![]() ![]() A good example, as provided by the CRA folio mentioned above, is the replacement of a spark plug vs the replacement of an entire engine of a vehicle. ![]() When considering whether an expense is a current or capital expenditure, you may have to consider the expense in relation to the value of the whole property, the previous average maintenance costs, and annual profits. When determining this criterion, the relative value of the expense (see below) should also be considered. For example, a machine bought and installed in a factory would be considered a separate asset, while replacing the rudder of a ship would be considered an integral part of the ship, and a current expenditure. An expense deemed as a separate asset would be considered a capital expenditure. Any expense deemed an “integral part” of the asset would be considered a current expenditure. The fact that the market value of the property might increase with the repair is not a consideration for this criterion.Ī very important consideration is whether the expense is made to repair a part of the asset (integral part), or if the expense is incurred to purchase a property that is a separate asset. ![]() Using the same example above, replacing the wooden stairs with concrete stairs would be considered a capital expenditure. ![]() Any expense that improves the property beyond its original condition would ordinarily be considered as a capital expenditure. For example, as provided in the CRA folio mentioned above, the cost to repair or replace wood steps with wood steps would typically be a current maintenance expense. Any expenditure that is recurring and has a short useful life would be considered a current expenditure, and deductible against income as per ITA 18.Īny expenditure brought to a property to bring it to its original condition will be considered a current expenditure. For example, the changing of a roof of a building, or the re-bricking of a building are examples of expenditures that would be capital in nature due to their enduring benefit. The authoritative document which lists the determination criteria is S3-F4-C1, General Discussion of Capital Cost Allowance.Īn expenditure will normally be considered a capital expenditure if it is determined that it has an endurable benefit. Also, the facts and circumstances of each case have to be considered. All of them are relevant and each should be considered in relation to the other rather than as separate tests. No single criterion listed below is more important than any other. What we have to base ourselves on is the jurisprudence dealing with this question (see below for examples), and the administrative position of the CRA. Unfortunately, the Income Tax Act (ITA) does not provide any guidance as far as distinguishing between current and capital expenditures. Determination Criteria - Current vs Capital Expenditures The age-old question of taxation: is the expenditure incurred by the taxpayer a capital or a current expenditure? In this instalment, we will see the criteria that must be analyzed in order to determine the type of expense, and analyze certain interesting real-life cases on this topic. ![]()
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