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Home -> Business -> Capital or ExpenseCapital or ExpenseEveryone in business, or with a rental property, is faced at some point with the decision as to whether an expense is capital or current in nature - in other words, whether the cost should be capitalized or expensed. There are general guidelines that can be followed to determine the answer, but these guidelines don't always fit the situation. Current expense:
Capital expenditure:
Capital vs Expense Court CasesAn excellent example of the capital vs expense conundrum was decided by the Tax Court of Canada in Aon Inc. v. The Queen, 2017 TCC 166, with the decision of the court allowing the re-roofing cost of over $4 million as an expense. See the Video Tax News analysis of this decision. Repairs And Maintenance Costs in Real estate Rental Business: Canadian Tax Lawyer Guide from Taxpage.com discusses court cases where, contrary to CRA guidelines, the costs incurred were found by the court to be repair expenditures, not capital expenditures. From vLex Canada re Gold Bar Developments Ltd. v. MNR (1987), "The court stated that what was done by the taxpayer was "neither more nor less than was required to replace the deteriorating and dangerous brick condition", nor was it a "voluntary expenditure with a view to bringing into existence a new capital asset for the purpose of producing income, or for the purpose of creating an improved building to produce greater income"." Mixed Business and Personal Use of PropertyItems that can be expensed but are used partly for business use and partly for personal use would be expensed according to the percentage of business use. Capital items that are also used partly for personal use would be capitalized at 100% of the cost, and depreciation would be determined each year based on the % of business use. See, in CRA's guide T4002, Personal use of property under "Special situations" in Chapter 4. TaxTips.ca ArticlesBusiness Expenses - What expenses can I write off against my business income? What expenses can be deducted from property rental income? Canada Revenue Agency (CRA) ResourcesT4002 Self-employed Business, Professional, Commission, Farming and Fishing Income Guide Business Expenses, with links to more information on each type of expense
Revised: September 20, 2024
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