Important: If you’re participating in the AgriStability and AgriInvest programs, you must complete the forms related to those programs and not form T2042. That being said, H&R Block’s tax software does not currently support the AgriStability or AgriInvest programs. If these programs apply to you, click here to find the retail office closest to you. Our Tax Experts will be happy to help! (fees will apply).
If you earned farming income as a self-employed farmer or as a partner in a farming business, use form T2042: Statement of farming activities to report your income and expenses for the year. If you’re filing a Québec tax return, you’re also required to file Schedule L: Business Income in order to report your gross and net farming income (or loss). Fortunately, H&R Block’s tax software will automatically complete your Schedule L for you, based on the information entered on your T2042.
Note: You’ll need to complete a separate T2042 for each farming business you operate.
According to the Canada Revenue Agency (CRA) farming income includes the income you received from any of the following activities:
- Livestock raising or showing
- Poultry raising
- Dairy farming
- Fur farming
- Tree farming and
- Fruit growing
For a complete list of recognized farming activities, refer to the CRA’s Guide on Farming Income.
Tax Tip: If you received an AGR-1: Statement of Farm Support Payments, you must be sure to enter the information from this slip on form T2042. Click here for more information.
Where do I claim this?
Follow these steps in H&R Block’s tax software to file your 2016 taxes:
- On the PREPARE tab, click the LET’S TALK ABOUT 2016 icon.
- Select the checkbox labelled I worked for myself, and choose the province or territory of self-employment.
- Click the EMPLOYMENT icon. You will find yourself here:
- Under the BUSINESS AND SELF-EMPLOYMENT INCOME section of the Employment and self-employment page, select the checkbox labelled Statement of farming activities (T2042), then click Continue.
- When you arrive at the Statement of Farming Activities page, enter your information into the tax software.
I need help completing this form
Click each heading on the left-hand panel for more details on completing each page of the T2042 form. Remember to enter information in all the fields that apply to your farming business. Fields with a red asterisk (*) are required fields.
Note: Canadian residents outside of Québec will not see fields that relate to residents of Québec only. Information specific to Québec residents only is marked in the sections below with the symbol [QC].
Your farming business
- Account number: You must enter the 15-digit program account number that has been assigned to you by the CRA. You should request this identification number from the CRA before you begin any farming activities.
- Tax shelter identification number: If you have a tax shelter associated with your farm or farming activities, enter your tax shelter identification number in this field.
- [QC] Account number: You must enter the 15-digit account number that has been assigned to you by Revenu Québec. You should request this identification number from Revenu Québec before you begin any farming activities.
- [QC] What’s the ownership structure of your business?: You need to indicate if you operate your farming business as a sole-proprietorship, a partnership, or as a co-ownership.
- What accounting method do you use? You can report your farming income using the cash method or the accrual method.
- Cash method: Using the cash method of accounting means that you report income in the fiscal period you receive it and deduct expenses in the fiscal period you pay them.
- Accrual method: Using the accrual method of accounting means that you report income in the fiscal period you earn it and deduct expenses in the fiscal period you incur them.
- Industry code: You must enter an industry code that describes your main farming activity. If your farming operation involves more than one type of farming activity, and none of them represents at least 50% of your farming business, choose the combination farming code that most closely describes your farming activities. Click here for a full list of industry codes.
Alternatively, in the search box on the form, enter the keywords that describe your farming activity to find the related farming code.
Your fiscal period
Typically, this is a period of 12 months, at the end of which the person carrying on the business prepares financial statements for the year. A fiscal period can’t be longer than 12 months but it can be shorter in the year you started your business or ended it.
[QC] If you’re a resident of Québec, your fiscal period end date must be December 31. However, if you’re electing to change your fiscal year end to a date other than December 31 for your federal tax return, the election will also apply to your Québec return.
Remember, the fiscal period end date for both your federal and Québec returns must be the same.
If your fiscal period doesn’t end on December 31 and you’re not ending your farming business in 2016, you’ll see the following questions:
- Did you start operating this business in 2016? Answer Yes if you started a new business or restarted an existing business.
- Do you want to change the end of your fiscal period to December 31? Generally, you have to report your business income from a business in Canada on a calendar year basis (that is, from January 1 to December 31). If you don’t want to change your fiscal year to December 31, keep in mind that if you’re a GST/HST registrant, your decision about your fiscal period end might affect your GST/HST reporting periods, as well as your filing and balance due dates. Click here to find out more.
