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Income tax ARRRRRG! (Pertains to Revenue Canada)

Judith

Well-known member
I have been on the phone for well 4 hours now and still do not have a solid answer so I thought I would consult the tax professionals here on Ranchers.

The question:

Is the purchase of livestock deductable as a capital expense? If so what is the percentage.

Now to me this is a cut and dried, yes or no kind of question.

I have spoken to 3 agents who keep passing me on to senior officers, who then proceed to lose me while on hold.
I know that all of my vet costs, fencing, vehicle yada yada are but trying to figure out if I can deduct the purchase price of my stock ARRRRRRGGG. Well I have that off my chest, think I better hold of on the coffee for a bit :)
I feel like I have just tried to hold a conversation with a preschooler who only speaks french... I did get kind of rude and finally said " I am in Canada can I please speak to someone who understands English!!!
 

lazy ace

Well-known member
A friend of mine in Canada said that Canadian taxes are a simple two page system. The first page asks you how much you made and the second page says send it in! :D

I know that didn't answer the question but it was to good to pass up.

Good luck

have a cold one

lazy ace
 

Judith

Well-known member
I have been fortunate enough in my lifetime to live through not one but two audits. ( In Canada your name comes up in a random draw, and lucky me I won twice :) I do my taxes to the letter with no grey areas at all, these guys are paid to find a minimum of their salary plus 20 percent! They arent gonna get paid if I can help it :)
 

PureCountry

Well-known member
Good old bilingualism. Ain't it grand? As for your question, Don't waste your breath messing with Rev. Canada. Ask an accountant. I asked the wife for ya, and she said it will depend on whether or not you're registered as a restricted farm, a partnership, blah, blah, blah. If you're not a restricted farm ( aka-hobby farmer ), then cattle are usually classed as an expense, not an asset. That's why they don't class them as depreciating like other assets. But, like I said, best to ask an accountant, not the gov't.
 

Jason

Well-known member
PC is pretty much on it. You can't claim cows as an expense against other income sources. A dental sergeon in Calgary got busted writing off dental income with cow purchases. He had 200 cows and was looking to make a profit with them, but with a $2 million per year dental income, CRA classed him as a hobby farmer.

Horses are another grey area, horses are usually classed as a hobby, unless income from them is declared. Then there is the reasonable expectation of a profit clause, where how can you just write off hay etc for horses that never show a profit. If you do show a profit, then you have to pay tax... pretty clear...just like mud.
 

Judith

Well-known member
Thanks Jason, your bang on with the classifications etc. In my case the horses do have 4 sources that classify as income.

1. Stud Fees
2. Yearling Sales
3 Mare Care and board
4. Breeder bonuses such as stallion stakes etc.

and I forgot 5. Train for other people...

I have to report the income from these things so it stands to reason that I could have regular deductions, however horses are classified as hobby. They are not considered an asset.....Pets..HMMMM
 

DiamondSCattleCo

Well-known member
On your cow question, cattle are 100% deductable in the first year of ownership and should be one of the first things you deduct.

I'm not sure how much outside income you make Judith, but Revenue Canada is pretty relaxed on the restricted farm loss clauses, especially when your operation hits a certain size and you continue to show heavy growth. I faintly remember the Calgary case, but I thought the dentist bought 200 cows, then sold them for a substantial loss and attempted to claim this income against his dentistry practice. Thats a no-no.

On the other hand, until last year I was on restricted farm loss but could still claim certain expenses (mostly a small percentage of my depreciable assets) against my off farm income. This year my livestock income was almost half of my off-farm income, so my tax accountant claimed me as a full farmer and completely wrote off several capital expenses against my off-farm income. Totally legal. No grey area. So I'm going to echo what others are saying: go to a GOOD tax accountant (not H&R Block) and have your taxes done. It may cost you a few hundred bucks, but I guarantee you'll get your money back and more in the end.

