Restricted Farm Losses

For both federal and Quebec tax purposes, restricted farm losses are losses incurred by a taxpayer whose chief source of income is neither farming alone nor a combination of farming and a subordinate source of income. A part-time farmer who carries on a farming business with a reasonable expectation of profit, but relies more heavily on off-farm income, would be subject to these restricted farm loss rules.

Example:

Mathieu, a mechanic with a secondary farming business in Quebec, has employment income of $60,000 from his mechanic work and a net farm loss of $50,000 in 2024.

Answer:

Since farming is not Mathieu's chief source of income, his farm loss is restricted. His current-year deductible portion is limited to $17,500.

On his federal tax return, Mathieu deducts $17,500 on line 14100 of his T1 return, while the remaining $32,500 is a restricted farm loss that can be carried forward for up to 20 years to offset future farming income.

On his Quebec tax return, Mathieu reports his farming activities similarly, deducting $17,500 and tracking the remaining $32,500 in restricted farm losses for carry-forward against future farming income.