With the finicky economy and rising prices, things have not been good for many small and medium sized enterprises.
But as the year closes, it might bring some warm thoughts to business owners that they can take advantage of changes in Revenue Canada’s computer capital cost allowance (CCA) regulations. The CCA is a means by which Canadians may claim depreciation expense on tech products they have purchased for their business.
The CCA rate for computer equipment acquired after January 27, 2009 and before February 2011 has been increased from 55 per cent to 100 per cent with no half-year rule.
The half-year rule allows tax payers to claim only half of the CCA available on n asset in the year that asset was purchased. Doing away with the rule means businesses can claim a full-write in the first tax year that CCA deductions are available.
Depreciable assets come under various CCA rate class. Class 55 with a CCA rate of 100 per cent include general purpose electronic data processing equipment (commonly referred to as computer hardware) and systems software required for that equipment. The class also covers ancillary data-processing equipment, according to Revenue Canada.
To qualify for Class 52 allowance, Revenue Canada says the asset must:
- Be situated in Canada
- Not have been used, or acquired for use, for any purpose before it is acquired by the taxpayer
- Be acquired by the taxpayer:
– for use in a business carried on by the taxpayer in Canada or for the purposes of earning income from property situated in Canada; or
– for lease by the taxpayer to a lessee for use by the lessee in a business carried on by the lessee in Canada or for the purpose of earning income from property situated in Canada.
But is a 100 per cent write off what your business really needs at this point?
A tax strategy that small business owners can use to reduce their income tax is not to claim the full CCA in the year that it occurs.
Remember the CAA is not a mandatory tax deduction. You can use as much or as little as you wish of your CCA claim for a particular year. You don’t need to take full CCA benefit in a year that you have little taxable income.
With this strategy, business owners can carry forward any unused CCA portion to offset a larger income tax bill in the future.
To learn more about other CCA rates, go to the Classes of Depreciation page of the Canada Revenue Agency website.