connection with the business at the end of the year, and

    • (d) the total of all amounts each of which is an amount included in computing the taxpayer’s income for the year from the business because of subsection 13(1), 80(13) or 80.3(3) or (5),

    minus the total of

    • (e) all amounts, other than amounts described in section 30, that

      • (i) were paid in the year, or are deemed by this Act to have been paid in the year, in the course of carrying on the business,

      • (ii) in the case of amounts paid, or deemed by this Act to have been paid, for inventory, were in payment of or on account of an amount that would be deductible in computing the income from the business for the year or any other taxation year if that income were not computed in accordance with the cash method, and

      • (iii) in any other case, were in payment of or on account of an amount that would be deductible in computing the income from the business for a preceding taxation year, the year or the following taxation year if that income were not computed in accordance with the cash method,

    • (e.1) all amounts, other than amounts described in section 30, that

      • (i) would be deductible in computing the income from the business for the year if that income were not computed in accordance with the cash method,

      • (ii) are not deductible in computing the income from the business for any other taxation year, and

      • (iii) were paid in a preceding taxation year in the course of carrying on the business,

    • (f) the total of all amounts each of which is the amount, if any, included under paragraph 28(1)(b) or 28(1)(c) in computing the taxpayer’s income from the business for the immediately preceding taxation year, and

    • (g) the total of all amounts each of which is an amount deducted for the year under paragraph 20(1)(a) or (uu), subsection 20(16), section 30 or subsection 80.3(2) or (4) in respect of the business,

    except that paragraphs 28(1)(b) and 28(1)(c) do not apply in computing the income of the taxpayer for the taxation year in which the taxpayer dies.

  • Marginal note:Acquisition of inventory

    (1.1) Where at any time, and in circumstances where paragraph 69(1)(a) or 69(1)(c) applies, a taxpayer acquires inventory that is owned by the taxpayer in connection with a farming business the income from which is computed in accordance with the cash method, for the purposes of this section an amount equal to the cost to the taxpayer of the inventory shall be deemed

    • (a) to have been paid by the taxpayer at that time and in the course of carrying on that business, and

    • (b) to be the only amount so paid for the inventory by the taxpayer,

    and the taxpayer shall be deemed to have purchased the inventory at the time it was so acquired.

  • Marginal note:Valuation of inventory

    (1.2) For the purpose of paragraph 28(1)(c) and notwithstanding section 10, inventory of a taxpayer shall be valued at any time at the lesser of the total amount paid by the taxpayer at or before that time to acquire it (in this section referred to as its “cash cost”) and its fair market value, except that an animal (in this section referred to as a “specified animal”) that is a horse or, where the taxpayer has so elected in respect thereof for the taxation year that includes that time or for any preceding taxation year, is a bovine animal registered under the Animal Pedigree Act, shall be valued

    • (a) at any time in the taxation year in which it is acquired, at such amount as is designated by the taxpayer not exceeding its cash cost to the taxpayer and not less than 70% of its cash cost to the taxpayer; and

    • (b) at any time in a subsequent taxation year, at such amount as is designated by the taxpayer not exceeding its cash cost to the taxpayer and not less than 70% of the total of

      • (i) its value determined under this subsection at the end of the preceding taxation year, and

      • (ii) the total amount paid on account of the purchase price of the animal during the year.

  • Marginal note:Short fiscal period

    (1.3) For each taxation year that is less than 51 weeks, the reference in subsection 28(1.2) to “70” shall be read as a reference to the number determined by the formula

    100 - (30 × A/365)

    where

    A
    is the number of days in the taxation year.
  • Marginal note:Where joint farming or fishing business

    (2) Subsection 28(1) does not apply for the purpose of computing the income of a taxpayer for a taxation year from a farming or fishing business carried on by the taxpayer jointly with one or more other persons, unless each of the other persons by whom the business is jointly carried on has elected to have his or her income from the business for that year computed in accordance with the cash method.

  • Marginal note:Concurrence of Minister

    (3) Where a taxpayer has filed a return of income under this Part for a taxation year wherein the taxpayer’s income for that year from a farming or fishing business has been computed in accordance with the cash method, income from the business for each subsequent taxation year shall, subject to the other provisions of this Part, be computed in accordance with that method unless the taxpayer, with the concurrence of the Minister and on such terms and conditions as are specified by the Minister, adopts some other method.

