This is the second in our series of year-end tax planning tips.
Do you know the accountant’s definition of an asset? It is something that cost more than $500 and lasts longer than a year. So, a table that costs $550 is an asset and a table that cost $450 is an expense. Most of us are looking for expenses because an expense reduces your income by the amount of the expense. So, a $450 table will reduce your income by $450. A $550 table, on the other hand will be subject to depreciation and the depreciation that we deduct for tax purposes is called Capital Cost Allowance. The amount of CCA on a printer would be 10% in the first year that you own it, which means that you would get a $55 deduction on your tax return for the $550 table.
So now that you understand that, here is the year-end question. If you are going to need a new table soon, should you buy it before year-end or wait until January? The first year you own any asset you may only deduct half of the normal rate. So, the $550 table is going to create a $55 deduction in the first year the next year you are going to get a deduction for 20% of the undepreciated balance, which is going to be $495 times 20% = $99. If you buy the table in 2018 you get the $55 deduction in 2018 and the $99 deduction in 2019. If you buy the table in January of 2019 you will own the table for 12 months before you get the $55 deduction. If you buy the table in 2018 you only own it for two months before you get the deduction.
So, the party line is that if you need something soon, get it before the end of the year and use up that half rate in 2018.