I quite like tax time as I'm one of those strange people who actually really likes to crunch numbers and fill in tax forms. I also paper file my taxes, after all, tax receipts come to me in duplicate or triplicate, they've got to go somewhere!
I'm quite diligent with numbers and record keeping, so all my yearly expenses are spreadsheeted, usually within a week or so of expenditure. But reconciling and properly filing everything at tax time still takes a day or so as I confirm that data has been entered correctly and deposits throughout the year have all been accounted for.
In 2010, the farm grossed just over $17K in vegetable, egg, meat and Christmas wreath sales. Operating business expenses totalled just under $10K and for this year, it's finally worth it for me to claim all my capital cost allowances (CCA) for the year, totalling over $13K. This brings farm income to a net loss of about $5K which, slightly decreased by my off farm income, means I can carry back a loss to a previous tax year. I'm picking 2007 as the furthest year I can carry it back to, also because that's the year in which I made the most money I'll probably ever make in my life ;P I doubt the loss carryback will return too many of my 2007 tax dollars to me, but every dollar back is welcome!
A net farm loss of $5K is about $10K less than Canada's average net farm income (-$15K the last time I looked at stats...may actually have increased to -$20K by now ;P). And that's in my second year of operation, which is essentially still a start up year, which is why I have so much in CCAs to claim! As the years go by, the yearly CCA amount will decrease. I'm hoping that for 2011, I'll have enough net income to start claiming the over $17K I have in moving expenses for 2009. Moving expenses are great because they decrease your net income as opposed to being a tax credit (which aren't much use to me any more ;P). I couldn't believe how much moving expenses could add up to, especially given that the real estate agent's sales commission on my condo is claimeable as a moving expense! And all legal fees for the condo's property sale and farm's purchase! I confirmed on the phone with the CRA today that I can carry forward those expenses indefinitely until I generate enough net income to use it up (Income Tax Act, Subsection 62(1)). I'm pretty sure I'll be able to use it up in 2011 and 2012, which means that I'll actually have enough net income to need to pay taxes in 2013, which would be my 5th year of farming. Strange to think that I aspire to paying income taxes, but to me, having a net income in the taxable range (for 2010, anything over $8943 for Ontario and $10,382 federally) means I'm making it as an organic farmer :D
If you're wondering how the average farmer can survive with a net farm income of -$15K per year...it's because they either have an off farm job, a spouse with an off farm income, or are heavily in debt ;P Essentially, the food we buy at grocery stores is subsidized by farmers themselves. Such a broken system.