  • Marginal note:Non-resident

    (4) Notwithstanding subsections 28(1) and 28(5), where at the end of a taxation year a taxpayer who carried on a business the income from which was computed in accordance with the cash method is non-resident and does not carry on that business in Canada, an amount equal to the total of all amounts each of which is the fair market value of an amount outstanding during the year as or on account of a debt owing to the taxpayer that arose in the course of carrying on the business and that would have been included in computing the taxpayer’s income for the year if the amount had been received by the taxpayer in the year, shall (to the extent that the amount was not otherwise included in computing the taxpayer’s income for the year or a preceding taxation year) be included in computing the taxpayer’s income from the business

    • (a) for the year, if the taxpayer was non-resident throughout the year; and

    • (b) for the part of the year throughout which the taxpayer was resident in Canada, if the taxpayer was resident in Canada at any time in the year.

  • (4.1) [Repealed, 2001, c. 17, s. 18]

  • Marginal note:Accounts receivable

    (5) There shall be included in computing the income of a taxpayer for a taxation year such part of an amount received by the taxpayer in the year, on or after disposing of or ceasing to carry on a business or a part of a business, for, on account or in lieu of payment of, or in satisfaction of debts owing to the taxpayer that arose in the course of carrying on the business as would have been included in computing the income of the taxpayer for the year had the amount so received been received by the taxpayer in the course of carrying on the business.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 28
  • 1994, c. 7, Sch. II, s. 18
  • 1995, c. 21, s. 7
  • 1998, c. 19, s. 83
  • 2001, c. 17, s. 18
  • 2013, c. 40, s. 13(E)
  • 2014, c. 39, s. 7
  • 2016, c. 12, s. 11

Marginal note:Disposition of animal of basic herd class

  •  (1) Where a taxpayer has a basic herd of a class of animals and disposes of an animal of that class in the course of carrying on a farming business in a taxation year, if the taxpayer so elects in the taxpayer’s return of income under this Part for the year the following rules apply:

    • (a) there shall be deducted in computing the taxpayer’s basic herd of that class at the end of the year such number as is designated by the taxpayer in the taxpayer’s election, not exceeding the least of

      • (i) the number of animals of that class so disposed of by the taxpayer in that year,

      • (ii) 1/10 of the taxpayer’s basic herd of that class on December 31, 1971, and

      • (iii) the taxpayer’s basic herd of that class of animal at the end of the immediately preceding taxation year; and

    • (b) there shall be deducted in computing the taxpayer’s income from the farming business for the taxation year the product obtained when

      • (i) the number determined under paragraph 29(1)(a) in respect of the taxpayer’s basic herd of that class for the year

      is multiplied by

      • (ii) the quotient obtained when the fair market value on December 31, 1971 of the taxpayer’s animals of that class on that day is divided by the number of the taxpayer’s animals of that class on that day.

  • Marginal note:Reduction in basic herd

    (2) Where a taxpayer carries on a farming business in a taxation year and the taxpayer’s basic herd of any class at the end of the immediately preceding year, minus the deduction, if any, required by paragraph 29(1)(a) to be made in computing the taxpayer’s basic herd of that class at the end of the year, exceeds the number of animals of that class owned by the taxpayer at the end of the year,

    • (a) there shall be deducted in computing the taxpayer’s basic herd of that class at the end of the year the number of animals comprising the excess; and

    • (b) there shall be deducted in computing the taxpayer’s income from the farming business for the taxation year the product obtained when

      • (i) the number of animals comprising the excess

      is multiplied by

      • (ii) the quotient obtained when the fair market value on December 31, 1971 of the taxpayer’s animals of that class on that day is divided by the number of the taxpayer’s animals of that class on that day.

