# can I write off my computer?



## clark_danger (Jul 14, 2010)

Sorry about newb questions, I'm new at this.

In 2010 I bought a new computer. -$900
I also recieved about $130 (huge! I know) in royalties from submitting illustrations to microstock sites (istockphoto). I'm not sure what tax slip they are gonna send me.
and maybe made $300 cash in freelance artwork. (do I claim this as income?)
obviously the computer is used mostly for other things besides artwork, but can I use that computer cost to pay less taxes? how about internet costs?
I need the internet to upload/email my illustrations.
also some of the artwork was done on an older machine before I bought the new 'puter.
I know it's a pretty insignificant amount of money to worry about, but hopefuilly these numbers will be bigger next year and I really want to learn to do things right.


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## stardancer (Apr 26, 2009)

It sounds like you have self-employment income against which you can write off certain expenses. Note: you must prorate the expenses between your business and personal use; so telephone/internet monthly charges would be a percentage.

A computer (plus the accessories like printer, etc) is considered a capital expense. The whole thing cannot be written off all at once, but over a number of years. Again, the capital cost allowance must be prorated between business and personal use.

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/menu-eng.html

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/104/rylts-eng.html


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## humble_pie (Jun 7, 2009)

stardancer has put it very well. What you would be reporting are the normal income and expenses for a home-based business. 

in your case the net income figure from business operations is probably going to be a loss. What i don't know, but stardancer might know, is whether this net loss can then be applied against other income such as salary income, or whether it can be carried forward, or whether it just becomes null & void.

assuming net business loss can be applied against other income, i believe that the cra is extremely fussy about this - and with good reason. Because if they allowed this to happen on a wide scale then every taxpayer would sprout home businesses or farm operations with net losses ... in order to reduce salary or wage income .. you get the drift.

my understanding is that the cra does permit business losses to offset other income for 2 or 3 years only, and furthermore that the business must, in their eyes, have the potential to become profitable within that time frame. But this generosity on the part of the cra may have been eliminated in recent years. 

hopefully others will have the full monty on this point.

best of luck in your new venture, it sounds very appealing.


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## kcowan (Jul 1, 2010)

Real expenses can be carried forward. They can also be used to reduce your taxable income from a job. Expense for your office in your home cannot be claimed to increase a business loss but it can be carried forward.

When I switched to contractor status, these expenses dramatically reduced my taxable income. CRA will use the potential for the business to become profitable as a test as to whether they are allowed. Usually this period of losses is about 4 years.


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## Four Pillars (Apr 5, 2009)

I think comps can be written off in one year.


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## CanadianCapitalist (Mar 31, 2009)

IIRC, the one year write off was a temporary stimulus measure. I believe it is not true anymore. You'll have to capitalize any spending on computers. I'm not sure how it works if you only use it part time for business.


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## MoneyGal (Apr 24, 2009)

You need to pro-rate the business and personal use of your computer. Say you estimate it is used 10% of the time for business (and 90% for personal use). 

You would then take 10% of the available capital cost allowance for the computer for that year (22.5% in the year of acquisition, and 45% on the remaining balance in each subsequent year). 

BTW 1. You are not required to take the CCA allowance in any given year. 

BTW 2. The OP will likely not be in a loss position based on what he's shared here. And, as KCowan has noted, business-use-of-home expenses which result in a loss may not be applied to other income, but can be carried forward (indefinitely) to claim against future taxable income from the business.


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## humble_pie (Jun 7, 2009)

excellent posts from everybody about the full monty. 

there's one other caveat about a home-based business. We don't want to overwhelm our young artist the OP but this is a general concern for anybody pro-rating their personal & home office expenses like heat, hydro, telecommunications, rent, prop taxes, computer & equipment depreciation and so on. It goes like this:

the portion of your home that you decide belongs to your business - for example MG has suggested 10%, but i've known taxpayers who've claimed up to 50% in order to claim larger expenses - that portion of your house will trigger a taxable capital gain when you eventually sell the property. In other words, the portion you reserve for personal use will qualify for principal residence exemption, but the portion allocated to the business operation won't (i guess renters get to deduct a portion of their rent scot-free, though.)

i did know an engineer consultant who had a 50% division for many years. He was shocked stiff when his accountant told him about the looming capital gain when he planned to sell his house after 22 years. He learned that he couldn't escape by closing his business or getting it out of his house, because upon that occasion the 50% of the house that would cease being operated for the business would revert back to his principal residence status, and would be subject to capital gains upon that occasion. The engineer was even more upset when his accountant told him he'd have to get the house appraised.

on the other hand MG's 10% allocation is pretty harmless.

besides, no tax authority is ever going to assess this OP with his or her nanobusiness.


