5.11 Farm income
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Section 7(3) of the Act.
Sections 39(1), 48 and 54(1)1 and 54(1)6 of Regulation 134/98.
Random file reviews are completed to ensure that:
- a current Canada Revenue Agency Statement of Farming Activities form (T2042) or other suitable document is on file to determine income
- monthly verification of the farm revenues and expenses are reviewed and on file
- documentation is present to show that a participant is not eligible as a self-employed farm operator for a period greater than sixty weeks unless an extension has been approved and is documented
- follow-ups have taken place and are documented
Application of policy
Farming can be an approved employment assistance activity if it is determined to be a viable means of employment.
A distinction is made between people who have an interest in the operation of a farm as a business and those who are considered to be employees.
Operating a farm as a business is considered a form of self-employment if the farm operation has been determined to be a viable means of employment.
Applicants or recipients who have an interest in the operation of a farm as a business obtain their income from farming activities such as, but not limited to: dairy farming; fruit and/or vegetable growing; soil tilling; raising or exhibiting livestock; maintaining horses for racing; raising poultry; fur farming; and bee keeping. Income generated from these activities is considered farm income and approved farm expenses are deducted when determining eligibility for assistance.
Farm employees receive wages or salaries from a farmer. These earnings are considered employment income and as such, farm expenses cannot be deducted from this income.
Both farm employees and those with income from operating a farm may be eligible for earnings exemptions (see Directive 5.3: Earnings exemptions for more information).
Farm income is calculated by taking the amount of gross farm income and subtracting approved farm expenses, to get the net farm income. Earnings exemptions may then be applied to the net farm income.
The net farm income is used when determining eligibility for assistance, and when applying any earnings exemptions. Any meat or produce grown for the applicant or recipient’s own consumption is not considered when determining net income.
To determine net farm income, the worker totals the amount of income reported in the completed Business Income and Expenses Report or the Canada Revenue Agency Statement of Farming Activities form (T2042) and subtracts the approved expenses to determine the net farm income. Farm income is considered as income in the month received. Farm income cannot be averaged over a period of time.
Applicants or recipients engaged in the operation of a farm are required to submit monthly verification of farm revenues and expenses as well as other available income (e.g., rental income).
Recipients operating a farm as a business are required to follow record keeping standards as set out in the Self-Employment Guidelines. The Canada Revenue Agency Statement of Farming Activities form (T2042) completed by most farmers can also be reviewed when determining income.
As a requirement for eligibility, an applicant or recipient is required to access all available sources of income to which they may be eligible. Taking into account the length of time a recipient has been in receipt of social assistance, the feasibility of renting out uncultivated farmland should be considered. Where farmland is rented out, any income earned should be included in the farmer’s net farm income.
Any money received from grants or subsidies from the Ministry of Agriculture, Food and Rural Affairs is considered as income.
A recipient may not remain eligible as a self-employed farm operator for a period greater than sixty weeks unless an extension is approved. The viability of the farm should be reconsidered when determining approval for a twelve-week extension to the sixty-week time limit.
Approved farm expenses
Approved farm expenses can vary for each farm operation. When determining approved expenses necessary for the operation of the farm, the following criteria should be met:
- the expense maintains or increases the likelihood of earning income from the farm
- the item or service is purchased on a "best buy" basis (i.e., the cost is not unusually high or inflated)
Administrators in First Nations and northern communities have the discretion to exercise flexibility when approving employment activities and/or expenses based on cultural and geographic considerations in order to support employment outcomes for clients.
If the item or service is not expected to earn or increase farm income, then it is not an approved expense. Approved farm expenses include the following:
Costs of flyers, brochures, business cards and any other costs directly linked to advertising.
Bank charges on farm accounts
Costs of certifying cheques and other bank service fees (not including bank charges related to "not sufficient funds" (NSF) cheques.
Book-keeping, legal fees and office supplies
Book-keeping fees, legal fees and office supplies necessary for the operation of the farm.
Canada Pension Plan (CPP).
Contributions made to the Canada Pension Plan.
Custom and contract work
Costs associated with utilizing the services of additional persons to assist in harvesting the crop, or a skilled person or specialized equipment operator (e.g., a custom combine operator) to complete work. The recipient may hire the individual, who is not a member of the benefit unit, for a specific skill and specific job only.
The recipient is required to show documentation to indicate the amount the contractor is paid and how they will be paid (e.g., certain amount of money up front, balance upon completion of the job that they are hired for) and the completion date. This procedure should be followed each time custom or contract work is required to complete farm activities. The contracting of these services should occur infrequently and should involve on-going contractual agreements.
Delivery, freight or express costs to deliver or receive goods
Expenses for delivery, freight or express costs to deliver or receive goods include the costs incurred to ship items for sale, or the costs of handling of goods used to generate income for the farm.
Costs associated with contributing to Employment Insurance special benefits (i.e., maternity benefits, paternity benefits, sickness benefits, and compassionate care benefits) are considered an allowable expense. This includes contributions that are made voluntarily, as well as those that are required by the federal government.
Costs of items rented or leased for the farm operation (e.g., machinery) on a monthly rental basis.
Cost of insurance for fire, theft, liability, buildings, and crops and livestock. If the farm is located on the applicant or recipient’s principal residence, only the difference between home and farm insurance is deductible.