- Enter the estimated additional income included in your business income in your 2015 return
Use the following formula to calculate your estimated additional income:
(A – B) X (C/D)
A = Net income for the fiscal period ending in 2016
B = The lesser of the following two amounts:
- Portion of your business’ net income that is considered to be a taxable capital gain
- Capital gains deduction claimed in 2016
C = Number of days in 2015 during which you carried on the business included in the fiscal period ending in 2016
D = Number of days you carried on the business in the fiscal period ending in 2016
- [QC]How much of your 2016 income came from taxable capital gains? If you sold capital property that your business owned and realized a profit (capital gain), enter the profit amount here. The CRA says that if you own a business that has a fiscal year end other than December 31, you still have to report the sale of a capital property in the calendar year the sale took place.
- [QC] If you’re claiming a capital gains deduction in 2016, how much are you claiming? If you’re reporting a capital gain for certain property sold in 2016 and you qualify for the capital gains deduction, enter the amount you’re claiming for your capital gains deduction.
Additional information about your business
Your responses to the questions below will help personalize your T2042 form.
- Do you own this business in partnership with one or more other people? – If your answer to this question is Yes, you will need to provide details about the other members of your partnership including their percentage of partnership and their share of the net income (or loss).
- Did this business have a debt or obligation? Or did you add cash/assets to the business or use cash, assets, or services from the business for personal use? – Your business may have a debt or obligation related to day-to-day operations (such as unpaid wages, or interest payable) or assets (like cash) that were added to the business or used for personal use. If so, select Yes to enter your business’ equity details.
- Did you earn income for this business from an office in your home? – If you used your home for business purposes, select Yes. You can deduct a portion of the expenses based on the amount of space used for your home office.
- Did you earn income for this business from a webpage or website? – Your business has if income from webpages or websites you sell goods or services through your business’ own webpage or website, on auction, marketplace or similar sites operated by others, or from advertising or traffic your site generates.
- Did you use a vehicle (car, station wagon, van, etc.) to earn your farming income? – if you used your car for business and personal use, select Yes. You can deduct a portion of these expenses that you paid to earn business income.
- Did you purchase or sell machinery, a vehicle, equipment or buildings for this farming business? – You might have bought property such as machinery, equipment, or buildings for your farming business in 2016. The cost of such property can’t be deducted in the year of purchase. However, as the property wears out over time, you can claim a portion of the cost each year. This deduction is called capital cost allowance (CCA).
If you select Yes, enter the details related to the property on the designated pages of the form.
Under Canadian provincial and territorial common-law statutes, a partnership is defined as the relationship that exists between persons carrying on a business together with a view to profit. You can have a partnership without a written agreement. To help you decide if you’re a partner in a certain business, determine the type and extent of your involvement in the business and check your province or territory’s laws. Click here for more information on partnerships.
- Enter the 9-digit business number assigned to your partnership by the CRA. You can find this number on your T5013 slip.
- Your GST/HST rebate for partners (for expenses you paid personally) – You might be able to get a rebate for the GST/HST you paid personally on certain expenses, which you deducted from your share of the partnership income. However, special rules apply if your partnership paid you an allowance for those expenses. Click here to learn more about the GST/HST rebate for partners.
Important: If you’re a partner in a partnership that must file a partnership information return, don’t complete this page. Instead, complete the Partnership details page of this form.
- Enter the total amount of liabilities your business had at the end of its fiscal period (amounts your business owes, such as accounts payable, unpaid salaries, or loans) - Your business liabilities are the amounts your business owes. Business liabilities can include tax payable, notes, unpaid salaries or wages, interest payable, unpaid loans, etc.
- Enter the total value of the drawings you made (cash, assets, or services from the business used for personal use, including your salary)
- Enter the total amount of your capital contributions (personal cash or other assets you added to the business to pay expenses or a debt)
On the farming income page, enter the total amount(s) you received for the sale of your products (in Canadian dollars) into the appropriate fields.
- Other crops (pulse crops, sugar beets, hops, etc.) – Enter the total income you received from the sale of pulse crops, sugar beets, hops, or any other crop that you haven’t yet reported on your return.
