Guide
Is a laptop a current expense or a capital cost? Capital vs current for small business
How the CRA separates current expenses from capital purchases, the common CCA classes for computers, tools, furniture and vehicles, and what to do with the receipt.
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A current expense gives a short-term benefit and is deducted in full in the year, such as supplies, repairs and subscriptions. A capital expense buys something that lasts for years, such as a computer, furniture, tools or a vehicle, and is deducted gradually through capital cost allowance (CCA). Computers are Class 50 at 55% a year, furniture and most equipment are Class 8 at 20%, vehicles are Class 10 at 30%, and small tools under $500 and application software are Class 12 at 100%.
- Current expense
- Deducted in full in the year
- Capital expense
- Deducted over time through CCA
- Computers
- Class 50, 55%
- Furniture and equipment
- Class 8, 20%
- Vehicles
- Class 10 or 10.1, 30%
- Tools under $500, application software
- Class 12, 100%
How do I tell a capital expense from a current one?
Ask whether the purchase gives a lasting benefit. A current expense is used up or recurs: office supplies, a repair that restores something to how it was, a monthly subscription. A capital expense buys or improves something you will use for years: a computer, a desk, a power tool, a vehicle, or a renovation that makes a property better than it was.
| Question | Points to current | Points to capital |
|---|---|---|
| Does it give a lasting benefit? | No, it is used up or recurs | Yes, it lasts for years |
| Does it maintain or improve? | Restores to the original condition | Makes it better than originally |
| Is it part of something bigger? | A separate, minor item | Part of an asset you are building or buying |
| How does it compare with the asset's value? | Small relative to the asset | Large relative to the asset |
Which CCA class do common small-business purchases go in?
| Purchase | Class | Annual rate |
|---|---|---|
| Laptop, desktop, monitor, systems software | 50 | 55% |
| Desk, chair, shelving, appliances, most equipment | 8 | 20% |
| Tools costing $500 or more each | 8 | 20% |
| Tools costing less than $500 each, kitchen utensils | 12 | 100% |
| Application software | 12 | 100% |
| Car, van or truck | 10 | 30% |
| Passenger vehicle above the cost limit | 10.1 | 30% |
The rate is a maximum on a declining balance: each year you may claim up to that percentage of what is left in the class. You can claim less than the maximum, or nothing at all, in a year when the deduction is worth less to you. First-year rules have changed several times in recent years, so check the current T4002 guide for how much can be claimed in the year of purchase.
Can I write off a laptop in the year I buy it?
Generally not all at once. A laptop is Class 50 property, so its cost is deducted through capital cost allowance at up to 55% a year on a declining balance, spread over several years. The same applies to a phone bought outright, a monitor or a printer. If you use it partly for personal purposes, only the business share of the CCA is deductible.
The GST/HST is a different story. A registrant generally claims the input tax credit for the tax on a capital purchase in the return for the period of purchase, in proportion to business use, not spread over years. That is why the tax on a laptop receipt should be recorded as a separate amount even though the laptop itself is depreciated.
What records do I need for a capital purchase?
- The itemised receipt or invoice, with the tax shown separately.
- The date the asset became available for use, which decides the first year you can claim.
- Your business-use percentage, if it is also used personally.
- The sale price or trade-in value when you eventually dispose of it.
Capital receipts have to be kept for six years after the last year the asset appears in your CCA schedule, not six years after you bought it — which for a vehicle can mean a decade or more. SimpleLoonie keeps the original receipt image attached to the transaction with the tax recorded separately, in a category you can reserve for capital purchases so they are easy to hand to whoever prepares the CCA schedule.
Frequently asked questions
Is software a capital expense or a current expense?
A monthly or annual subscription is generally a current expense, deducted in the year. Application software bought outright is Class 12 property at 100%, and systems software bought with a computer goes in Class 50 with the hardware.
What CCA class is a laptop in?
Laptops, desktops and other general-purpose computer equipment are Class 50, with a maximum capital cost allowance rate of 55% a year on a declining balance.
Are small tools a capital expense?
Tools that cost less than $500 each are Class 12 at 100%, so in practice most of their cost is deducted quickly. Tools that cost $500 or more each are Class 8 at 20% a year, like other equipment.
Do I have to claim capital cost allowance every year?
No. CCA is a maximum, not a requirement. You can claim any amount from zero up to the maximum, and whatever you do not claim stays in the class for future years. Many people skip it in a low-income year to save the deduction for a year it is worth more.
Is a repair a capital expense?
A repair that restores something to its original condition is a current expense. Work that improves it beyond its original condition, or extends its useful life substantially, is usually capital and is added to the asset's cost.
Sources
- Canada Revenue Agency — Classes of depreciable property
- Canada Revenue Agency — Guide T4002, Chapter 4: Capital cost allowance
- Canada Revenue Agency — Business expenses
This page is general information about Canadian tax administration, not tax advice, and it was last reviewed on . Rules and rates change. For a decision that matters to your business, check the source above or talk to an accountant.