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Why fixed assets are different
Long-lived equipment is often capitalized in business books rather than expensed entirely when purchased. Book depreciation and Canadian capital cost allowance (CCA) are not automatically the same. The correct tax class, additions, dispositions and deductions depend on the circumstances and current CRA rules.
1. Record supporting evidence
- Keep the purchase invoice, payment proof, date available for use and item description.
- Confirm which business or owner paid and whether there was a trade-in or financing.
- Review GST/HST eligibility separately from the asset's recorded cost.
- Classify the item and any related liability or loan correctly in the business ledger.
2. Follow a simple example
Illustrative only: If a company purchases a $2,000 laptop (before tax) that qualifies for capitalization, the bookkeeping may record an asset rather than treating the entire $2,000 as office supplies expense. The book depreciation schedule and tax CCA calculation may give different annual deductions.
3. Prepare information for the tax schedule
List opening undepreciated capital cost (UCC), additions, disposals, asset classes, adjustments and closing amounts. Canadian first-year rules and CCA measures change; do not assume a simple half-year rule applies to every asset or year.
4. Reconcile with your accountant
Compare the fixed-asset register and general ledger to invoices, depreciation journal entries and the tax workpaper. Ask your accountant to confirm CCA classes, eligibility and tax adjustments before filing.
See journals and ledger or HST records.
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