Startup Costs

[veardev]

Good day, I am hoping someone can point me in the right direction. In 2017 I purchased some computers for a business I had just started in that year. I had put the cost of the computers and software in "other expenses" which I now have found out that it is not the correct place. I believe I should be looking at Capital Gains? If someone could point me in the right direction of where to post those costs. This is a small business that I run from my house so no business name or account has been created. Just some hobby income. 

 

Thank you for you help, I much appreciate it. 

Vear

[TheTaxSmith]

Hello veardev.  Take a look at this  https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses/computer-other-equipment-leasing-costs.html

I trust that will help.

[veardev]

20 minutes ago, TheTaxSmith said:

Hello veardev.  Take a look at this  https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses/computer-other-equipment-leasing-costs.html

I trust that will help.

Thank you very much for your response. I guess I don't understand how the CCA works. The computers were not leased but purchased as startup equipment. 2017 was the first year in business. Is there a place on the form where I can put upfront startup costs? I see depreciable assets and such but not upfront costs. 

 

Thanks again for your response.

Vear

 

[TheTaxSmith]

Hello Vear. When you open that link you need to look down further for a link to claiming Capital Cost Allowance. Open that and read how to do that.

To clarify a bit here, did you already file your 2017 return claiming the items as Other Expenses. If you were not reassessed for those then don't try and claim them on a current return. If you are just filing your 2017 return now then follow the CRA link for claiming Capital Cost Allowance.

If you have never claimed the items and are filing a current year return enter the computer items in a CCA schedule. Any other expenses (non depreciable) you should enter them in an expense category. If you get a call from CRA you can then explain the costs were incurred in the process of starting up your business.

Hope that helps

[veardev]

1 minute ago, TheTaxSmith said:

Hello Vear. When you open that link you need to look down further for a link to claiming Capital Cost Allowance. Open that and read how to do that.

To clarify a bit here, did you already file your 2017 return claiming the items as Other Expenses. If you were not reassessed for those then don't try and claim them on a current return. If you are just filing your 2017 return now then follow the CRA link for claiming Capital Cost Allowance.

If you have never claimed the items and are filing a current year return enter the computer items in a CCA schedule. Any other expenses (non depreciable) you should enter them in an expense category. If you get a call from CRA you can then explain the costs were incurred in the process of starting up your business.

Hope that helps

Hi TheTaxSmith

I had it entered originally as Other Expenses. the CRA contacted me for receipts which I provided. They declined the amounts but stated if I placed them in the proper place it could be accepted. Does everything work as a CCA or is there a spot to just put Capital Costs. The business only ran for 3 years of which I never claimed any depreciation as I had charged the upfront costs in Other Expenses in 2017. Thanks again for helping me out. I am just confused as to Capital Cost (Startup Cost) and CCA. Is CCA the only option? and would this mean I would have to update the past 3 years for the depreciation to retrieve total cost?

 

Thank you

 

[TheTaxSmith]

Hello again Vear,

Usually items that can be used over several years, such as computers, and if they cost $500 or more individually, are added to a CCA schedule on the business statement. Items such as interest, hydro, permits, registrations, office supplies, etc, will be included in an expense for the year incurred. So you need to separate the items into Capital Items versus Expense Items. On the business statement you will set up for Capital items in a section in the Ufile form where it asks if you have any Capital Items.

So I would suggest entering the computer assets in the CCA schedule but select to not have the half year rule apply. If the business is effectively closed, but you still have the computers, you will need to consider their current value to determine a disposal cost. Completing the CCA schedule will determine the amount you will write off for the current year. Don't bother with revising the past years. Claiming Capital Cost Allowance (CCA) is an election and can be deferred, so you are not off side of the rules and it will make it all simpler than doing a prior year revision.

Using a category such as Other Expenses on a business statement is never a good idea as CRA will usually pick up on that and ask for an explanation. Also entering an amount in that area and calling them Start Up Costs is even more attention grabbing.

[veardev]

15 minutes ago, TheTaxSmith said:

Hello again Vear,

Usually items that can be used over several years, such as computers, and if they cost $500 or more individually, are added to a CCA schedule on the business statement. Items such as interest, hydro, permits, registrations, office supplies, etc, will be included in an expense for the year incurred. So you need to separate the items into Capital Items versus Expense Items. On the business statement you will set up for Capital items in a section in the Ufile form where it asks if you have any Capital Items.

So I would suggest entering the computer assets in the CCA schedule but select to not have the half year rule apply. If the business is effectively closed, but you still have the computers, you will need to consider their current value to determine a disposal cost. Completing the CCA schedule will determine the amount you will write off for the current year. Don't bother with revising the past years. Claiming Capital Cost Allowance (CCA) is an election and can be deferred, so you are not off side of the rules and it will make it all simpler than doing a prior year revision.

Using a category such as Other Expenses on a business statement is never a good idea as CRA will usually pick up on that and ask for an explanation. Also entering an amount in that area and calling them Start Up Costs is even more attention grabbing.

Hi again,

Okay I understand exactly what you are saying, Thank you so much for the explanation. So, from what I understand it's best to leave the 2017 the way the CRA updated it and declare the CCA this year? Sorry I think everything else is fine just clarifying your deferred statement

again thanks so much. 

 

Vear

 

[TheTaxSmith]

Hi Vear, yep.

[Saltoback]

For the costs related to computers and software, it's typically considered a capital expense. Capital expenses are costs that benefit your business over an extended period. You might want to consult with an accountant or tax professional to ensure you're categorizing these expenses correctly.Since you mentioned running a small business from your house, you might also explore tools like Telegram CRM to help manage your business interactions efficiently. It can be a valuable addition to your business toolkit.I hope this helps you get things sorted out correctly. Best of luck with your small business endeavors!