This article was first published on May 13, 2020 and was revised on February 9, 2026.
Farming activities exist on a spectrum. At one end, full-time farmers operate with a reasonable expectation of profit and can deduct relevant expenses against farm revenue on their tax returns. Any farm losses can be deducted against all other sources of income. On the other end is hobby farming - a growing interest with distinct tax treatment. This article explores the differences between these classifications, what they mean for your tax obligations, and how to determine which category applies to your situation.
The farming classification spectrum
Full-time farming involves getting into the business with a reasonable expectation of profit. Full-time farmers report all farm revenue and deduct relevant expenses, with any losses applied against all other income sources.
Part-time farming applies when you have a regular income source outside the farm but still maintain a reasonable expectation of profit from farming. Reporting your farm as a business can be advantageous when expenses exceed income - these losses, with certain limitations for part-time farmers, can be applied against other income sources or carried forward against future farming income.
Hobby farming represents a different category entirely. Without the reasonable expectation of profit that defines the other two classifications, hobby farming has unique advantages and limitations worth understanding.
What is hobby farming?
Hobby farming has grown significantly in recent years. More Canadians are engaging in farming activities to support their lifestyle and personal interests rather than as a primary income source.
hobby farming is primarily recreational, with no realistic expectation of regular profit.
Hobby farmers typically have income sources outside their farming activities but engage in agriculture for various reasons:
An interest in producing local, sustainable food
Raising livestock for personal use and enjoyment
Lifestyle motivations and connection to the land
While hobby farmers may generate some revenue from their activities, these revenues typically arise from selling surplus production above personal needs or offsetting costs - not from generating profit. The Canada Revenue Agency considers these activities recreational when there's no reasonable expectation of profit.
The tax implications of hobby farming
If you're classified as a hobby farmer, you don't have to report your farm income on your tax return. However, losses related to this activity cannot be applied against other income sources.
Simplified tax compliance with no requirement to track and report farm income.
You cannot use farm losses to reduce your overall tax liability.
Many farmers with significant income from other sources and a small, non-profitable farm attempt to deduct their farm losses. This is only permissible when you can demonstrate a realistic expectation of profit, which doesn't apply to hobby farms.
Classifying a farm
When your farming activities could fall into the hobby farming category, we recommend an annual discussion about classification. While using losses to reduce tax liability may be tempting, this requires part-time farmer classification - not hobby farmer classification.
If classified as a part-time farmer, you'll need to demonstrate to the CRA that there's a reasonable expectation of profit. Consider this: if you turn a profit in the future, you'll be obligated to pay tax on that income. This income will likely be taxed at a higher marginal rate because it adds to your usual income sources.
Factors we consider when discussing farm classification with clients include:
Size of land base and productive capacity for the farm products grown
Total annual gross revenue
Whether there's a personal or lifestyle component
Organization of financial records as a separate business
Farm planning, production, and marketing strategies
Farming activities may evolve over time. What starts as a hobby farm could develop into a part-time farm if certain factors change.
Other income potential
Even if your farming activity is primarily recreational with little income, consider the potential for your land to increase in value during your ownership period.
Full-time and part-time farmers can potentially access this exemption and pay reduced tax on the increase in farmland value.
If you classify yourself as a hobby farmer throughout the life of the farming activity, your land will not be considered qualifying farm property and won't be subject to the lifetime capital gains exemption when you sell.
However, simply classifying yourself as a part-time farmer doesn't automatically qualify you. For the capital gains exemption to apply, farming must be your main source of income for a period of that ownership.
Choosing the right farm classification now helps you avoid complications down the road. Whether you're considering or already working the land, your Baker Tilly advisor can help you understand how your classification affects your tax position today and what it means for your future.
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