Farming, Defined: A Field Guide to the Income Tax Act for Okanagan Growers, Vintners, and Weekend Ranchers

Between the tree fruit around Summerland, the vineyards climbing the Naramata Bench, and the acreages scattered from Lake Country to Osoyoos, the Okanagan produces more farmers per square kilometre than almost anywhere else in the country. So you'd think the Income Tax Act would have a crisp, tidy definition of “farming” ready to go. It doesn't, really, what it has instead is a short list, a lot of case law filling in the gaps, and a couple of tests the CRA applies to decide whether your operation is a business or just a very pleasant way to spend your weekends. Let's walk through all of it, because the answer touches more than you'd think: whether you can use the cash method of accounting, whether you're tracking livestock inventory, whether your land might one day qualify as qualified farm property, and how a bad-year loss actually gets treated on your return. 

The Act's own list 

Subsection 248(1) of the Income Tax Act defines farming to include: 

• tillage of the soil; 

• raising or exhibiting livestock; 

• maintaining horses for racing; 

• raising poultry; 

• fur farming; 

• dairy farming; 

• fruit growing; and 

• bee keeping. 

“Fruit growing” does a lot of quiet work on this list, it's broad enough to cover the cherries in Lake Country, the apples around Summerland, and the grapes on the Naramata Bench without any of them needing a special mention. But the Act was never trying to name every possible farm activity; this list is a floor, not a ceiling. For anything not spelled out, you fall back on the plain, ordinary meaning of the word, and for a couple of the items that are spelled out, that ordinary meaning turned out to need some help from the courts. 

Livestock and poultry, decoded 

“Livestock” isn't defined in the Act, so the courts have had their say. In Sniderman v MNR, the Tax Court of Canada landed on something close to: domestic animals such as cattle and pigs, kept on a farm for use and commercial profit — which is about as folksy as tax jurisprudence gets. Poultry gets similar ordinary-meaning treatment and generally sweeps in geese, turkeys, ducks, and chickens, along with pheasants, partridges, and quail if that happens to be your operation. 

Beyond the list: what the CRA also lets in 

On top of the eight items named in the Act, CRA guidance extends “farming” to a handful of activities that never made the statutory cut but are treated the same way: 

• aquaculture operations; 

• operating a woodlot under a proper management plan; 

• planting and harvesting Christmas trees; 

• running a nursery or greenhouse; 

• growing tobacco or medicinal cannabis (though not manufacturing or processing it); 

• operating a chick hatchery; 

• running a maple sugar bush; and 

• growing crops in water or via hydroponics. 

A few worth knowing about 

A couple of these are worth a quick note. Woodlots are a judgment call: if the main focus is planting, nurturing, and harvesting trees under a proper forest management plan, that leans toward farming; if the main focus is cutting down trees and selling timber, a bit of reforestation afterward won't turn a logging operation into a farm. Aquaculture, raising fish or shellfish in a controlled environment, with real feeding and monitoring, also counts as farming, which matters for any property with a stocked pond or dugout; but a line cast into Okanagan Lake for a wild kokanee is just fishing, controlled environment or not. 

What farming leaves out in the cold 

Just as important as what's included is what's specifically excluded. Farming does not include: 

• raising or exhibiting wild or exotic animals (a private menagerie doesn't become a farm just because there's fencing around it); 

• producing methane gas from manure, or generating electricity from it; 

• raising or breeding animals, fish, or insects for sale as pets; 

• trapping; 

• working for a farmer as an employee, or providing services to one (veterinary work, landscaping, agronomy consulting, and the like); 

• certain equine services — riding lessons, dressage training, boarding, and quarantine services; 

• sharecropping and similar rent-for-a-share-of-the-crop arrangements, at least in their classic landlord/tenant form (custom-work arrangements that go further can be a different story); and 

• fishing — always, regardless of how sophisticated the operation. 

Processing: usually excluded, occasionally along for the ride 

Manufacturing and processing generally sit outside the definition of farming. But CRA carves out an exception where the processing is incidental to growing the product and necessary to make it saleable in the first place, making wine at an estate winery, or pressing cider from your own orchard's apples, are the classic examples, provided the processing is genuinely an integral extension of the growing operation rather than a separate business bolted on afterward. 

