Most sales in Canada are subject to GST/HST. However, the sale of most farm products are considered zero-rated.
The challenge is that not all farm products are zero-rated, and the list is huge.
Items that might not be zero-rated are things such as:
- Fresh-cut flowers or foliage
- Bedding plants
- Living trees
- Gravel, stones, rock, soil and soil additives
- Seeds (except supplied in bulk quantities)
- Hay and fertilizer
While livestock sold for human consumption are zero-rated, GST/HST must be charged on animals not destined for the dinner plate, such as:
- Horses, Mules, Donkeys
- Mink, fox and other fur-bearing animals
- Semen and embryos
- Animals sold as pets
- Processed wool, furs, animal hides, feathers and down
- Maple sugar candy
Farmers should collect GST/HST on sales of these items.
To make it more complex, there are exceptions to these exceptions.
Under the legislation, a farmer engaged in a commercial activity in Canada with annual sales of GST/HST-taxable goods and services in excess of $30,000 in the preceding year is required to register for GST.
So, what is commercial activity? The definition in the Excise Tax Act is quite broad.
It includes any Canadian business that is carried on, any adventure of concern in the nature of trade and any supply of real property.
The definition excludes 3 types of activities, including hobby farms where there is no reasonable expectation of profit and farms where the chief source of income was not from farming, such as off-farm income. This is because they have no reasonable expectation of profit.
It is crucial that farmers file consistently for income tax and GST to prove they are not a hobby farm.
If HST/GST weren’t enough of a pain, when are you on the hook for paying it?
In this complex world of agreements, deposits, pre-payments and invoice issue dates, when exactly are you required to pay?
For example, GST must be collected on a deposit if it is part of an agreement. If you collect a deposit to build a barn, the GST must be added to the deposit as long as a contract to build the barn is in place.
The liability to pay GST occurs on the earlier of:
- Date of payment
- Date invoice issued
- Date payment becomes due under an agreement in writing
Canada Revenue Agency treats invoices as if they were issued on the earlier of:
- Date of issue
- Date of invoice
- date the invoice would have been issued if there were no undue delay in doing so
That’s a pretty wide latitude, and as most farmers and business owners might validly ask, how can Canada Revenue honestly determine when an invoice should have been issued?
Whatever you choose to do, it is always prudent to discuss this with your farm tax professional before deciding.