Self-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 5 – Losses

 Farm losses

 Fishing losses

 Farm losses

When your farming business expenses are more than the farming business income in a year, you have a net loss. However, before you can calculate your net farm loss for the year, you may have to increase or decrease the loss by certain adjustments explained in Line 9941 – Optional inventory adjustment included in the current year and Line 9942 – Mandatory inventory adjustment included in the current year.

If you show a net farm loss for the year, read this chapter for information on how to treat your loss. For more information on farm losses, see Income Tax Folio S4-F11-C1, Meaning of Farming and Farming Business.

The amount of the net farm loss you can deduct depends on the nature and extent of your business. Your farm loss may be one of the following:

• fully deductible
• restricted (partly deductible)
• non-deductible

Non-deductible farm losses

If you did not run your farm as a business, you cannot deduct any part of your net farm loss.

The size and scope of your farm may make it impossible for the farm to make a profit, either now or in the near future. In this case, you cannot deduct your farm loss. We consider this kind of farm to be personal. Therefore, any farm expenses are personal expenses.

Fully deductible farm losses

If you made your living from farming, we consider farming to be your main source of income. As long as farming was your main source of income, you can deduct the full amount of your net farm loss from other income. Farming can still be your main source of income even if your farm did not show a profit. Other income could come from investments, part-time employment, and so on.

To determine if farming was your main source of income, you need to consider such factors as:

• gross income
• net income
• capital invested
• cash flow
• personal involvement
• your farm's ability to make a profit (both actual and potential)
• plans to maintain or develop your farm and how you carried them out

Although you may have been a partner in a farming business, you still have to determine if farming was your own main source of income.

When farming is your main source of income and you show a net farm loss in 2023, you may have to reduce the loss when you have other income in 2023. Any loss that is left is your farm loss for 2023.

Applying your 2023 farm loss

You may have a farming loss in 2023. If you do, you can carry it back for up to 3 years or carry it forward for up to 20 years for all non-capital losses incurred after 2005. In both cases, you can deduct it from all your sources of income in those years.

If you choose to carry back your 2023 farm loss to your 2020, 2021 or 2022 income tax returns, fill in Form T1A, Request for Loss Carryback. Attach the completed form to your 2023 income tax and benefit return or to your request for an adjustment and send it to your tax centre. You can also send the form on its own. Do not file an amended return for the year to which you apply the loss.

Applying your farm losses from years before 2023

The 20-year carryforward is only allowed for losses starting January 1, 2006, and onward. You may be able to apply farm losses you had in any year from 2006 to 2022 on your 2023 income tax return. You can apply these losses if you did not already deduct them, and you have net income in 2023. To apply these losses to 2023, you have to apply the loss from the earliest year first. Enter the amount you wish to deduct on line 25200 on your income tax return.

Restricted farm losses (partly deductible)

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 neither your main source of income (for example, you did not rely on farming alone to make your living) nor was it your main source of income in addition to some other subordinate source of income (for example, where the other source of income was a side-line employment or business) you may only be able to deduct a part of your net farm loss.

Each year you have a farm loss, review your situation carefully to see if farming was either your main source of income or it was your main source of income in addition to some other subordinate 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

If farming was neither your main source of income nor your main source of income in addition to some other subordinate source of income and you had a net farm loss, the loss you can deduct depends on the amount of your net farm loss.

For tax years that end after March 20, 2013, the annual maximum deduction used in the calculation for restricted farm losses is $17,500.

When your net farm loss is $32,500 or more, you can deduct $17,500 from your other income. The rest of your net farm loss is your restricted farm loss.

When your net farm loss is less than $32,500, the amount you can deduct from your other income is the lesser of:

1. your net farm loss for the year
2. $2,500 plus 50% × (your net farm loss minus $2,500)

The amount remaining is your restricted farm loss.

Applying your 2023 restricted farm loss

You can carry back your 2023 restricted farm loss 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.

To carry back your 2023 restricted farm loss to your 2020, 2021 or 2022 income tax returns, use Form T1A, Request for Loss Carryback. Attach the completed form to your 2023 income tax and benefit return or to your request for an adjustment and send it to your tax centre. You can also send the form on its own. Do not file an amended return for the year to which you would like the loss applied.

Applying your restricted farm losses from years before 2023

The 20-year carryforward is only allowed for losses starting January 1, 2006, and onward. If you have net farming income in 2023, you may be able to apply restricted farm losses you had in any year from 2006 to 2022 on your 2023 income tax return. 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 2023. You have to apply the loss from the earliest year before you apply the losses from other years. Claim this amount on line 25200 of your income tax return.

You may have sold farmland at a time when you had restricted farm losses 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.

 Fishing losses

When your fishing business expenses are more than the fishing business income in a year, you have a net loss. If your net loss from fishing is higher than your other income in the current year, you will be able to carry back or carry forward the balance to reduce your taxes in other years. For example, in 2023 your fishing income was $18,000 and your total fishing expenses were $25,000. Therefore, your net loss from fishing was $7,000 [$18,000 − $25,000 = ($7,000)]. Also, you had employment income of $2,000. To check if you are able to carry back or carry forward part of this loss, you subtract your other income from your net loss from fishing ($7,000 − $2,000 = $5,000). In this example, you would be able to carry back or carry forward a loss of $5,000.

You may have net fishing income in 2023 instead of a fishing loss. If so, you may be able to apply to your 2023 income tax return fishing losses you had from 2006 to 2022. You can apply these losses as long as you did not already deduct them. You have to apply the loss from the earliest year first before you apply the losses from later years. Enter the amount on line 25200 of your income tax return.

You may have a fishing loss in 2023. If you do, you can carry back this loss for 3 years or carry it forward for up to 20 years. To carry back a 2023 loss, fill in Form T1A, Request for Loss Carryback. Attach the completed form to your 2023 income tax and benefit return or to your request for an adjustment and send it to your tax centre. You can also send the form on its own. Do not file an amended return for the year to which you want to apply the loss.

Non-capital losses

You may have incurred a loss in 2023 from a business other than farming or fishing. If this loss is more than your other income for the year, you may have a non-capital loss. Use Form T1A, Request for Loss Carryback, to calculate your 2023 non-capital loss.

You can carry back your non-capital loss up to 3 years. Non-capital losses incurred after 2005 can be carried forward up to 20 years.

If you choose to carry back your 2023 non-capital loss to your 2020, 2021 or 2022 income tax returns, fill in Form T1A. Attach the completed form to your 2023 income tax and benefit return or to your request for an adjustment and send it to your tax centre. You can also send the form on its own. Do not file an amended return for the year to which you apply the loss.

For more information about non-capital losses, see Interpretation Bulletin IT-232, Losses – Their Deductibility in the Loss Year or in Other Years. You can view carry-over amounts using My Account for Individuals or Represent a Client.