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Recent Changes to the Tax Treatment of the Horse Businesses

Many horse businesses are subject to special rules set out in section 31 of the Income Tax Act, R.S.C. 1985, c.1. (5th Suppl.), as amended (the "Act"), that severely restrict the deductibility of losses against other sources of income. Section 31 of the Act creates a restriction on the general ability of a farming business to deduct business losses where the losses are generated by a farming business which does not constitute a taxpayer’s chief source of income. It allows only the first $2,500 of the farm loss, plus one-half of the loss in excess of $2,500 to a maximum of an additional $6,250, to be deducted against other income ($8,750 in total). The amount of deduction permitted under section 31 in 50 years has grown from $5,000 to $8,750 at a time when the rate of inflation alone would make it over $50,000. Good News for Businesses: Recently, the…

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