From: AlanBaggett@volcanomail.com   
      
   Current or capital expense? Knowing the difference is key : CRA SOTW   
      
   Aug. 6th, 2015by Grant Diamond    
      
   Who doesn’t want an immediate writeoff?   
      
   Unfortunately, Canada Revenue Agency classifies business expenses into two   
   categories: current and capital expenses.   
      
   Current expenses give rise to an immediate writeoff while capital expenses do   
   not. Capital expenses are for depreciable assets and are written off over a   
   period of years.   
      
   The number of years depends on the specific type of depreciable capital   
   property. In effect, you are receiving your tax deduction over time and not   
   all in the tax year in which the asset was bought.   
      
   It’s understandable to kid yourself that most outlays are current expenses   
   or deserve to be. Unfortunately, we are not the ones who have the final say.   
   The CRA has that power and it provides guidelines that place expenses squarely   
   in one category or    
   the other.   
      
   Generally, current expenses occur with some frequency over a short period. For   
   example, the maintenance and upkeep of a building by painting it would be   
   classified as a current expense, and the cost of doing so is deductible in the   
   year that the expense    
   is incurred.   
      
   However, putting vinyl siding on the same building is considered to be   
   providing a lasting benefit or advantage to the asset, and that falls into the   
   capital expense category.   
      
   The acid test is if the expense extends the useful life of the property or   
   improves it beyond the original condition. If so, it is considered a capital   
   expense.   
      
   Oddly enough, an increase in property value resulting from the expense is not   
   considered as a major factor in determining the type of expense.   
      
   The CRA has establishing the following criteria to determine whether an   
   expense is capital or current:   
      
    Capital – Providing a lasting benefit to a building or property, such as   
   the addition of vinyl siding.    
    Current – Painting the exterior to the same building as part of its   
   regular maintenance or upkeep.    
    Capital – Improving the property beyond its regular condition as in   
   replacing wooden steps with concrete ones.    
    Current – Repairing the same wooden steps.    
    Capital – Acquiring new assets, which may or may not replace existing   
   assets such as buying a compressor for use in a business. The compressor is   
   considered an asset that is separate from the building that houses it.    
    Current – Rewiring the same building, as long as it is considered   
   maintenance and upkeep and does not improve the asset beyond its original   
   condition.   
      
   The value of the expense comes into play only if it is considered significant   
   in relation to the value of the property.   
      
   How would building a well on your property be treated? Any assets used in   
   building or attached to the well would be capitalized. However, labour to   
   build the well is considered a current expense.   
      
   Determining whether something is a current or capital expense can seem to be   
   open to interpretation. Recording it incorrectly could result in additional   
   taxes owing and interest from a reassessment.   
      
   Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that   
   specializes in farm tax. Contact: fbc@fbc.ca or 800-265-1002.   
      
   ----------------------------------------------------------   
   Miss a Tax Tale Miss a lot!   
   Visit the CRA SOTW Library at http://canada.revenue.agency.angelfire.com   
      
   ------------------------------------------------------------   
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