From activity to business: does it actually count? 

Knowing that an activity qualifies as farming is only step one. Step two is figuring out whether you're running a farming business, because that's what actually determines how losses get treated at tax time. The Supreme Court of Canada tackled this exact issue in the companion cases Stewart v Canada and Walls v Canada, both decided in 2002: where there's a personal element to an activity, the question becomes whether it's being carried out in a sufficiently commercial manner to be treated as a business. CRA weighs a few factors in making that call: 

• the gross revenue and income or losses the operation has actually generated over past years; 

• the scale and type of activity, measured against comparable farming operations of similar kind, size, and location — a couple of backyard hens is a different proposition than a commercial poultry barn; 

• the time devoted to the operation relative to time spent on a day job or other income-earning work; and 

• how the operation has developed over time, and whether there are real plans (and resources) to expand it. 

Underlying all of this is a longer-term view of capital invested — buildings, machinery, equipment, breeding stock, plantings, accumulated over years, not just what's in the ground this season. Clear the bar, and there's a genuine perk waiting: section 28 lets taxpayers in a farming (or fishing) business elect to compute income using the cash method rather than full accrual accounting, a meaningfully simpler way to run the books than most small businesses get. 

One farm or two? 

Diversification is practically a house style in Okanagan agriculture, an orchard becomes an orchard-plus-cidery, a vineyard grows a tasting room and then a wedding barn. Every add-on raises the same quiet question: is this all still one farming business, or has a second, non-farming business quietly been born next door? It matters because different tax rules can apply to a farming business than to a non-farming one. 

The answer turns on the degree of connection, interlacing, dependence, and unity between the operations — not on whether the same equipment or inventory is used, and not on something as superficial as a name change or a change of location. CRA's own favourite illustration is the estate winery: where the winemaking is genuinely interlaced with the vineyard — the winery exists to commercialize grapes grown on-site, the whole thing is generally treated as one farming operation rather than a farm plus a separate manufacturing business. And where a taxpayer runs several different farming activities, say, apples in one block and cherries in another, those are usually one business too, even across different locations. 

Non-farming side activities can also get pulled into the farming business rather than treated as separate, but only where three conditions are met: the activity is related to the farming operation, it's small in scale, and the income it produces is genuinely incidental, a minor, subordinate slice next to the farm's main revenue. Grow past that, and CRA is more likely to see a second business standing on its own two feet. 

Putting it all together: meet Ridgeview Orchards 

Picture a fictional operation: Ridgeview Orchards, a family apple and cherry operation near Summerland. The core crop is unambiguous, fruit growing, straight off the statutory list. A few years back the family added a couple dozen beehives, both to pollinate the orchard and to sell honey at a farm-gate stand; bee keeping is right there on the statutory list too, so that's an easy yes. More recently they started pressing a small-batch cider from their own apples, sold at the same stand, processing that's genuinely interlaced with the orchard, so it rides along as part of the same farming business rather than becoming a separate one. 

Two things keep this family up at night at tax time, though. First, is the whole operation a business? With fifteen years of steady (if modest) profit, a full-time family member running it, and a documented plan to add another block of trees next year, the commerciality factors point convincingly toward yes. Second, last summer they started hosting a handful of weddings in the old barn. Unlike the cider, that revenue has nothing to do with growing or harvesting anything, and if it keeps growing into an actively marketed, meaningful revenue stream in its own right, it starts looking less like an appendage of the orchard and more like a separate hospitality business that happens to share a driveway with one. 

The bottom line 

“Farming” in the Act is a strange hybrid: a short statutory list that covers the obvious cases without a fuss, stretched further by CRA guidance, filled in at the edges by ordinary meaning and old case law, and then layered with two more tests, is it a business, and is it one business or two — before you know how any of it actually gets taxed. If your Okanagan operation does anything even slightly off the well-worn path — aquaculture, agritourism, a value-added product line — it's worth mapping out where you actually stand on all three questions before you build a business plan around an assumption. 

This article is for general educational purposes only and does not constitute tax, legal, or financial advice. Whether an activity is farming, whether it's a business, and whether related activities form one business or two are all questions of fact specific to each situation, and the outcome for your operation may differ from the examples discussed here. Please consult a qualified tax advisor before making decisions based on this content.