Section 30 - Improving land for farming

The costs of a drainage system included in a manure pit constructed by a farmer were deductible under s. 30.

Is a taxpayer, who owns and leases farmland on which the taxpayer is performing drainage work, deduct the cost of the pipes that are used for that purpose. Can a tenant farmer deduct such costs? CRA stated:

"[A]ny amount paid by the taxpayer before the end of the year for …installing a land drainage system” … includes the cost of drainage pipes, whether plastic or other material, and the cost of installing these pipes.

Consequently, a taxpayer who carries on a farming business may deduct the cost of the pipe and the installation of the pipe under section 30 in the years in which the taxpayer works that farmland as part of a farming business, either as a tenant or as an owner.

Nevertheless, when a taxpayer leases farmland that the taxpayer owns to someone else … "income … from a farming business" … means that an amount is deductible under that provision only by a taxpayer who carries on a farming business and not by a taxpayer who earns rental income.

In converting lands to a cranberry farm:

[L]and clearing, levelling and drainage expenditures could be deductible under section 30.

On the other hand, the expenses related to the construction of the basins and the development of the sandy bottoms are ... similar to surface construction ... [and] could be capitalized under [Class] 17(c) ... .

Furthermore, in general, with respect to the machinery required for the construction and carrying on of a Cranberry Farming business, we are of the view that it could be capitalized under the relevant depreciation classes in Schedule II of the Regulations (see the "Capital Cost Allowance (CCA) Rate" list on page 61 of the Guide). ...

[T]he cost of acquiring and installing the irrigation system ... are capital property that can be capitalized under Class 8 ... .

Farm A Inc. and a partnership (Farm B SENC) were both owned 50/50 by two spouses (Mr. A and Ms. B). Farm B SENC leased the farm land and buildings to Farm A Inc. for operation in the latter’s farming business. Farm A Inc. carried out mechanized work and drainage on the lands. In the course of a general discussion of s. 30 and after referring to the list of eligible expenses described in Guide T4003, CRA stated:

A taxpayer who incurs these expenses in the course of carrying on the taxpayer’s farm business is not required to deduct the full amount of these expenses in the year in which they were incurred. In particular, the taxpayer may deduct a portion in the year in which they were paid and carry the rest forward to another year. In this case, Farm A Inc. will obviously not be able to deduct the expenses contemplated in section 30 over a longer period than the number of years during which it can use the land and buildings under the lease granted by Farm B SENC.