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## Four Pillars (Apr 5, 2009)

CanadianCapitalist said:


> IIRC, the one year write off was a temporary stimulus measure. I believe it is not true anymore. You'll have to capitalize any spending on computers. I'm not sure how it works if you only use it part time for business.


Thanks - I think you are right.

On a related note - I don't understand why you have to capitalize small expenses. I usually pay around $600 for a new laptop - what difference does it make if I claim the expense in one year or two? 

It's just more hassle. Grumble, grumble....


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## MoneyGal (Apr 24, 2009)

humble_pie said:


> the portion of your home that you decide belongs to your business - for example MG has suggested 10%, but i've known taxpayers who've claimed up to 50% in order to claim larger expenses - that portion of your house will trigger a taxable capital gain when you eventually sell the property. In other words, the portion you reserve for personal use will qualify for principal residence exemption, but the portion allocated to the business operation won't (i guess renters get to deduct a portion of their rent scot-free, though.)


This is incorrect. Non-capital costs, such as those you have listed (principally utilities) do not trigger a loss of the capital cost allowance. 

You put the capital cost allowance of your home at risk if you deduct CAPITAL costs, which are costs relating to the aquisition of the property (i.e., *mortgage principal ONLY*). Even mortgage *interest* is deductible for the self-employed who have a qualifying workspace in the home.

Here is the CRA definition of "capital cost": http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/cptl-eng.html

See paragraph 5 of this CRA circular regarding the capital cost allowance: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/hm-eng.html

_The capital gain and recapture rules will apply if you deduct capital cost allowance on the business use part of your home and you later sell your home._

The issue of "how much" or "what proportion" of your useage costs to deduct is another question. 50% is unlikely to be seen by CRA as reasonable in the case of an audit, but there are no guidelines from CRA. When I was audited (field audit, not review), the auditor measured my home office space and every other space in my house.


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## humble_pie (Jun 7, 2009)

great post thanks MG. It's important to fine-tune all these points. Sorry about my mistake. I was going on the comments made by my fellow hiker during a routine saturday morning ramble in the country. I could see his accountant's point. I have no idea what exactly the engineer was doing with his expense claims, of course, but he did say half his house value was at risk for capital gains tax; and he said his accountant had been warning him for years but he'd chosen to ignore.


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## MoneyGal (Apr 24, 2009)

The capital cost allowance on a building is 4%. Your friend may have been claiming 4% of his purchase price for years. This will, indeed, cause him to lose the principal residence tax exemption on his personal residence, pro-rated to the amount of space he was claiming for business use. 

This isn't necessarily a bad strategy, or, more accurately, this strategy may not have negative effects - but only if the house fails to appreciate or depreciates, and the owner is in the highest tax bracket, and the house was expensive. A high current deduction at a high rate of tax on an asset which is depreciating in value can be an effective form of tax arbitrage. But risky!


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## clark_danger (Jul 14, 2010)

wow thanks for the replies! I have some reading to do, my head is spinning right now


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## jason26 (Apr 6, 2009)

Here's a question. Say you are in the line of business where your computer is obsolete for your type of work yearly? This is pretty much the case for me, and I'm a contractor.


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## MoneyGal (Apr 24, 2009)

In the "you learn something new every day" category, it seems that computers acquired *exclusively* for business are deductible at 100% as Class 52 assets. 

(My reading of this suggests that if you acquired the asset as a personal asset and then converted it to a business purpose, it is subject to the "regular" CCA 45% deduction as a class 45 asset.)

In addition, there are exceptions to certain rules for certain classes of business. For example, bike couriers are allowed to deduct the costs of their food and drink as "fuel" (up to a certain daily limit) - no joke! 

And long-haul truckers can deduct a higher proportion of their meal expenses than every other profession.


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## clark_danger (Jul 14, 2010)

MoneyGal said:


> For example, bike couriers are allowed to deduct the costs of their food and drink as "fuel" (up to a certain daily limit) - no joke!


That is awesome! survivorman would be proud!


