In Canada, all farmers must report their net income by year's end.
When you report your farming income, you'll have to track earnings for the entire fiscal period. While the exact timeline can vary - new or recently closed businesses will have slightly different fiscal periods - for the most part self-employed individuals' fiscal period ends on December 31.
For existing farm businesses, the term will typically span 12 months. This means that the months are winding down, and soon you'll have to report your farming income.
Using the Form T2042
The Canada Revenue Agency designed a form to assist farmers with reporting their income. The Form T2042, or a Statement of Farming Activities, was put together in order to assist individuals with adding up their income and expenses for the year, to assist with income tax preparation. One of these forms, or another type of financial statement, will be required for each business that you run.
The identification section of the form is self-explanatory, though there are a few details you'll need to remember. You'll need to include your program account number, assigned by the CRA, the fiscal period covered and your industry code. The CRA provides a list defining the codes for each farming sub-sector.
CRA states that if a single activity makes up 50% of your farming business or more, then that should be the code you list on the Form T2042. For example, if 60% of your business involves hog and pig farming, then you write '112210' in the industry code section. There are also combination industry codes, should no one activity make up more than 50% of your business.
Following the identification section, the Form T2042 includes a box that allows you to track Internet-based earnings. This section simply requires you to state income from the Internet, and the websites on which transactions took place. You'll also have to identify the percentage of your income derived from Internet activities.
The next section will require a statement of farming income. Every possible source of earnings from wheat sales to rebates is listed in this section of the Form T2042. When you have listed all revenue sources, you'll have to add your gross income to the section - or how much money you made without taking into account expenses.
The expenses section of the form comes after the income box. Make sure that you separate your expense types into two categories - current and capital.
• Capital expenses provide long lasting benefits and extends the life of your property.
• Current expenses will bring property back to original condition, but won't actually improve it.
Finally there will be a section for net income or loss, a combination of income and expenses during the fiscal period.
Using the Form T2042 in order to break down income and expenses makes the process easier, but for more help on tax preparation speak with an expert at FBC.