T2042, the Statement of Farming Activities, is the CRA form self-employed farmers and members of farming partnerships use to work out farming income and expenses. You fill in a separate T2042 for each farming business and send it with your T1 return. The CRA's Guide T4002 explains every line, and farmers can use the cash method, which most other businesses can't.
This guide follows the 2025 version of the form, T2042 E (25), and Guide T4002 for 2025, as of October 2026.
Who uses T2042, and who doesn't
If you farm on your own account or through a partnership, T2042 is your statement. Guide T4002 says participants in the AgriStability and AgriInvest programs may have to use a different guide depending on their province, so check that first. Non-farm business income goes on Form T2125 instead, even if you farm too.
The nine parts
| Part | What it covers |
|---|---|
| 1. Identification | Name, SIN, farm name, business number, fiscal period, last year of farming, partnership details |
| 2. Internet business activities | Whether web pages or third-party platforms earn you farming income |
| 3. Income | Sales by product line, from grains to livestock, plus program payments and other income |
| 4. Net income before adjustments | Expenses, capital cost allowance and the inventory adjustments |
| 5. Your net income | Your share, partnership deductions and the amount that goes on your return |
| 6. Other partnership amounts | Expenses you paid that the partnership didn't reimburse |
| 7. Business-use-of-home | Heat, electricity and other home costs |
| 8. Other partners | Partner details, if no partnership return is filed |
| 9. Details of equity | Liabilities, drawings and capital contributions |
Cash or accrual: the farmer's choice
Guide T4002 says farmers, fishers and self-employed commission agents can use either the cash or the accrual method, while everyone else must use accrual. Under the cash method you report income when you receive it and deduct expenses when you pay them. If you farm on a cash basis but have a separate business, or for GST/HST or QST, you still use accrual for those and keep a separate set of records for each method.
The two inventory adjustments
Cash-basis farming has a known weakness: a big purchase of feed or livestock can create a loss you don't want. That's why T2042 has two adjustments.
- Mandatory inventory adjustment (MIA), line 9942: required if you use the cash method, have a net loss on line 9899 and still hold purchased inventory at the year end. It's the lesser of that loss and the value of the purchased inventory, worked out in charts 1 to 4 of T4002.
- Optional inventory adjustment (OIA), line 9941: an amount you choose to add to income, up to the fair market value of your whole inventory minus the MIA. Only cash-method farmers can make it.
- Last year's MIA and OIA come back as deductions this year on lines 9937 and 9938, so the adjustment evens out over two years.
The guide notes that inventory valuation doesn't apply if you're on the accrual method, because accrual already matches costs to income.
Expenses and capital cost allowance
Part 4 lists the familiar costs, from containers and twine to fertilizer, fuel, repairs, salaries and small tools. Motor vehicle costs come from a separate chart and exclude capital cost allowance. Capital cost allowance itself goes on line 9936, taken from Area A of the form, minus any personal part and any amount for business-use-of-home. Enter only the business part of every expense.
Farming through a partnership
Partners enter their share of the partnership's net income, usually from their T5013 slip, then use Part 6 for costs they paid themselves that the partnership didn't reimburse. Part 8 lists the other partners only when no partnership information return is required.
Dates for 2025 income
Guide T4002 says self-employed individuals generally use a December 31 year-end and file the 2025 return by June 15, 2026. Any balance owing was due April 30, 2026, so interest runs from then even though the filing date is later. Farmers who pay by instalments have a single date, December 31, rather than the four quarterly dates other businesses face.
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Program payments, rebates and losses
Part 3 isn't only crop and livestock sales. Guide T4002 says payments from federal or provincial disaster assistance programs go in as program payments, and payments under the Health of Animals Act for destroying animals are income too, though you can choose to deduct all or part of them and include that amount next year instead. A rebate, grant or assistance first reduces the related expense or the capital cost of the related asset.
Part 7 works out business-use-of-home costs such as heat, electricity, insurance, mortgage interest and property taxes, less the personal part. You claim the lesser of those costs, including any amount carried forward from last year, and your net income after adjustments, which is entered as zero if it's negative. So home costs can't create a farm loss, and the form has a line for the amount carried forward.
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If the farm shows a loss, T4002 sorts it into one of three types. A farm that isn't run as a business is treated as personal, and none of the loss is deductible. If farming is your main source of income, the loss is fully deductible. Anything in between is restricted, meaning only part of it can be deducted.
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The verdict
T2042 rewards farmers who keep two years in view. Pick cash or accrual deliberately, use the optional inventory adjustment to smooth a bad year, and remember both adjustments reverse next year. Then file one T2042 per farm with your T1 return by June 15, and pay by April 30.
Frequently asked questions
What is Form T2042?
The CRA's Statement of Farming Activities, which self-employed farmers and farming partners use to calculate farming income and expenses for their T1 return.
Can farmers use the cash method in Canada?
Yes. Guide T4002 says farmers can use the cash or accrual method for farming income, but must use accrual for separate businesses and GST/HST.
What's the mandatory inventory adjustment?
An amount on line 9942 that cash-method farmers with a net loss and purchased inventory still on hand must include, deducted again the next year on line 9937.
When is the T2042 due?
With your 2025 return by June 15, 2026, with any balance owing due April 30, 2026.
Do I report online farm sales on T2042?
Yes. Part 2 asks how many web pages and websites, including third-party platforms, earn you farming income, and the sales go in Part 3 with the rest.
When do farmers pay tax instalments in Canada?
Guide T4002 says farmers and fishers who pay by instalments have one due date, December 31.
Do I need a separate T2042 for each farm?
Yes. The form says to fill in a separate T2042 for each farming business.