- Greenhouse and nursery products (shrubs, trees, flowers, etc.) – Enter the total income you received from the sale of ornamental plants, shrubs, trees, cut and field-grown flowers, rooted cuttings, seeds and bulbs, sod and turf, and greenhouse vegetables.
- Forage crops or seeds (hay, alfalfa, clover, etc.) – Enter the total income you received from the sale of hay, alfalfa, clover and clover seed, alsike, timothy, fescue, grass seed, or any other forage crops or seeds.
- Other animal specialties (horses, goats, etc.) including fur-bearing animals (fox, mink, etc.) – Enter the total amount of income you received for the sale of any other livestock not specifically identified in one of the previous fields of form T2042. This can include amounts from the sale of fur-bearing animals you raised in captivity such as fox, chinchilla, mink, or rabbit as well as income earned from an apiary (beekeeping) operation.
- Milk and cream – Enter the total amount of income you received from the sale of milk or cream. Be sure that you don’t include any milk subsidies you may have received in this field; you can enter this amount on the Business expenses page.
- Other commodities (semen, embryo implants, mushrooms, etc.) – Enter the total amount of income you received from the sale of commodities that you have not previously entered on your return. Other commodities can include any of the following:
- Stud services
- Embryo transplants
- Artificial insemination
- Pregnant mare urine
- Maple syrup products
- Crop insurance proceeds from government programs – Enter the total amount of insurance proceeds you received from federal, provincial, or joint federal/provincial programs as a result of losing your crops.
- Other payments (from stabilization and farm-subsidy programs) – Enter the total amount of income you received from all other stabilization and farm-subsidy programs under federal, provincial, or joint federal/provincial programs. Applicable disaster assistance programs include the following:
- The Agriculture Income Disaster Assistance (AIDA) Program
- The Canadian Farm Income Program (CFIP)
- The Whole Farm Insurance Pilot (WFIP)
- The Farm Income Disaster Program (FIDP)
- The Ontario Whole Farm Relief Program (OWFRP) and the Ontario Farm Income Disaster Program (OFIDP)
- You’ll also have to enter any payments that you may have received under the Health of Animals Act, if you had to destroy any animals. Refer to the CRA’s Farming Income Guide for more details.
- Grants, credits, and rebates received to buy depreciable property – Enter the total amount you received as a rebate, grant, or credit to buy depreciable property (for example, a car). Before including this amount as income, be sure to reduce any related expense of the capital cost of a related depreciable asset by the amount of the rebate, grant, or credit. For more information on grants, subsidies, and rebates, click here.
- Compensation (insurance proceeds, etc.) received for the loss of farming income or property – Enter the amount you received as compensation for loss or damage to certain types of property used in your farming business. For example, you might have received insurance proceeds for damage to a building caused by a fire, or for the loss of livestock to disease.
If you received proceeds for damages to depreciable property, and you used all of it to make repairs in a reasonable amount of time, report this amount as income in this field. You can then claim a deduction for the same amount in the field labelled Other farming expenses on the Business expenses page.
If you didn’t use all of the proceeds to make repairs, or if you didn’t make repairs in a reasonable time, the CRA will consider the amounts you received to be proceeds of a disposition, which you’ll have to report on the CCA page.
- Insurance proceeds that you received to replace lost or destroyed depreciable property are considered to be proceeds of disposition for that property and as such, will also need to be reported on the CCA page.
- Amount received from custom or contract work (hauling, harvesting, combining, etc.), or renting farm machinery – Enter the total income amount you received for performing any of the following tasks:
- Custom or contract work
- Custom trucking
- Crop dusting or spraying
- Treating seeds
- Renting farm machinery
Other farming income – You might have received other farming income during the year. If so, enter a description of this income in the Describe your income field and the income amount in the Amount received field. Click here for more information on other farming income.
- What percentage of your business' gross income(from sales, advertising, etc.)is generated from these webpages or websites? If you're not sure, enter an estimate – Your business has income from webpages or websites if you sell goods or services through your business’ own webpage or website, on auction, market place or similar sites operated by others, or from advertising or traffic your site generates. If you don't have a website but you’ve created a profile or other page describing your business on blogs, auction, market place or any other portal or directory sites that generate income, include this amount in your percentage calculation as well.
