How to Claim and Calculate Capital Cost Allowance on Form T2125

by Craig Anthony

1 min read

As a small business owner, you get to subtract expenses from your income on your tax return. Usually, that process is straightforward, but it gets complicated for large or capital purchases. Capital purchases are expenses incurred for objects with a usefulness of longer than a year. For example, cars, computers, and buildings are capital purchases, and you write off these purchases incrementally over a period of several years. If you report your business income on Form T2125, you can also claim your capital cost allowance on that form. To get started, refer to the Canada Revenue Agency’s list of capital classes to see which category your purchase falls into. For example, buildings fall into class one, and office furniture and expensive tools fall into class eight. Make a list of all your capital purchases made in the current tax year. Then, find part 11 on your Form T2125. The chart has numerous columns. Fill in each column as prompted, and then go through the calculations suggested by the chart. For example, if you bought an outdoor advertising sign for $1,000, but you sold it for $600, you would have an adjusted cost base of $400 – the cost of the sign minus the proceeds of the sale. You multiply this number by the percentage for the relevant capital class. In the case of outdoor signs, the class is eight, and the percentage is 20%. That results in a write-off of $120. Finally, the chart guides you through the steps to save any unclaimed capital allowance for the next year’s return. Capital cost allowance can be a valuable write-off on your business tax return. To address this section of your return, just work through the steps as prompted. Alternatively, you could use tax preparation software to help you with the calculations.

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