Deadline for claiming small business expenses on income tax

January 17, 2006 11:28 AM

I'm a Canadian who has very recently bought a pre-owned computer for a business I'm starting. Can I claim it in the upcoming income tax? Should I have registered the business first, and then make the necessary purchases? What is the deadline for claiming small business expenses on income tax anyway?
posted by rinkjustice to work & money (5 comments total)

You ought to have registered a business first. But there might be some leeway there, provided that you can demonstrate a reasonable expectation of profit.

Next, with any business expenses you must keep your receipts. That includes buying items second-hand. And in the case of computers, you are only able to claim the depreciated value over two years (50% in the first year and 50% in the second year...used to be over three years).
posted by runningdogofcapitalism at 12:20 PM on January 17, 2006

Canada Revenue has a thorough guide to business expenses. (Note: computers may be considered a capital expense rather than a regular business expense.)

Your question suggests a fairly low level of knowledge about business tax issues. I believe Canada Revenue runs seminars throughout the year on a variety of basic tax issues and you might want to attend one.
posted by jellicle at 12:25 PM on January 17, 2006

Yes you can claim it. Buying a computer counts as a capital deduction and isn't a regular operating expense deduction. Therefore you don't just deduct the cost of the PC from your business income. The CRA term is that the PC is handled as a CCA - "Capital Cost Allowance". Computers are (I believe) Class 45:

Under proposed legislative changes, the CCA rate for computer equipment (and systems software) acquired after March 22, 2004, has increased from 30% to 45% and will be included in new class 45.

What this means is that there's an extra form you need to fill out and you can't deduct the whole cost in one year - it's 45% this year, 45% of the remaining amount next year and so on. General CCA info here.

And yes, you might want to get a tax accountant.

As for a time limit, there's no particular limit. If you are incorporated, the purchase has to be declared in the tax year it's made. If you're not incorporated and running as a sole proprietorship, it just goes into the calculation of business income the eventually rolls up into your own personal income tax return, so it would be declared in the calendar year the purchase was made.

No registration of a business is necessary, but there is a bit of paperwork involved if you later incorporate and transfer the ownership of the computer from your personal hands into the corporation. The is a CRA "Business Number" you may need to get, but I'm not exactly sure if you need it, unless you're collecting GST. If you think you'll earn more than $30K in a year, you'll probably need to charge your customers GST and you'll need a business number.

Overall, I would suggest reading the "Guide for Canadian Small Businesses" from the CRA. Also read "Business and Professional Income" for a further explanation of CCA deductions.
posted by GuyZero at 12:26 PM on January 17, 2006

What GuyZero said. Also, you should consider yourself a sole proprietorship from the moment you shart planning your business. So, even if you bought your computer in 2006, you can still claim business use of home, travel, supplies, and other costs for 2005.

Don't register for the CRA Business Number unless you're in line to earn $30k this year. Otherwise, you've just added to your workload by needing to collect and submit GST.

You can eventually transfer assets to a corporation. Or you could sell them, lease them, etc. At that point, you'll want an accountant. In the meantime, take some small business seminars from CRA and other self-employment agencies. It could save you a headache.
posted by acoutu at 3:03 PM on January 17, 2006

Thanks to everyone for your insightful and informative comments. jellicle is right, I'm mildly retarded when it comes to business tax stuff - I'll seriously consider taking a course or two this year.

Again, thank you :)
posted by rinkjustice at 8:32 PM on January 17, 2006