Cumberland and Navan, Ottawa
Sideline farming and horse properties in Cumberland and Navan
East of the urban boundary the lots get large fast. Cumberland and Navan are full of properties that are neither houses nor commercial farms: ten to fifty acres, a barn, a paddock, a few head, maybe boarding for other people's horses, run by somebody who also has a full-time job. That combination produces the single most argued-about position in rural tax, which is a farming loss claimed against employment income. It is not automatically wrong. It is also not automatically allowed, and the rule that governs it is not the rule most people think applies. What decides the outcome is where farming sits relative to the rest of your income, and how the operation looks on paper over several years.
Why Cumberland and Navan is its own case
There are two separate gates and they get conflated constantly. The first gate is whether the activity is a business at all. The second gate, which only matters once you are through the first, is how much of the loss you may deduct against your other income. It is that second gate that catches Cumberland and Navan.
Where farming is carried on as a business but is not the taxpayer's chief source of income, the deductible loss for the year is restricted to a base amount plus a share of the remainder, up to a fixed ceiling. The rest is not lost, it becomes a restricted farm loss that can be carried back and forward and applied only against farming income in those years. So a full-time employee running a genuine but small operation typically gets a partial deduction now and holds the balance until the farm has income to absorb it. The history matters here: the Supreme Court once read this test generously, holding that a combination of farming and another source could still be the chief source, and Parliament then amended the provision to require that farming, alone or combined with a subordinate other source, be the chief source. The effect is that the restriction now applies to more sideline operations than it did before.
Horse operations add their own wrinkles. Animals bought to resell are inventory, while a breeding animal held for years looks more like a capital asset, and that distinction decides whether a sale is ordinary income or a capital gain. Horses also have their own treatment under the cash method's inventory rules, which exists precisely because farmers were creating losses by buying stock late in the year.
The work, as it applies here
Tax Expertise
The farm statement prepared so it can be defended: revenue and expenses that reflect the operation rather than the property, the restricted loss computed and tracked year over year, and the carryforward balance recorded so it is still there when the farm eventually turns a profit.
Detailed Bookkeeping
Books that separate the household from the operation, which is what a review turns on. Feed, bedding, vet, farrier, fencing and fuel recorded against the animals they relate to, boarding income invoiced properly, and the personal riding horse kept out of the numbers.
Strategic Planning
An honest session on whether the operation can plausibly reach profitability, what would have to change for farming to become the chief source, and what happens to the accumulated restricted losses if you scale up, wind down or sell.
Questions from Cumberland and Navan
- I board horses and lose money most years. Can I deduct that against my salary?
- Partly, if the operation is genuinely a business. When farming is not your chief source of income, the loss you may apply against other income in the year is capped at a base amount plus a portion of the excess, to a maximum. The remainder becomes a restricted farm loss which carries back a few years and forward many, deductible only against farm income. So the deduction is deferred, not denied. If the operation is not a business at all, none of it is deductible, and that is a different and harder argument.
- What does the CRA look at to decide my farm is a business rather than a pastime?
- Whether it is carried on in a commercial manner. In practice that means the things a business would have: a plan, records, invoices, a herd or crop of a size capable of generating meaningful revenue, arm's length customers, insurance, and expenses that scale with activity rather than with the household. Time committed matters, and so does whether you hold yourself out as selling something. Persistent losses on their own do not settle it, because plenty of real farms lose money for years, but persistent losses with no revenue and no records settle it quickly.
- Are my horses inventory or capital property?
- It depends on why you hold them. Animals acquired to be resold, including young stock bought to grow out and sell on, are inventory, and the proceeds are ordinary farm income. A mare kept for years to breed from is closer to a capital asset, and its sale can produce a capital gain instead. The distinction changes the tax rate on a sale substantially, and it also changes how the animal is carried on the statement. Because a horse can move from one category to the other in practice, the file should record what the intention was when it was acquired.
- My property is in the farm class for municipal taxes. Does that make it a farm for income tax?
- No. They are separate systems with separate tests and separate administrators. Ontario's farm property class and the provincial farm business registration requirement behind it look at gross farm income and at the land's use for assessment purposes. The Income Tax Act asks whether you carry on a farming business, and then whether it is your chief source of income. It is entirely normal to hold the farm property class and still face a restricted farm loss federally. The municipal designation is useful supporting evidence of activity, and nothing more than that.
- If we sell the whole property, is the house part taxed differently from the land?
- Yes, and there is a choice. The principal residence exemption covers the housing unit plus the land that contributes to its use and enjoyment, generally limited to half a hectare unless more can be shown to be necessary. The rest of a farm parcel is not covered. Where the property was used in a farming business there is a separate method available that treats the residence and its immediate land separately from the remainder, and the two approaches can produce meaningfully different results. Which one is better depends on how the value grew across the parcel, so it is worth calculating both before an offer is accepted.
- How many loss years can I file before the CRA takes an interest?
- There is no set number, and treating it as a countdown is the wrong frame. What draws attention is a pattern: farm losses of a similar size each year, offset against strong employment income, with no revenue trend and no change in the operation. A file with rising sales, a documented plan and losses that shrink is defensible for a long time. If a review does come, it will ask for the same things regardless of the year count, so keeping the records contemporaneously is what protects the claim, not staying under an imagined threshold.
Reading that applies
Also covered by this page
These neighbourhoods raise the same questions as Cumberland and Navan and are handled here.
- Notre-Dame-des-Champs A rural francophone community south of Innes Road on the Cumberland side of the city.
- Sarsfield A village on Colonial Road in the former Cumberland Township.
- Vars A village near the eastern city limit, on the rail line that carries trains to Montreal.
- Carlsbad Springs Named for the sulphur springs that supported a spa hotel there before the First World War.
- Bearbrook A hamlet on the creek of the same name in the former Cumberland Township.
- Piperville A crossroads settlement near Carlsbad Springs in the city's rural east.