Many small business owners do not realize that a large majority of electronic gadgets and equipments that they use in the operation and functionality of their business are taxable.
The amount that you can deduct for electronic gadgets depends on if they are considered a current year expense or a capital expense. A current year expense is one that keeps recurring and a capital expense is one that lasts for more than a year. Some examples of gadgets that are considered as current expenses are computer repairs, computer supplies (such as a mouse or keyboard that you can expect to only last a year), anti-virus software that is only valid for a year, monthly software subscription fees, routine software updates and computer cleaning products. If you have a website that you use for your business, you can also write off some of those expenses as well. For more information, take a look at our video on are website costs tax-deductible?
Electronic gadgets that are classified as current expenses can be fully deducted in the year of purchase. On the other hand, electronic gadgets that are capital in nature are written off over a period of time. The following are a list of examples of capital expenditures along with their capital cost allowance rate:
- Class 50 (50% CCA per annum) – laptops, ipads, printers, servers, computer system software, iphones, and GPS for vehicles
- Class 8 (20% CCA per annum) – computer furniture, office telephones, and photocopiers
- Class 46 (30% CCA per annum) – data network infrastructure equipment
- Class 12 (100% CCA per annum) – computer application software
You should be aware of the half-year rule when claiming capital cost allowance on electronic gadgets. The half-year rule states that in the year you acquire an asset, only 50 percent of a full years capital cost allowance can be claimed.
Let’s take a laptop purchase as an example –
You purchase a laptop for $1000 for your business. A laptop depreciates at a value of 55 percent per year. In the year of purchase, only $275 of capital cost allowance can be claimed. This is equal to one-half of a full year’s CCA. In year two, the balance remaining for depreciation is now $725, so the CCA claim for year two is $326 which is equal to 55 percent of $725. In year three, the balance remaining for depreciation is $399. Therefore, year three’s CCA claim is $147 which is equal to 55 percent of $399. The laptop continues to be depreciated each year thereafter until the remaining balance is zero.
So here’s the tip, if you’re buying electronic equipment that streamlines your business activities. Ensure that you capitalize these expenses or take advantage of the current tax deductions available. If you’re wondering what else you can write-off, have a look at our article on tax write-offs for small businesses
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.