I’m planning to purchase some new computer equipment this year for our company (Axxiton Consulting Inc.) — and I’m going to do so before February 1st! Canadian tax rules provide a strong incentive to do so. In Canada, depreciation for tax purposes, or the rate at which you can expense capital purchases for tax purposes, is prescribed by the Canadian Income Tax Act. The amount which you can expense in any given year is called the “Capital Cost Allowance”, or just “CCA”. For a given capital purchase, you can ordinarily expense a prescribed percentage of its book value for tax purposes (known as the Undepreciated Capital Cost, or “UCC”) in any given year, except for the first year when you are only allowed to expense half that amount. For instance, the CCA rate for furniture is 20% per year. So if you purchase a piece of furniture for $1,000, you can expense half of 20% in the first year ($100), then 20% of the remaining amount in the second year ($180 = [$1,000-$100]*20%), and so on. The reason I’m buying computer equipment before February, 2011 is that there is a temporary rule for CCA Class 52 which will allow us to expense 100% of the cost of new computer equipment in the current fiscal year if I purchase it before February. Specifically, the Income Tax Act says:
“Include in Class 52 with a CCA rate of 100% (with no half year rule) general purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data processing equipment if acquired after January 27, 2009, and before February 2011.”
(See “Classes of depreciable property” on the Canada Revenue Agency web site)
This is big! It means that if I purchase a piece of “general purpose electronic data processing equipment”, say that costs $1,000, I can expense the entire $1,000 amount as a Capital Cost Allowance in the current fiscal year. We’re trying to minimize our tax expenses, so if we are planning to purchase the equipment this year anyway, it makes sense to purchase it before February. This is important regardless of whether or not the company is profitable this year: In Canada, we can carry losses back 3 years or forward 20 years to minimize taxes payable.