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## ghostryder (Apr 5, 2009)

MoneyGal said:


> In the "you learn something new every day" category, it seems that computers acquired *exclusively* for business are deductible at 100% as Class 52 assets.
> 
> (My reading of this suggests that if you acquired the asset as a personal asset and then converted it to a business purpose, it is subject to the "regular" CCA 45% deduction as a class 45 asset.)



But of course class 52 only applies to "_equipment if acquired after January 27, 2009, and before February 2011."_


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## lucky644 (Nov 7, 2010)

So I started a business at the beginning of the year. It's a side job thing, I have my primary employment through another company, and I do consulting on the side.

I already know I'm going to have to go see someone, like H&R Block, because there is too much I don't understand.

I just have a question;

How the hell do 'write offs' etc work?

For instance, I need to buy a new pc this year for my business, I've heard its a 100% write off. What does this even mean?

I'm told I can write off certain things required for doing business, like driving to a client, fuel, or even power and rent for my home office.

Can someone point me to a resource that explains these basics before I go in and look like a complete idiot to an accountant?

Thanks!


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## chilly (Apr 3, 2009)

MoneyGal said:


> In the "you learn something new every day" category, it seems that computers acquired *exclusively* for business are deductible at 100% as Class 52 assets.
> 
> (My reading of this suggests that if you acquired the asset as a personal asset and then converted it to a business purpose, it is subject to the "regular" CCA 45% deduction as a class 45 asset.)


Sorry for the late reply to this thread, but I'm curious about the sentence you wrote between parenthesis. How exactly does the process of acquiring an asset as a personal asset and then converting it for business work?

As a side question, I've been reading some conflicting views on whether a smartphone can be considered in class 52 for the purposes of the CCA. I guess it depends on the type of business being run, but I can see some small businesses (for instance businesses dedicated to selling apps on iphone or blackberry) where this 'should' in my opinion be a legitimate candidate for class 52. Let's say that the phone can be classified as class 52. For CCA purposes, is it better to buy the phone outright, or buy a contract with a provider (Rogers, Bell, etc), therefore getting the phone 'cheaper' (of course that comes with the locked in 2 or 3-year plans mind you...) ?


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## MoneyGal (Apr 24, 2009)

Not a lot of time to spend on this, but here's the CRA circular on converting a personal asset to business use: 

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/prsnl-eng.html


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## stardancer (Apr 26, 2009)

lucky644 said:


> So I started a business at the beginning of the year. It's a side job thing, I have my primary employment through another company, and I do consulting on the side.
> 
> I already know I'm going to have to go see someone, like H&R Block, because there is too much I don't understand.
> 
> ...


Things are not always 100% write off. That is, you cannot claim 100% of the cost against business income. As you are doing this part time, your expenses will have to be prorated between personal and business.

http://www.cra-arc.gc.ca/ebci/cjcm/srch/bscSrch?lang=en&bscSrch=t2125&Submit=Search

Read through some of these forms at CRA, so you can gather receipts, totals, information, etc before you go see someone to do your taxes. Things go much more smoothly if you have all the information. For example: if you are using your personal car partly for business, then you must keep track of the total mileage on the car, and the mileage used for business; this doesn't have to be precisely to a tenth of a km, but should be close. The tax preparer will send you home to get that information before he/she can finish that part of the statement.

The same goes for home office expenses; the whole amount of heat, hydro, etc is entered, then prorated to the percentage used by the business.

If you know where you are going to get your taxes done, then go early so you can find out what information you are missing. You won't look like an idiot, just like someone who is a beginner.

I work at H&R for the tax season and I love getting new business clients; it gives me a chance to train them properly (I used to be a teacher).


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## Cal (Jun 17, 2009)

For a small business owner, who is just starting out, it really is worth the money to go pay an accountant to do their taxes and teach them the in's and out's for small businesses to get started.


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## kcowan (Jul 1, 2010)

Cal said:


> For a small business owner, who is just starting out, it really is worth the money to go pay an accountant to do their taxes and teach them the in's and out's for small businesses to get started.


DW had a bookkeeper and an accounting firm doing her CRA submissions. When I took it over after I retired, there were several expenses/deductions that had been missed. There seems to be no substitute for paying attention to your business expenses yourself. Just a sample of one but it was an important one.


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## humble_pie (Jun 7, 2009)

star you are an excellent teacher & i wish i could hire you to do my tax returns.


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