Costs of supplies purchased for use in the operation of the farm including, but not limited to: containers, twine and bailing wire; feed, supplements, straw and bedding; fertilizers and lime; livestock (e.g., cattle, horses, poultry, sheep and lambs, and swine); fungicides, herbicides, insecticides, pesticides; seeds and plants; and veterinary fees, medicine and breeding fees.
In-kind or bartered items
Costs associated with transactions involving in-kind exchange, barter or exchange of goods or services (where no money is exchanged). A cash value should be established and included as farm income and a corresponding farm expense can be assessed against the bartered, in-kind item.
Licenses or required fees for membership in trade
Costs of vendor licenses, building permits and memberships in trade or commercial associations. Club memberships for personal or recreational use are not an approved expense.
Maintenance of land
Costs incurred for clearing, levelling or improving land, provided the land is being cultivated or will be cultivated as a result of the improvement. Costs incurred for a land drainage system, including tile drainage, may also be considered farm expenses. Verification of the necessity should be made prior to approving the expense.
Municipal property taxes
Costs of taxes incurred from carrying out the farm operation on premises other than the recipient’s principal residence. Only the farm portion of municipal property taxes is considered an expense where the recipient who is farming also resides on the farm.
Rent and mortgage costs for farm premises
Costs for farm premises include the costs of rent and mortgage (principal and interest) costs on the farm property. No portion of residential costs may be deducted from farm earnings.
Repair and maintenance to equipment
Repair and maintenance to equipment expenses are the costs of any maintenance or repairs required to the farm and/or farm equipment (e.g., machinery, fence repairs, building repairs, etc.). The necessity for the repair, including existing repairs that are required, should be reviewed before considering the expense as approved.
Costs for a business line to support the operation of the farm. Costs associated with a residential line are not considered farm expenses. The costs of certain business-like telephone features (e.g., call answer, call display, etc.) on a residential line may be deducted as a business expense.
Other expenses such as answering machines, pagers, a fax line, and/or an internet connection may also be considered as a farm expense if they are considered vital to the farming operation.
Costs of heating, water and electricity required for the farm where it is operating separate from the principal residence. Utility expenses may be deducted only to the extent they were incurred to operate the farm
Expenses for personal vehicles are the travel (mileage) and ownership costs necessary to operate the farm and generate income. Where use of a personal vehicle is necessary, a record of travel (i.e., a travel log) should be maintained by the participant.
For passenger cars, light trucks and vans, the per kilometre rate is 41 cents in North and Northeast Regions and 40 cents in the rest of Ontario.
Expenses incurred travelling from home to the place of the farm operation are not deductible. No additional vehicle expenses (e.g., parking, repairs, depreciation, etc.) are approved when personal vehicles are used. Expenses for travel costs are presumed to cover the farm-related portions of fuel, vehicle maintenance and insurance.
Vehicles necessary for the operation of the farm and used exclusively on the farm (e.g., tractor, combine, etc.), are considered tools of the trade and are exempt assets.
Farm vehicles should be owned or leased and operated by the person who is the self-employed farmer. The self-employed farmer is required to make a declaration confirming the vehicle’s use. If these conditions are not met, then the personal vehicle policy applies.
When the vehicle is used exclusively for the farm, approved costs include: current and necessary maintenance and repairs; fuel costs including gasoline, diesel and oil; insurance; leasing or loan repayments; and licence and registration fees. The kilometre rates used for personal vehicles do not apply to farm vehicles.
The self-employed participant is expected to maintain a travel log confirming the vehicle’s use. The participant should be asked to submit a statement confirming the vehicle’s odometer reading. This information may be crossed-referenced with the distance travelled as recorded in the travel log.
Unapproved farm expenses
Unapproved farm expenses may be incurred by the farm operator, but are not approved as farm expenses for the purposes of determining net farm income.
Depreciation on farm assets and vehicles is not an approved expense for the purpose of determining net farm income.
Asset purchases and sales are reported and treated on a cash basis. Therefore, the cost of an asset is recognized when it is first incurred.
Entertainment and gifts
Expenditures on entertainment (e.g., meals) and gifts are not approved expenses.
Farm losses are not approved expenses. A farm will often lose money in a given calendar month especially in the early stages of operation. In this case the farm income is recorded as $0. Losses may not be carried forward to offset earnings in future periods.
Personal draws and owner’s withdrawals
A personal draw or withdrawal by the farm owner is not an approved farm expense and should be included as earned income to the farm owner.
Wages paid to members of the benefit unit
Wages paid to employees of the farm who are a part of the benefit unit, including the recipient, and/or dependent children, are not approved expenses.
Related payroll expenses (e.g., income tax, EI, CPP, Workplace Safety and Insurance Benefits, etc.) for any member of the benefit unit that is an employee of the farm are also not approved expenses. The participant may deem this expense as necessary, however, it is considered as earned income.
Treatment of assets
Tools of the trade exemption
Machinery, equipment and other items required to generate income from a farming operation are considered "tools of the trade" and therefore exempt as assets.
Closing the farm
If an applicant or participant states they are closing the farm, the assets directly related to the farm such as inventory, farm equipment, and items not considered tools of the trade should be liquidated.
Closing the farm or turning the farm over to a third party would not necessarily mean ongoing eligibility for assistance. Any income received from the liquidation of farm assets is considered as income.
If an applicant or participant states they are closing the farm, a grace period of six months shall be given to arrange the liquidation of the assets. When determining an applicant or participant’s financial need, the assets directly relating to the farm such as tools, farm equipment or office supplies are considered as exempt for a six month period.