The Canada Revenue Agency lets you deduct the costs of depreciable property with the capital cost allowance. You can claim this tax deduction over a span of several years for your depreciable property’s cost. Your depreciable property consists of long-term assets that become obsolete or lose value over time, such as furniture, buildings, vehicles, or equipment.
How and When to Claim the Capital Cost Allowance
When you use property as part of your professional or business activities, you can claim it as a capital cost allowance. You can’t deduct the total cost of depreciable property when you compute your professional or net business income for the year in which you bought the property, though. Instead, you deduct the total cost of these business properties over the lifetime of the equipment as a capital expense, giving your business a long-term benefit.
Example of Capital Cost Allowance
Let’s say you buy a vehicle for $10,000. You determine that the vehicle depreciates by $2,000 every year for five years until it becomes obsolete. You may claim the capital cost allowance over the five-year period at $2,000 per year based on the value of the vehicle. You may also deduct the capital cost of insurance since as a long-term expense for the life of the vehicle.
Differences Between Current and Capital Expenses
Keep in mind the differences between current and capital expenses. Unlike capital expenses, current expenses refer to ordinary short-term maintenance expenses, while capital expenses add considerable value in relation to property. Therefore, the costs of oil changes for your vehicle don’t count as capital expenses.
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