A Good reason to shop (hint: reduce your Tax bill)
Hello All,
As we approach the year end, I thought I would give everyone a quick tip and an excuse to shop.
As many of you might know, fixed assets such as furniture, computers, cameras, printers, large tools or something else that is specific to your business cannot be claimed all in one year as an expense. Rather you can only claim the depreciation amount based on a rate established by Revenue Canada. This is referred to as capital cost allowance or CCA.
In 2018, CRA increased the amount of CCA you can claim, on fixed assets, as an incentive for businesses. This allowed businesses to claim 3 times the amount of CCA than they normally could under the regular rules, thereby resulting in a higher tax deduction in the year of purchase ( offset by a lower deduction in future years).
Starting in 2024, this incentive (called the Accelerated Investment Incentive) is starting to be phased out. Consequently, the deduction, that was formerly three times has now been reduced to double the CCA (that you would normally be permitted to take in the first year of buying an asset). This still lowers your taxes payable, but the amount is less.
It should be noted that this deduction, for unincorporated business owners, is particularly beneficial in a year where your income is high as the amount of the deduction results in a more valuable tax benefit, due to marginal tax rates. (let me know if you want to understand how this works and I will write a future newsletter around it. You can simply reply to this email with "marginal tax rates")
So, if there is large purchase that you need to make anyway within the next few months, such as a new computer or desk or something work specific, it might be a good time to buy it now, before the year end. Not only might you be able to get a Black Friday/Cyber Monday/Boxing Day (or whatever they call it) deal, you can also save on your taxes.
Announcements
GST/HST Made Simple Course
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The goal of this course is to help small business owners, administrators, solopreneurs to confidently manage their GST/HST filings, save both time and money, and make compliance as easy as possible.
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From the Blog
How The CRA AII Program Increases the Tax Deduction for Computers and Other Fixed Assets:
For those of you who are interested in the mechanics of how the AII program works, check out my blog post complete with an example.
Accounting and Tax Treatment of Computers
A related post on how to account for computers and ordinary tax treatment (without the AII program). Note that you can still use this method, if you choose.
Video Tutorials
How To Account for Fixed Assets and Depreciation in QBO. In this tutorial I explain how to reflect fixed assets and depreciation in QBO and then show you how the financial reports (balance sheet and profit loss) are impacted by the entries.
Check out my channel for other QBO, accounting and tax tutorials
If you find the videos useful, please subscribe.
If you would have a request for a video please leave a comment directly in the video or email me directly at ronika@montrealfinancial.ca
