TP-726.30-V: Income averaging for a forest producer

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 if the income is from sales made before March 10, 2020

  • 10 years if the income is from sales made after March 9, 2020

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.

To qualify for income averaging, the income must be from a tax year or fiscal period ending after March 17, 2016, and before December 31, 2025. The total amount you deduct must be included in your income no later than the 7th or 10th 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.

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 7 or 10 years following the year in which the deduction was granted, at least 10% of the amount you deducted

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.

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.

Follow these steps in H&R Block’s 2020 tax software:

Before you begin, make sure that you told us that you lived in Québec on December 31, 2020.

  1. On the PREPARE tab, click the OTHER icon. You will find yourself here:



  2. Under the OTHER TYPES OF INCOME heading, select the checkbox labelled, Income averaging for a forest producer (TP-726.30-V), then click Continue.

  3. When you arrive at the page Income averaging for a forest producer, enter your information into the tax software.

Notes:

  • You can find the amount you claimed in a previous year on line 297 (point 21) of your Québec tax return. However, if you claimed multiple deductions on line 297, enter the amount shown on line 22 of your TP-726.30-V form for that year 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 2020.