Depreciable assets are tangible assets that a business owns and uses to generate income, and their value decreases over time due to wear and tear, obsolescence, or other factors. In Canada, businesses can deduct a portion of the cost of depreciable assets each year as an expense to reflect their declining value. Here are the common expenses associated with depreciable assets such as buildings, vehicles, and equipment in Canada:
1. Buildings:
Capital Cost Allowance (CCA): Buildings used for business purposes are eligible for CCA, which allows businesses to deduct a portion of the building’s cost each year as an expense. The CCA rate for buildings depends on factors such as the type of building and its use. For example, commercial buildings typically have a CCA rate of 4% per year, while residential rental properties have a CCA rate of 4% or 6% per year.
2. Vehicles:
Capital Cost Allowance (CCA): Vehicles used for business purposes are also eligible for CCA. The CCA rate for vehicles depends on their class, with different rates applying to passenger vehicles, trucks, and other types of vehicles. For example, passenger vehicles have a CCA rate of 30% per year on the first $30,000 of their cost, and 15% on any additional amount.
3. Equipment and Machinery:
Capital Cost Allowance (CCA): Equipment and machinery used for business purposes are eligible for CCA. The CCA rate for equipment and machinery depends on their class, with different rates applying to different types of assets. For example, manufacturing and processing equipment typically have a CCA rate of 30% per year.
4. Leasehold Improvements:
Capital Cost Allowance (CCA): Leasehold improvements, such as renovations or improvements made to leased premises, are eligible for CCA. The CCA rate for leasehold improvements depends on factors such as the nature of the improvements and the length of the lease.
5. Intangible Assets:
Amortization: Intangible assets, such as patents, copyrights, and trademarks, are not eligible for CCA but are instead amortized over their useful life. Businesses can deduct a portion of the intangible asset’s cost each year as an expense.
It’s important for businesses to accurately determine the CCA rates and class of depreciable assets and to keep detailed records of their capital asset acquisitions, disposals, and expenses. Consulting with a tax professional or accountant can help ensure compliance with tax regulations and optimize the deductions available for depreciable assets.