  • Marginal note:Interpretation

    (3) For the purposes of this section,

    • (a) a taxpayer’s basic herd of any class of animals at a particular time means such number of the animals of that class that the taxpayer had on hand at the end of his 1971 taxation year as were, for the purpose of assessing the taxpayer’s tax under this Part for that year, accepted by the Minister, as a consequence of an application made by the taxpayer, to be capital properties and not to be stock-in-trade, minus the numbers, if any, required by virtue of this section to be deducted in computing the taxpayer’s basic herd of that class at the end of taxation years of the taxpayer ending before the particular time;

    • (b) class of animals means animals of a particular species, namely, cattle, horses, sheep or swine, that are

      • (i) purebred animals of that species for which a certificate of registration has been issued by a person recognized by breeders in Canada of purebred animals of that species to be the registrar of the breed to which such animals belong, or issued by the Canadian Livestock Records Corporation, or

      • (ii) animals of that species other than purebred animals described in subparagraph 29(3)(b)(i),

      each of which descriptions in subparagraphs 29(3)(b)(i) and 29(3)(b)(ii) shall be deemed to be of separate classes, except that where the number of the taxpayer’s animals described in subparagraph 29(3)(b)(i) or 29(3)(b)(ii), as the case may be, of a particular species is not greater than 10% of the total number of the taxpayer’s animals of that species that would otherwise be of two separate classes by virtue of this paragraph, the taxpayer’s animals described in subparagraphs 29(3)(b)(i) and 29(3)(b)(ii) of that species shall be deemed to be of a single class; and

    • (c) in determining the number of animals of any class on hand at any time, an animal shall not be included if it was acquired for a feeder operation, and an animal shall be included only if its actual age is not less than,

      • (i) in the case of cattle, 2 years,

      • (ii) in the case of horses, 3 years, and

      • (iii) in the case of sheep or swine, one year,

      except that 2 animals of a class under the age specified in subparagraph 29(3)(c)(i), 29(3)(c)(ii) or 29(3)(c)(iii), as the case may be, shall be counted as one animal of the age so specified.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1970-71-72, c. 63, s. 1 “29”
  • 1985, c. 45, s. 126(F)

Marginal note:Improving land for farming

 Notwithstanding paragraphs 18(1)(a) and 18(1)(b), there may be deducted in computing a taxpayer’s income for a taxation year from a farming business any amount paid by the taxpayer before the end of the year for clearing land, levelling land or installing a land drainage system for the purposes of the business, to the extent that the amount has not been deducted in a preceding taxation year.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1970-71-72, c. 63, s. 1“30”
  • 1988, c. 55, s. 15

Marginal note:Restricted farm loss

  •  (1) If a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income that is a subordinate source of income for the taxpayer, then for the purposes of sections 3 and 111 the taxpayer’s loss, if any, for the year from all farming businesses carried on by the taxpayer is deemed to be the total of

    • (a) the lesser of

      • (i) the amount by which the total of the taxpayer’s losses for the year, determined without reference to this section and before making any deduction under section 37, from all farming businesses carried on by the taxpayer exceeds the total of the taxpayer’s incomes for the year, so determined from all such businesses, and

      • (ii) $2,500 plus the lesser of

        • (A) 1/2 of the amount by which the amount determined under subparagraph 31(1)(a)(i) exceeds $2,500, and

        • (B) $15,000, and

    • (b) the amount, if any, by which

      • (i) the amount that would be determined under subparagraph (a)(i) if it were read without reference to “and before making any deduction under section 37”,

      exceeds

      • (ii) the amount determined under subparagraph 31(1)(a)(i).

  • Marginal note:Restricted farm loss

    (1.1) For the purposes of this Act, a taxpayer’s “restricted farm loss” for a taxation year is the amount, if any, by which

    • (a) the amount determined under subparagraph 31(1)(a)(i) in respect of the taxpayer for the year

    exceeds

    • (b) the total of the amount determined under subparagraph 31(1)(a)(ii) in respect of the taxpayer for the year and all amounts each of which is an amount by which the taxpayer’s restricted farm loss for the year is required to be reduced because of section 80.

  • Marginal note:Farming and manufacturing or processing

    (2) Subsection (1) does not apply to a taxpayer for a taxation year if the taxpayer’s chief source of income for the year is a combination of farming and manufacturing or processing in Canada of goods for sale and all or substantially all output from all farming businesses carried on by the taxpayer is used in the manufacturing or processing.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 31
  • 1995, c. 21, s. 8
  • 2013, c. 40, s. 14
 
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