No matter if your business is operating through a proprietorship, partnership or corporation, the following tax planning tip for year end can save you money. If you’re planning to purchase capital assets in the near future, consider doing so before the end of your fiscal year (this applies more to business with the year end December 31, 2012 which is coming up shortly). If the assets are acquired and in use before year-end, you can claim one-half the usual CCA rate. Even if you’re in a loss position this year, purchasing the asset now will allow a full year’s CCA claim next year. Bear in mind that title to the asset must be acquired and it must be available for use in order to claim CCA.
An Example of the Savings
If a business was to purchase a $60,000 machine, the aggregate tax saved from the extra CCA would be approximately $6,000 which results in $840 tax savings for a small business corporation and up to $2,400 for an individual at the highest marginal rate. The tax savings depends on the tax rates of the business entity. The tax savings will come over a number of years as the asset is depreciated.
A little planning on the timing of purchasing new assets for the business, along with proper documentation of their use, could save a business a substantial amount of money especially if those assets would not otherwise meet the exclusions in a full year of use. The timing of your purchases does not require a lot of professional help to execute and so the savings have a minimal cost to the business.
Unsure About Timing?
If you are still not sure about the timing of your asset purchases please contact us and we would be happy to assist you with your questions.