If you’re a certified forest producer (or a member of a partnership that’s a certified producer under the Sustainable Forest Development Act), you can request that a portion of your net income from the non-retail sale of timber produced on privately owned forest be averaged out over a period of no more than 7 years. To do this, you’ll need to complete form TP-726.30-V.
Averaging your income over several years allows you to deduct a portion of your net income from the non-retail sale of timber (to a Québec establishment) when calculating your taxable income for the year. This means, if you have a particularly good year in terms of sales, you won’t have to pay as much tax on your income as you would if you were reporting it all in the year the sales occurred.
The total amount you deduct must be included in your income no later than the seventh year following the year in which you request income averaging. You must also include any portion of the amount granted as a deduction that hasn’t yet been included in the calculation of your taxable income for:
- The year in which you disposed of the private forest
- The year in which you ceased to be a member of the partnership (if applicable) or
- The year that includes the end date of the fiscal period in which the partnership disposed of the private forest
To calculate the amount that you can deduct, complete the TP-726.30-V page in H&R Block’s tax software and then choose whether you want to deduct the maximum or another amount in the OPTIMIZATION section of the WRAP-UP tab.
What does income averaging involve?
Revenu Québec states that income averaging involves the following:
- Deducting no more than 85% of the lesser of $200,000 and your net income for the year (when calculating your taxable income for 2016, 2017, 2018, 2019, and 2020)
- Including in your taxable income for one or more of the seven years following the year in which the deduction was granted, at least 10% of the amount you deducted
Am I eligible?
To average out your income:
- You must be a certified forest producer or a member of a partnership that is a certified forest producer
- You must be a resident of Québec on December 31 of the year you’re making the request.
- The timber sold must have been from a private forest and
- The timber must have been sold to a buyer with an establishment in Québec
According to the Sustainable Forest Development Act, a certified forest producer is a person (or partnership) who owns one or more parcels of land and the total forest area is at least four hectares. Additionally, a forest producer:
- has a forest development plan for that area that is certified by a forest engineer as being consistent with the by-laws of the regional agency for private forest development that has jurisdiction in the area, and
- registers the total forest area of the unit of assessment, and any modification that affects it or changes its size, with the Minister or with any person or body designated for that purpose by the Minister.
How do I become a certified forest producer?
To become a certified forest producer, you or your partnership must complete the Forest Producer Registration Form. Once you receive your certificate, be sure to keep it with your records in case Revenu Québec wants to see it later.
Where do I claim this?
Follow these steps in H&R Block’s 2017 tax software:
Before you begin, make sure that you told us that you lived in Québec on December 31.
- On the PREPARE tab, click the OTHER icon. You will find yourself here:
- Under the OTHER TYPES OF INCOME heading, select the checkbox labelled, Income averaging for a forest producer (TP-726.30-V), then click Continue.
- When you arrive at the page Income averaging for a forest producer, enter your information into the tax software.
- You can find the amount you claimed for this deduction last year on line 297 of your 2016 Québec tax return (point 21). However, if you claimed multiple deductions on line 297, enter the amount shown on line 22 of your 2016 TP-726.30-V form in the designated field on the TP-726.30-V page in the tax software.
- You’ll need to include at least 10% of the amount you deducted last year in your taxable income for 2017.