Tax and accounting terms
Capital vs Current Expenses: What You Deduct Now and What You Depreciate
Lasting benefitis the first test the CRA applies. An expense that gives a lasting benefit is usually capital and claimed over several years; one that recurs is usually current.
Sources checked October 20263 min read
Key points
- Current expenses are deducted in full in the year they are incurred
- Capital expenses buy or improve property and are claimed over time through capital cost allowance
- Repairs that restore are current; improvements beyond the original condition are capital
- Repairs to used property to make it fit for use, or made in order to sell it, are capital
Why the line matters
A current expense, such as rent, a routine repair or office supplies, is deducted in full in the year it is incurred. A capital expense buys or improves property that lasts, and its cost is claimed gradually through capital cost allowance at the rate for its class. The total deduction can end up the same, but the timing is very different, and a misclassified expense changes the tax for every year it touches.
A rise in the property's market value is not a major factor in deciding which an expense is. The CRA looks at what the money did to the property.
| Question | Usually capital | Usually current |
|---|---|---|
| Does it give a lasting benefit? | Yes, such as new vinyl siding on a wooden house | No, it recurs, such as repainting the same house |
| Does it improve or maintain the property? | Improves it beyond its original condition, such as concrete steps replacing wooden ones | Restores it, such as repairing the wooden steps |
| Is it a separate asset or part of the property? | A separate asset, such as a compressor installed in a building | A part, such as rewiring a building without improving it |
| How large is it relative to the property? | Large compared with the property's value, a test used only when the first three do not decide | Ordinary maintenance, even when years of it are caught up at once |
| Is it a repair to used property just acquired? | Yes, to put it in suitable condition for use | Maintenance of property already in use |
| Is it a repair made in order to sell? | Yes, in anticipation of a sale or as a condition of one | Repairs that would have been made anyway |
Everyday examples
Applying the tests to costs most small businesses meet:
- A new laptop, delivery van or piece of equipment is capital: each is a separate asset with a lasting benefit.
- Software subscriptions, rent and routine servicing are current.
- Repainting an office the business already uses is current; renovating newly bought premises before moving in is capital, because it puts used property into suitable condition for use.
- Repairing a broken window in a rental unit is current; replacing every window with a better grade to prepare the building for sale is capital.
What happens to a capital expense
A capital expense goes into its capital cost allowance class and is claimed over several years at that class's rate, starting in the year the property becomes available for use. The classes, their rates and the first year rules are set out in the CCA classes guide, and the CCA calculator works out the claim year by year.
GST/HST works the same way for both kinds of expense: where the property or service is used in commercial activities, the input tax credit claimed reduces the amount that is deducted or added to the class.
Quick answers
Can I deduct a large repair in one year?
Yes, if it restores the property to its original condition rather than improving it. Maintenance that was put off and done all at once is still a current expense, even when the bill is large.
Is a computer a capital expense?
Yes. A computer is a separate asset with a lasting benefit, so its cost is claimed through capital cost allowance rather than deducted in full in the year it is bought.
Does an increase in property value make a repair capital?
No. The CRA says a rise in market value is not a major factor. What matters is whether the expense improved the property or simply maintained it.
Related pages
Official sources
Call or email and we will tell you which records we need and what the work costs, in writing, before anything starts.
Important. This article provides general educational information, not legal or tax advice for a specific business. Rules, administrative policies, rates and deadlines can change. Confirm your facts and current obligations with the responsible government agency and a qualified adviser.