- Containers and twine used to ship farm products (including containers and pots for plants sold in a nursery or greenhouse) – Enter the total amount you paid for materials to package, contain, or ship your farm produce or products. If you operated a nursery or a greenhouse, deduct the cost of your containers and pots for the plants you sold.
- Fertilizers and lime – Enter the total amount you paid for fertilizers and lime you used in your farming business.
- Pesticides, (herbicides, insecticides, fungicides) – Enter the total amount you paid for herbicides, insecticides, and fungicides you used in your farming business.
- Seeds and plants – Enter the total amount you for seeds and plants. Don’t include the cost of seeds and plants you used in your personal vegetable or flower garden.
- Feed, supplements, straw, and bedding – Enter the total amount you paid for feed, supplements, straw, and bedding that you purchased for your farming business. Note that you cannot deduct the value of the feed, straw, or bedding that you grew.
- Livestock bought – Enter the amount you paid for all the livestock you purchased.
- Veterinary fees, medicine, and breeding fees – Enter the total amount you paid for medicine for your animals, and for veterinary and breeding fees. Examples of these types of fees can include any of the following:
- The cost of artificial insemination
- Stud service and semen
- Embryo transplants
- Disease testing and
- Neutering and spaying
- Gasoline, diesel fuel, and oil for your machinery – Enter the total amount you paid for fuel and lubricants for your machinery. If you used a personal vehicle for business purposes, don’t enter that amount here; instead, enter it on the Motor Vehicle Expenses page.
- Repairs, licence fees, and insurance premiums for your machinery – Enter the total amount of repair, licence fee, and insurance premium expenses you paid for your machinery. If you received any insurance proceeds, either as compensation for loss or damage to your property in the appropriate field of the Farming Income page.
- Amount paid to hire custom or contract workers (for cleaning, harvesting, etc.) or to rent machinery – Enter the expenses you incurred for custom and contract work, and machinery rental. Examples of these types of expenses can include:
- Hiring a contractor to clean, sort, grade, and spray the eggs your hens produced
- Hiring someone who owns a facility in which you can use to age the cheese you produced or
- Hiring someone to do your harvesting, combining, crop dusting, or seed cleaning
- Small tools bought (tools that cost less than $500) – Enter the total amount you paid for small tools for use in your farming business.
- Clearing and leveling or draining of the farm land – In most cases, you can deduct the costs for:
- Clearing the land of brush, trees, roots, stones, etc.
- The first plowing of the land for farm use
- Building an unpaved road and
- Installing a land drainage system
Remember, you don’t have to deduct all of the costs in year you paid for them. Provided that you paid for the expense listed above in full, you can choose to make a partial deduction in the year you paid the expense, and carry forward any unused amounts to another year.
Note: If the land on which your farming activities are taking place is rented, you will not be able to deduct these costs. Click here for more information.
- Repairs to fences and farm buildings – You can deduct the repair costs to fences and all buildings on your property, except your farmhouse. When calculating this expense, be sure to exclude the value of your own labour.
Note: If you made improvements to a fence or building beyond its original condition, you must add the value of the expense to the cost of the asset when calculating your capital cost allowance (CCA).
- Fuels (natural gas, coal, or oil) use for heating (buildings) or drying (crop) – Enter the total amount you paid for natural gas, coal, or oil to:
- Heat farm buildings (including greenhouses)
- Cure tobacco
- Dry your crops
Note: You can only deduct the portion of these costs that relate to your farming business. Generally speaking, heating your home is a personal expense, and therefore can’t be deducted unless you meet the conditions for business-use-of-home expenses.
Electricity cost of the farm buildings – Enter the total amount you paid for electricity costs relating to your farming business.
Note: You can only deduct the portion of these costs that relate to your farming business. Generally speaking, your home’s electricity expense is a personal expense, and therefore can’t be deducted unless you meet the conditions for business-use-of-home expenses.
- Land, municipal, and realty taxes you paid for property used in your farming business – Enter the amount of land, municipal, and realty taxes you paid for property used in your farming business. Since the municipal tax you paid on your farmhouse is a personal expense, you won’t be able to deduct it unless you meet the conditions for business-use-of-home expenses.
- Crop insurance – Enter the amount of deductible premiums you paid to the Crop Insurance Program.