Rod
 

Jason

Well-known member
DiamondSCattleCo said:
On your cow question, cattle are 100% deductable in the first year of ownership and should be one of the first things you deduct.

I'm not sure how much outside income you make Judith, but Revenue Canada is pretty relaxed on the restricted farm loss clauses, especially when your operation hits a certain size and you continue to show heavy growth. I faintly remember the Calgary case, but I thought the dentist bought 200 cows, then sold them for a substantial loss and attempted to claim this income against his dentistry practice. Thats a no-no.

On the other hand, until last year I was on restricted farm loss but could still claim certain expenses (mostly a small percentage of my depreciable assets) against my off farm income. This year my livestock income was almost half of my off-farm income, so my tax accountant claimed me as a full farmer and completely wrote off several capital expenses against my off-farm income. Totally legal. No grey area. So I'm going to echo what others are saying: go to a GOOD tax accountant (not H&R Block) and have your taxes done. It may cost you a few hundred bucks, but I guarantee you'll get your money back and more in the end.

Rod

Rod the dentist in Calgary I was refering to was building a purebred showplace. His intention was to have a viable cowherd, but he wanted a showplace as well. All the money he put into the buildings and cattle was serious. He bought some very good animals...maybe paid more than he should have, but everyone does sometimes.

He was using every expense against his dental practice, income he was taxed at the top rate for.

When the audit came to see why his income was falling, they found him deducting his cows and stuff.

A $200,000 tax assesment forced him to disperse.
 

DiamondSCattleCo

Well-known member
Jason said:
Rod the dentist in Calgary I was refering to was building a purebred showplace. His intention was to have a viable cowherd, but he wanted a showplace as well. All the money he put into the buildings and cattle was serious. He bought some very good animals...maybe paid more than he should have, but everyone does sometimes.

He was using every expense against his dental practice, income he was taxed at the top rate for.

When the audit came to see why his income was falling, they found him deducting his cows and stuff.

A $200,000 tax assesment forced him to disperse.

Ah, thanks for the info Jason. Something along those lines, Revenue Canada is definitely going to balk at, and I can't say that I blame them. Although, he could have simply issued shares in his livestock business, purchased those shares with his dentistry income, then declared the loss when shares failed to pay dividends. Of course, once his livestock business started making itself pay, he would have had share income to declare again, but at least he would have had seed money to start with, versus trying to gain seed money the way he did it.

Or he could have held onto his write offs until he started showing a fair gross income, then he could have been able to legally declare some of his capital costs against the dentistry (assuming of course that his cattle company wasn't incorporated. That changes all the rules)

Rod
 

Kato

Well-known member
Cows are a straight deductable expense. Rather than use them as a loss against other income, and then getting some backs up at Revenue Canada, check out using the Mandatory and optional value of livestock rule. You can take the expense of those cows, flip it over into the mandatory (if it's a loss) or optional value of livestock and use that same number as an expense next year against the income generated from the sale of the first calves. It's a really good way to even out income over years, and lots of people use this as a way to bump up the farm income on low years so they don't waste their personal exemptions. I know a couple of people who did this faithfully over the years, and collected up enough deductions to save their butts from the tax man when they retired and sold the cows.

I agree with the advice to see an accountant rather than calling Rev. Canada. Call an accountant and set up a long term plan. It'll be worth it. :D
 

Jason

Well-known member
Kato, I have been using that optional inventory adjustment for a long time now. It really doesn't level your income out, but sure makes it so you don't take a tax hit if you tend to keep a years production and wind up selling 2 years at once.

The retirement aspect of it is the best part. If you sold off your whole herd to retire 50% tax grab would hurt pretty bad. If you had prepaid the tax with the adjustments, a 20% hit is a lot easiere to take.
 

Kato

Well-known member
Another good way to use it is to max out your depreciation, even if you don't need the deduction, then balance it with the OVL. You have to be careful with this though, in case you get too carried away, and have a recapture if you sell machinery that hasn't physically depreciated as much as it has on paper. :shock:
 

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