Definition differences – capital assets

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Tax Question:

What is the definition for tax purposes of Capital Assets in Canada versus the United States (U.S.)?

Facts:

The term Capital Assets has a different definition for tax purposes in Canada versus in the U.S. This can cause confusion for companies doing business in both Canada and the U.S.

Discussion:

Canada

For Canadian tax purposes, Capital Assets are also referred to as Property, Plant and Equipment (PP&E) and are identifiable assets which meet all of the following criteria:

  • Are for use in the production or supply of goods and services, for rental to others, for administrative purposes or for the construction, maintenance or repair of other PP&E;
  • Have been acquired, constructed or developed with the intention of being used on a continuing basis (for more than one period); and
  • Are not intended for sale in the ordinary course of business.

These items are generally depreciated for tax purposes over the useful life of the property based on the Capital Cost Allowance class (CCA) the Capital Asset falls into per the Canadian tax guidelines.

U.S.

For U.S. tax purposes, Capital Assets are almost everything you own for personal or investment purposes. Your home, household furniture, and investment stocks and bonds are all capital assets. These items are not generally depreciated for tax purposes.

For U.S. tax purposes, Section 1231 assets are comparable to Capital Assets or PP&E in Canada. Section 1231 assets are depreciable property and real property used in trade or business and intended to be held for one or more years. These include land and buildings and moveable property and are depreciated over their specified life based on the class of asset the property falls into under the current tax depreciation system in the U.S. called Modified Accelerated Cost Recovery System (MACRS).

Dawn Loeffler, BA (Hons), CPA, CA
Manager, Gilmour Group CPA’s
Email: faqs@gilmour.ca
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