Class 52 vs Assets

by Kallie
(Ontario, Canada)

1. It's January, 2011. I just purchased new computers with Windows 7, Office, and Antivirus. Other than the HST, do I record the entire amount of the purchase as an asset or just the computer hardware and expense the software?


2. Also, I only have 2 fixed asset accounts, furniture & fittings and office equipment. Do I need to create a new fixed asset account or can I add it to one of the existing?

3. Further, when doing the corporate return, I would guess I have to create the new class 52 with a 100% rate, but if I don't need to claim the allowance (if a loss) can I use the 100% in later years or is it just for the first year, so in other words take it or lose it?

4. Finally, since I am a little confused by all of this, does recording depreciation in the books have anything to do with the CCA claimed on the return?

Thanks for any help you (or anyone else) can offer.



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Hi Kallie,

While responding to your questions, I'm going to point you to some chats and/or posts on this site. After reading them, make sure you post back if you need clarification on anything.

1. See the tip for recording the purchase of a new computer and software. You'll find it in the second paragraph after "CCA class 52".

The tip explains you have to classify operating software in class 12 and systems software in class 52.

I would define operating software as Office and Antivirus. Windows 7
is systems software as it was purchased as part of the computer itself.

2. You could add the computer to your existing Office Equipment account but ... I like to use my chart of accounts to help make my bookkeeping easier and reduce yearend reconciliations as much as possible.

I would create a new account called Computer-Class 52 with two sub-accounts. One called Original Cost and one called Accumulated Amortization. It will help you reconcile the timing differences between your CCA claimed on your tax return and the amortization booked on your financial statements.

I would also create a new account called Computer Software-Class 12 with two sub-accounts. One called Original Cost and one called Accumulated Amortization. Again, it will help you reconcile the timing differences between your CCA claimed on your tax return and the amortization booked on your financial statements.

3. At the very end of the CCA chat I directed you to in the link above, you will find a section called Here is another one of the things you should know about CCA. It explains your options in claiming CCA.

4. Reading the bookkeeping forum post CCA and Deferred Tax should help clarify your confusion regarding the relationship between depreciation and CCA.









P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.




Comments for Class 52 vs Assets

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Feb 03, 2011
 Still a little confused...
by: Kallie

Thank you for clarifying a few things for me. I still am a little confused, especially since I will be recording a small loss this year. From what I understand, Class 12 has a rate of 100% and Class 52 is temporarily 100%. I am not an accountant and think this is probably the area that confuses me the most. To help me better understand; please advise if these examples are correct or incorrect.

Class 52 Cost - $2,000.00 (example only)
Class 12 Cost - $750.00 (example only)

If enough profit at year end to take full depreciation:

Credit Class 52 Acc. Amort. - $2,000.00
Credit Class 12 Acc. Amort. - $750.00
Debit Amort. Expense - $2,750.00

Claim 100% CCA on both?

If a loss:

Credit Class 52 Acc. Amort. - $2,000.00
Credit Class 12 Acc. Amort. - $750.00
Debit Amort. Expense - $2,750.00

Claim 0% CCA on both?

If this is correct for the loss, and next year I have a profit, can I still claim 100% CCA or is it lost? If not lost, how do I claim it next year if a profit? Also, either way the net book value for the 2 classes is $0.00?

Again thank you so much for your help. I would love to get my CGA to help me with all of this but am not able to at the moment.

Keep up the great work...your site is easy to navigate, interesting to read, and extremely helpful.

Kallie
Feb 04, 2011
 How CCA Works
by: Lake

You are almost there. I just want to review how I understand CCA works before I respond directly to your question.

One of the benefits of CCA is that it is optional. This means you can use it in your tax planning strategy.

What this means is if you don't use it, you don't lose it ... you save it for a future year. This is advantageous in the year you experience a loss ... just like your situation.

Also, in your example above, you left off the "in-between" option. It is not an all or nothing claim. Using your example, you can claim any where from $0 to $2,750 ... in other words you can make a partial claim.

CCA by its very nature has a built in limit you can claim in each year. If you don't claim any CCA in the current year, you do not get to claim double next year ... but the CCA you did not claim in the current year is not lost ... it is just saved for use in a future year.

This optional feature of CCA is one of the reasons it is not an acceptable method for booking depreciation/amortization in your financial statements ... if you are following GAAP. This method no longer "matches" expenses with revenues.

The other reason it is not GAAP is the rate of depreciation may not represent the proper amount of "using up" of the asset over its life ... because the government's objectives are different as I've mentioned in other posts. Their objective is to control the social and political environment.

This means that each year you don't make a CCA claim ... or make a partial CCA claim, you are behind in depreciating your assets ... which is not in conformance with GAAP.

Stephen Thompson, in his book 167 Tax Tips for Canadian Small Business, gives this tip.

"When deferring CCA deductions, start by deferring fast-depreciating assets first to provide maximum flexibility."

So keep in mind that from a tax perspective, you are trying to manipulate (legally) your income to minimize your income tax payable ... in the long term. This means sometimes you might want to "save" your CCA claim for a future year where you expect to have higher income and therefore experience a greater benefit from the claim than in a lower income year.

From a GAAP perspective, when preparing financial statements, management is trying to meet management objectives which could be minimizing income, maximizing income, or smoothing income while staying in compliance with GAAP guidelines ... so that the information presented to third parties is fair and unbiased.

I hope this makes sense Kallie. Please make sure you check in with your accountant once available to confirm my understanding of CCA.

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