- Overpayments you had to reimburse to your insurance – Enter the amount of any insurance program overpayment recapture you incurred. This amount will be shown in box 17 of an AGR-1 Statement of Farm-Support Payments
- Insurances for farm buildings, livestock, business interruption, and farm equipment – Enter the amount of business-related insurance premiums you paid to insure things like farm buildings, farm equipment (excluding machinery and motor vehicles), livestock, and business interruption.
In most cases, you can’t deduct the amounts you paid to insure personal property such as your home or car. If, however you used the personal property for your farming business, you’ll be able to deduct the business portion of these costs on the Home Office Expenses and Motor Vehicle Expenses pages.
- Interest paid on money borrowed for farming business purposes – You can deduct the interest you paid on money that you borrowed for farming business purposes or to purchase property for your farming business.
You might also be able to deduct interest expenses on property you used in your farming business even if you are no longer in the farming business and no longer use the property to earn farming income. For more information, contact the CRA at 1-800-959-5525.
- Salaries, wages, and benefits paid to your employees; contributions you paid as an employer - You can deduct gross salaries, wages, and other benefits you paid to employees, including the employer’s contributions. Don’t include in this field salaries or drawings you paid or payable to yourself or to a partner; instead enter these amounts on the Equity details
- Legal, accounting, and other professional fees (consulting, etc.) - You can deduct the fees you had for external professional advice or services, including consulting, accounting, and legal fees.
Other farming expenses
If you had other farming expenses not listed on this form, enter a description of your expense in the Describe your expense field and enter the expense amount in the Amount paid field.
- Did you claim an inventory adjustment for this farm in your 2015 return? – If your answer to this question is Yes, you’ll need to enter both your mandatory and optional (if applicable) inventory adjustment amounts claimed for your farm in 2015.
- Mandatory inventory adjustment you claimed for this farm in your 2015 return – You can deduct the mandatory inventory adjustment amount reported on your 2015 return as an expense on this year’s return. Do not include the valuation of inventory if you are using the accrual method for reporting your income.
- Optional inventory adjustment you claimed for this farm in your 2015 return – You can deduct the optional inventory adjustment amount reported on your 2015 return as an expense on this year’s return. Do not include the valuation of inventory if you are using the accrual method for reporting your income.
- Are you claiming an inventory adjustment for this farm in 2016? – If your answer to this question is Yes, you’ll need to enter both your mandatory and optional (if applicable) inventory adjustment amounts that you’re claiming this year.
- Mandatory inventory adjustment you’re claiming for this farm for 2016 – A mandatory inventory adjustment (MIA) decreases your net loss if you held inventory at the end of your fiscal period. You’ll have to make a MIA if each of the following conditions are met:
- you use the cash method to report your income
- you’re reporting a net loss on form T2042
- you purchased inventory and you still have it at the end of your 2016 fiscal period. Note that this does not just refer to inventory purchased in 2016; it includes inventory that you previously bought and still held at the end of your 2016 fiscal period.
For more information, refer to page 28 of the CRA’s Farming Income Guide.
- Optional inventory adjustment you’re claiming for this farm in 2016 – An optional inventory adjustment (OIA) allows you to include, in your income, an amount up to the fair market value of your inventory minus the mandatory inventory adjustment (MIA) (see above). Unlike the MIA, when determining your OIA, the inventory does not have to be inventory that you bought; it includes your entire inventory at the end of your 2016 fiscal period.
The following fields will only be displayed if you indicated that you were part of a partnership on the Your farming business page.
- Did you have expenses for your business partnership that weren’t reimbursed (example: you used your personal vehicle to earn income for the business)? – If your answer to this question is Yes, enter a description of the expense in the Describe your business partnership expense field and the amount you paid in the Amount paid field.
Home office expenses
- Unused expenses from a previous year – You might not have used all of your home office expenses last year to reduce your income tax payable. Your unused expenses amount can be found in the Calculating business-use-of-the-home expenses section of your last year’s T2042 form.
- Enter the total amount you paid for each expense. You'll confirm how much of these expenses were for personal use below. - You can deduct a portion of the following expenses for the business use of a workspace in your home, provided that your home is your principal place of business or you use the workspace only to earn your fishing business income on a regular and ongoing basis.
