6. Supreme Court ruling changes farm taxation
by D. Larraine Andrews
A recent Supreme Court of Canada ruling, Canada versus Craig, has effectively tossed out a farm loss decision by the Supreme Court that has applied for more than 30 years, says an Edmonton tax specialist.
Reversals of Canada’s highest court of appeal are rare, but for farmers and those with off-farm income, the impact could be significant.
According to Tom Devaney, FCA, the 1978 case (called Moldowan), ruled that when it came to deducting losses, there were four classes of farmers.
Hobby farmers, with no reasonable hope of earning income from their farm, could not deduct any of their losses. At the other end of the spectrum are full-time farmers with no other significant income source. Clearly farming was their chief source of income and all farm losses were fully deductible.
The next class is farmers who have another source of income, but it is subordinate to their farm activity, so the farm losses are also fully deductible.
Devaney says it's the last category that tends to cause confusion and it's this interpretation that the recent case has effectively overturned. Moldowan distinguished farmers who had more than one source of income where farming was not predominant and farm losses were restricted to a maximum of $8,750 per year.
Devaney explains that the latest Supreme Court decision says that as long as the farm is not a hobby, and it's clear that it's a significant component of the earning process, then it's not necessary for it to be a predominant source for the losses to be deductible. He says the courts will look to factors like time spent, capital invested, farming history and future plans.
Devaney reminds farmers caught by the old rule in the past to consider using the tax relief provisions to allow opening up years as far back as 2002 to claim losses previously denied.
However, he cautions that overall, it's critical to seek professional tax advice that's specific to each farm.
http://www.fcc-fac.ca/newsletters/en/express/articles/20121214_e.asp
by D. Larraine Andrews
A recent Supreme Court of Canada ruling, Canada versus Craig, has effectively tossed out a farm loss decision by the Supreme Court that has applied for more than 30 years, says an Edmonton tax specialist.
Reversals of Canada’s highest court of appeal are rare, but for farmers and those with off-farm income, the impact could be significant.
According to Tom Devaney, FCA, the 1978 case (called Moldowan), ruled that when it came to deducting losses, there were four classes of farmers.
Hobby farmers, with no reasonable hope of earning income from their farm, could not deduct any of their losses. At the other end of the spectrum are full-time farmers with no other significant income source. Clearly farming was their chief source of income and all farm losses were fully deductible.
The next class is farmers who have another source of income, but it is subordinate to their farm activity, so the farm losses are also fully deductible.
Devaney says it's the last category that tends to cause confusion and it's this interpretation that the recent case has effectively overturned. Moldowan distinguished farmers who had more than one source of income where farming was not predominant and farm losses were restricted to a maximum of $8,750 per year.
Devaney explains that the latest Supreme Court decision says that as long as the farm is not a hobby, and it's clear that it's a significant component of the earning process, then it's not necessary for it to be a predominant source for the losses to be deductible. He says the courts will look to factors like time spent, capital invested, farming history and future plans.
Devaney reminds farmers caught by the old rule in the past to consider using the tax relief provisions to allow opening up years as far back as 2002 to claim losses previously denied.
However, he cautions that overall, it's critical to seek professional tax advice that's specific to each farm.
http://www.fcc-fac.ca/newsletters/en/express/articles/20121214_e.asp
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