GST/HST and farming: What you need to know

Although the GST/HST has been in place since 1990, questions still arise about which farming-related items are taxable and which are zero-rated. Understanding these rules helps you avoid costly mistakes and manage your farm finances more effectively. 

The general rule 

Farmers typically don't charge GST/HST on sales of basic agricultural products but do pay GST/HST on regular purchases. However, several exceptions can affect your farm operations. 

For GST/HST purposes: 

• Taxable: Subject to GST/HST at the prevailing provincial rate (5%–15%, depending on the province) 

• Zero-rated: Subject to GST/HST at 0% 

• Exempt: GST/HST does not apply, so GST/HST paid to make exempt supplies is not eligible for input tax credit 

What you need to know about farm equipment 

To ease cash flow concerns, the CRA allows certain farming equipment to be zero-rated if it's used for farming and meets specific design criteria related to size, capacity, or horsepower. 

Key points for equipment: 

• Tractors must have at least 60 PTO horsepower to qualify 

• Equipment modified for non-farm use (such as a tractor adapted for snow grooming) becomes taxable 

• Accessories sold with zero-rated equipment and installed at the time of sale are treated as zero-rated 

• Accessories sold separately are taxable 

For equipment leases: 

• Renting zero-rated equipment means GST/HST applies 

• Lease with purchase option means the buyout portion is zero-rated 

When commodity sales are taxable

Many farmers assume GST/HST never applies to commodities, but that's not always true. Here's what you should watch for: 

Livestock: 

• Animals not for human consumption (horses, dogs, cats, mink) are taxable
• Rabbits are zero-rated if raised for meat but taxable if sold as pets 

Hay, silage, and fodder crops are zero-rated only if: 

• Quantity exceeds one large bale (750 kg), and
• Used to feed livestock or poultry for human consumption 

Note: Hay for horses is taxable regardless of quantity 

Seeds are zero-rated if: 

• Small seeds must be packaged in quantities over 125 grams
• Large seeds (peas, beans) must exceed 5 kilograms
• Must be for crops intended for human consumption or livestock feed 

Fertilizer is zero-rated if: 

• Supplied in bulk (at least 25 kg per unit) and the total amount is at least 500 kg 

Other taxable items: 

How rentals are treated 

Understanding rental income rules helps you stay compliant and avoid penalties. 

• Residential rentals: GST/HST exempt

• Commercial farm rentals: GST/HST applies to land and equipment rentals 

• Sharecropping income: Not subject to GST/HST except for any rental component aside from a share in the crop 

New housing rebate opportunities 

Farmers who build or substantially renovate homes may qualify for the GST/HST new housing rebate, which applies to GST or the federal portion of HST on new or renovated homes used as primary residences. 

Qualifying requirements: 

• Substantial renovation means 90% or more of the interior is replaced 

• Additions together with renovations substantial enough to be viewed as a new house 

• Federal rebate available for homes valued up to $450,000 or up to $1,500,000 for eligible first-time home buyers 

• Provincial rebates vary by province 

Other considerations for your farm

• Mixed-use properties: GST/HST treatment depends on the proportion of residential versus commercial use. Purchasers often need to self-assess GST/HST on the commercial farm portion of the purchase price. Going forward, pro-rating expenses between the commercial farm portion and the exempt residential portion is important to track GST/HST correctly. 

• Farm corporations: Ensure proper GST/HST registration and filing for multi-entity operations. 

• Digital sales: GST/HST rules for online farm products apply based on the buyer's location. 

• Imported farm supplies: May require self-assessment of GST/HST. 

Key takeaways 

1. Review CRA GST/HST Memorandum 4.4 for detailed rules on zero-rated equipment and farm products 

2. Keep accurate records of all purchases, leases, and sales to support your GST/HST filings 

3. Don't claim input tax credits on residential rental expenses- this can trigger penalties 

4. Equipment specifications matter- ensure tractors have at least 60 PTO horsepower to qualify as zero-rated 

5. When in doubt, consult your tax advisor- penalties for incorrect GST/HST treatment can be significant 

Our farming tax specialists at Baker Tilly can guide you through GST/HST compliance and planning. Contact your advisor for personalized support.