- Mortgage interest
- Property taxes
- Other home office expenses - Specify the amount paid for the expense and percentage that was for business use
- For all the expenses you entered above, how much of the total amount was for personal use only (for example, the parts of your home not used to earn income for your business). Enter a percentage
To calculate the percentage, use a basis such as the area of the workspace divided by the total area of your home. Subtract this amount from 100 to obtain the percentage of your home that is for personal use only.
Let’s say for example, that you run a farming business from home. The workspace you use for your farming business is 200 square feet and the total area of the home is 1000 square feet. Use the following formula to calculate the percentage of your home you use for business purposes.
200 square feet X 1,000 square feet = 20% --- area used for business purposes
100% - 20% = 80% --- area of the home used for personal use only
Therefore, 80% of your home’s costs for heat, electricity, insurance, maintenance, etc. were for personal use only. Enter 80% in this field on the form.
Motor vehicle expenses
If you use a motor vehicle for business and personal use, you can deduct only the part of the expenses you paid to earn income. Farming business use includes trips to pick up parts for machinery or farming supplies, and to deliver grain. If you do not live on your farm, you cannot claim expenses incurred for travelling between your home and your farm.
The type of motor vehicle expenses you can claim include:
- Kilometres driven
- Licence and registration fees
- Fuel costs
- Interest on money borrowed to buy a motor vehicle
- Maintenance and repairs
- Leasing costs
You can also claim capital cost allowance (CCA) for your motor vehicle but you enter this amount on the CCA page of the form.
Tip: Remember to keep a detailed logbook of the kilometres driven for each business trip and receipts to support your claim.
Capital cost allowance
You can’t deduct the cost of property such as furniture, equipment, or a building in the year of purchase. However, as such property wears out over time, you can deduct a portion of its cost each year (generally for as long as you own the property). This deduction is called capital cost allowance (CCA). Click here to learn more on calculating and claiming CCA.
- Choose the class for your depreciable property – Enter the capital cost allowance (CCA) class number to which your property belongs. A specific rate of CCA applies to each class and will help in calculating the CCA you can claim. For example, self-propelled combines fall under Class 10 which has a CCA rate of 30%. Click here for a full list of CCA classes and their rates.
- If this isn’t the first time you’re claiming CCA, enter the undepreciated capital cist (UCC) balance at the start of 2016 – UCC is equal to the total capital cost of all the depreciable property of the class your property belongs to minus the capital cost allowance (CCA) you claimed in previous years.
UCC = Total capital cost – CCA claimed in the previous years
Enter the UCC for the class at the end of the last year. Skip this field if this is the first year you’re claiming CCA.
- Enter the total cost of any additions you made to this class in 2016 (include the cost to purchase depreciable properties in this class or improve existing depreciable properties in this class) - If you purchased or made improvements to depreciable property in the year, the CRA considers these to be additions to the class in which the property belongs. For example, the purchase of a combine (Class 10) is considered an addition to the class.
Add the total business part of the cost you paid to buy or improve property that belong to the same class and enter it in this field. Click Add another class, to enter the cost of additions for a different class.
- If you disposed of a depreciable property during your fiscal year – Enter the proceeds received or the original cost of the property, whichever is less. When completing form T2042, you’ll need to calculate this amount for each piece of depreciable property of the same class that you are disposing of and enter it in this field. If you disposed of a depreciable property of another class, click Add another class and repeat the process outlined above.
- Have you sold or disposed of all your assets in this class? - If your answer to this question is Yes, you might be eligible to claim a terminal loss. Click here for more information on terminal losses.
Purchase or sale of land
- Total cost of all the land you acquired in 2016 – Enter the total cost you paid to buy land in the year.
- Total amount received (proceeds) for all the land you disposed of in 2016 - Generally, this is the selling price of the land. However, it can also include payment received for expropriated, destroyed, or damaged/stolen property.
Purchase or sale of a quota
- Total cost of all quotas you acquired in 2016 – Quotas - like milk and egg quotas – are property that you can purchase that doesn’t exist, at least in the physical sense. This kind of property is considered to be eligible capital property. Amount paid for this type of property can be claimed as an eligible capital expenditure.
- Total amount received (proceeds) for all quotas you disposed of in 2016 – Enter the amount received from the sale of all quotas in 2016.