How do I report my fishing income?
February 28, 2017
When it comes to tax time, Fishers have two options on reporting their income:
- The cash method: You report income in the year it is received.
- The accrual method: You report your income in the year it is earned. If you’re using the accrual method, you need to take inventory of fish, fish by-products and supplies at the end of each year.
The CRA lets you change from the accrual method to cash at any time. If you do decide to switch, make sure you provide a statement that properly reflects the adjustments to income, and expenses because of the change. Changing from cash to accrual is a bit more complicated, and you need to get permission from the CRA to make this change.
T-Slips & other documents
You might receive a T4 slip for certain types of income, but it’s important to report all the fishing income you receive, whether you have a slip or not. This includes income from:
- The sale of fish directly to the public, retailers or restaurants, as well as sales on the high seas
- Irish moss, seaweed and kelp sales should be included
- Income for services such as boat repairs, trucking fish and selling fish gear and bait.
- Any bonuses from boat owners and buyers must be reported as income
All income that is reported to you by designated employers for EI purposes is reported on T4 slips, just like any other occupation.
How do I report dividends, grants and subsidies?
If you’re a member of a co-operative store, then you probably get a dividend at the end of the year based on how much you spend. For personal shopping, the dividend is not taxable; but, if you’re shopping for your fishing business, then the dividend needs to be included in your business income.
Grants, subsidies and rebates are all handled in the same way.
How do I claim my capital property?
Any money related to the purchase of capital property (like a new boat) should be deducted from the capital cost of the property, rather than being included in income. For example, rebates on boat construction or on the purchase of an engine will reduce the capital cost of the boat. Rebates for the purchase of supplies, fuel and insurance are deducted from the corresponding expenses, or can be simply included in income.
Compensation or insurance proceeds for lost or destroyed property are proceeds from the disposition of the property. So, if something happened to your boat or other piece of property, compensation or insurance received for lost or destroyed items that were claimed as an expense must be included as income.
What can I expense?
Reasonable expenses that you take on to earn an income as a Fisher can be deducted on your return. It’s important to make sure your expense claims aren’t duplicated. Any expenses you incurred and paid for can only be deducted once, even if there’s more than one way to deduct them.
Most expense claims are straightforward, but a few have special rules. For example, if you fish offshore, you can deduct the total amount you paid to feed your crew. But if you’re an inshore fisher, you can only claim food purchased for employees if they were at sea for more than 36 hours, or, if the meals are considered a taxable benefit to the employees. Meals for sharespeople aren’t deductible.
Gear such as knives, small supplies, gloves and rubber or oilskin clothing used for fishing can all be claimed on your return. Other types of clothing or gear are considered personal expenses and aren’t deductible.
Prepaid expenses have a different set of rules. These rules don’t allow cash-basis Fishers to reduce their income for a specific taxation year. This means you can’t claim expenses (other than inventory) in the year you took them on if they’ll relate to a taxation year two or three years from now.
For example, if you pre-paid for a $24,000 boat rental on a three-year contract, you can deduct 50% or $12,000 in the current tax year. This 50% represents the part of the expense that applies to the current year and the following year. You’d then deduct the balance of $6,000 in the third year of the contract.
The cost of renewing annual licenses is an expense; but the cost of buying a license is actually an eligible capital expenditure, that can be amortized at a rate of 7% a year.
Nets and traps are considered capital property, so a Capital Cost Allowance (CCA) can be claimed at a rate of 20% a year – this includes lines, hooks, buoys, anchors and radar reflectors. Or, you can claim the actual loss in value each year using the inventory method. All new businesses must use one of these two methods. If you’ve been fishing for awhile and have been writing off the cost of the nets and traps you replace each year, then you can continue to use this method.
Boat and engine repairs can be expensed each year, but structural changes, additions to a boat and engine replacement must be claimed as capital costs. Most boats fall into Class 7 with a CCA rate of 15%. To encourage the construction or conversion of new fishing vessels, a special rate of 33.3% is available for boats built and registered in Canada, that weren’t used for any other purpose before their purchase or conversion.
How do I use my Investment Tax Credits?
Fishers in Atlantic Canada may be able to claim an investment tax credit of 10% for most new capital assets that were purchased primarily for your fishing business, including fishing vessels, nets, traps and buildings erected on land that’s owned or leased by you.
The tax credit is claimed on the income tax return for the calendar year in which the property becomes available to use. The credit can then be used to reduce current-year federal tax. If you don’t use the entire amount, you can carry the amount for up to three years. If there’s still some credit left over, you can request a 40% refund of the remaining balance on your current tax return. Any balance that is left after that can now be carried forward for up to 20 years.
Remember that any investment tax credits you claim in a year will reduce the capital cost of that property by the same amount. The adjustment needs to be made before you calculate your capital cost allowance for the following year.
Have more questions about reporting your fishing income?
Come in and chat with a Tax Expert at anoffice near you
. Ready to file? Do it yourself with ourfree online software
This article provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this bulletin can be accepted by H&R Block Canada, Inc.