In most cases, these farmers have significant income outside their farm business and they’re simply farming because it brings them pleasure. It could be that the farmer in question lives on an acreage and has excess land available or perhaps they grew up on a farm and are conducting farming activities for nostalgic purposes. Hobby farming is different from part-time farming in that the farming activities involved are primarily recreational and there is no realistic expectation of profit. In addition to these two options, there is a third classification that presents a different set of advantages and limitations: hobby farming. ![]() In these cases, reporting the farm as a business could be advantageous because the expenses related to the farm might be higher than the income and these losses can be applied against other sources of income, lowering the taxpayer’s liability. Someone who has a farming business on the side with a regular source of income outside the farm would be considered a part-time farmer. When they compile their tax returns, they report all their farm revenue and have the ability to deduct relevant expenses against any revenue on their tax return. In order to qualify, a farm must be the main source of income for the period of ownership.The pros and cons of being classified as a hobby farmerĪ full-time farmer gets into the business of farming with the reasonable expectation of profit. Notably, this is only a potential con because part-time farms may not qualify for the exemption either. Capital gains can be significant if a farm is held for an extended period and appreciates in value. Con: Can’t Obtain Potential Capital Gains Exceptionīecause hobby farms aren’t classified as commercial agricultural endeavors, they can’t be exempt from the CRA’s capital gains tax when sold. Neither profit nor loss should be so significant that it’d make a huge difference when financing - a hobby farm in BC would likely have to be classified as part-time if the profit/loss was so substantial. In theory, either effect on financing should be negligible even if the profit/loss had to be counted. Any loss can’t count against income to reduce borrowing power. Any profit can’t be counted toward income to increase borrowing power. Because no profit or loss is reported on taxes, it won’t be considered when financing other properties, businesses or investments.ĭepending on whether a farm sees a profit or loss, not impacting financing can be an advantage or a disadvantage. While not a direct impact on taxes, not reporting profit/loss can also have an effect on potential financing. Pro/Con: Can’t Count Income Toward Other Financing Of course, not writing off losses isn’t a consideration if there aren’t significant profits or income from another source. Farmers may frequently keep a not-profitable farm so that they can use its losses to reduce their overall tax burden. This is a major consideration for some farmers, as even part-timers may regularly use farm losses to offset profits elsewhere. Since taxes on profit aren’t reported in the good years, losses can’t offset profit from other business/income during the not-so-good times. ![]() If a hobby farm isn’t profitable, not reporting profit/loss doesn’t help reduce income tax burden. When a hobby farm isn’t profitable, not reporting its income/loss If you’re in the highest tax bracket, that savings increases to 20.5 percent on any farm profit. Not paying income tax on profit is an automatic 5.06 percent savings for any hobby farm in BC. This is the biggest benefit, for not reporting means that no taxes are paid on the profit. Should a hobby farm make a profit, the profit doesn’t have to be reported when filing income taxes. Simply making a few dollars one year won’t declassify an operation from being a hobby farm, and you might even be slightly in the black each year. Pro: Small Profit is AllowedĪlthough hobby farms aren’t allowed to expect or aggressively pursue profit, a small amount of profit may be allowed. Before you purchase any hobby farm for sale in BC, it’s important to understand the pros and cons of being classified as a non-commercial endeavor. Because no profit is expected from a hobby farm, the CRA treats hobby farms differently from part- and full-time ones. ![]() The lack of expected profit is the main criterion used by the Canadian Revenue Agency to distinguish these farms from commercial part-time and full-time ones. Hobby farms may earn small profits, but profit isn’t the main focus.
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