Farming is big business. And big business is knowledge-intensive. Like other successful business people, farm operators need to acquire, maintain, and upgrade business skills and technical know-how on a regular basis. It's the only way to keep pace with changes in their industry.
Continuing education comes in a variety of formats and at many venues. It often costs money, which is naturally a business expense. Before you sign up for that winter convention in Las Vegas or a series of seminars/short courses at the local community college, however, be aware that Canada Revenue Agency (CRA) views them somewhat differently.
Deductible training expenses include the costs of travel, food, beverages, and lodging incurred in conjunction with taking business-related training. They do not include tuition fees paid to certain educational institutions for which a tuition tax credit is allowed.
If training results in a long-lasting benefit, such as courses that lead to a university or college degree or diploma, the costs are deemed to be capital in nature and therefore not deductible as current expenses. If training is to maintain, update, or upgrade an existing skill or qualification related to your farm business, the costs are not deemed capital and are therefore deductible. For example, if you run a hog operation and take a seminar on the latest practices in hog nutrition, the seminar registration fee and related travel costs are eligible business expenses.
Other factors that influence CRA decisions on deductibility of specific training expenses are course location and duration, and personal time taken during the course.
CRA generally considers expenses for training taken outside your own geographical locale unreasonable to the extent they exceed the costs you would have incurred had you taken the training locally, assuming it were available. CRA will scrutinize expenses very closely if your course was held in a distant location or recognized holiday area. And if the training is brief and is then followed by a personal holiday, the agency may decide all or a portion of the costs are personal non-deductible expenses.
While acceptable full-time training duration is usually about 2 to 3 weeks, CRA does sometimes allow expenses related to courses of 4 to 6 weeks in length. There are no rules specific to the deductibility of training costs accumulated during several shorter sessions. For example, what about a hog farmer who not only attends a course on hog nutrition, but also several other seminars on topics such as manure management, barn ventilation, disease prevention and treatment, and genetics, all over a period of a few months?
While there's no ceiling on annual days of eligible training expenses, farmers need to be cautious. If you take too much time for training, CRA may decide that for a significant part of the year you were not able to actively operate your business. This could affect deductibility of other business expenses in some circumstances.
Keep in mind too that if you do take personal time at the beginning or end of a training course, you cannot claim expenses for those days. CRA does make exceptions for days of arrival and departure, as well as any weekends off when your course runs more than one week and it is reasonable for you to stay over.
Now, back to that convention in Las Vegas. A convention is essentially a formal meeting of an organization's members for professional or business purposes, although you need not always be a member to attend. Unlike training courses, conventions do not involve assignments and testing.
You can deduct at least some of the costs incurred in attending no more than 2 conventions per year, provided the conventions are: held by a business or professional organization; connected to your specific business; and held in a location consistent with the "territorial scope" of the host organization.
The territorial scope restriction means that a provincial organization, for example, must hold its convention in its home province. Otherwise, participant expenses are not deductible. A national organization can host a convention anywhere in Canada and expenses are deductible. And, by virtue of the Canada-U.S. free trade agreement, expenses related to attending a convention in the U.S. also are deductible if the convention meets the above 3 conditions.
If a Canadian organization holds a convention during an ocean cruise, the expenses are not deductible because it is held outside Canada. A case can be made, however, for deducting at least a portion of costs for training held during a cruise (i.e., the portion that would be incurred if you took that same training at a facility in Canada).
While you can normally deduct all fees plus travel and accommodation costs for eligible conventions, only 50% of the cost of food, beverages and entertainment are deductible. If your convention fee happens to cover the cost of non-incidental food, beverages and entertainment, but the amount allocated to these items is not indicated, CRA assumes an expense of $50 per day (of which only 50% is deductible). The remainder of your fee is deemed convention fee.
Attractive locales and social activities at many conventions often lead attendees to bring their spouses and children along and make it a vacation trip. Unfortunately, all expenses incurred on behalf of family members are considered personal in nature and not deductible. The only exception might be if your spouse is a salaried employee of the farm business and could also justify attendance at the convention.
And if you do combine vacation with a convention trip, you also must allocate your own expenses on what CRA calls a "reasonable" basis to separate vacation-related expenses from allowable business deductions. Just as CRA will closely scrutinize costs for training at a distant location, be prepared for cross-examination if you either add vacation or bring family members to a convention. Finally, always keep your convention itinerary and session outline to support your claim of business purpose.