How Will Past Farm Losses Be Treated After The Craig Decision?

Article by Greg Gartner CA, QC and R. Daniel Lyons LLB, LLM (Tax)

In Canada v. Craig, 2012 SCC 43, the Supreme Court of Canada modified the combination test for determining whether the restricted farm loss rules in section 31 of the Income Tax Act (the "Act") apply to farming losses. We discussed this case in our August 2, 2012 blog. This may have an impact on taxpayers whose farming losses, as a result of the Craig decision, are no longer considered to be restricted farming losses and how those losses were applied in the taxation year in which they were incurred.

Restricted Farm Losses

Restricted farm losses are calculated by section 31 of the Act and apply where the taxpayer's chief source of income is not farming. The loss is limited to a maximum of $8,750 for any given taxation year and can be applied against other sources of income for the taxation year in which they are incurred. Any amounts in excess of $8,750 are "restricted" and are carried forward.