An expense is deemed a capital expense and not a current expense if the tangible item is for long term use. For example, equipment or office furniture you purchase would be considered a capital purchase (asset) because your business will use the desk or computer for many years. If your business purchased a computer for example, as gift for a promotional campaign, then that would be considered a current expense (marketing expense).
When in doubt, ask yourself:
- Does the expense provide a lasting benefit?
- Does the expense maintain or improve the property?
- Is the expense for a part of the property or for a separate asset?
- What is the value of the expense?
The Canada Revenue Agency website provides a table on these very questions to help guide your assessment of the expense (http://www.cra-arc.gc.ca/tx/bsnss/tpcs/rntl/crcp-eng.html)
If you are in doubt as to what kind of an expense you have it is a good idea to ask your accountant and don’t forget to keep a list of your capital purchases for year-end purposes.
