Brooks (Rural Roots Canada) – Understanding capital cost allowance classes for your farm income tax is important.
Tony Benevides is with Farm and Small Business Consultants.
He says it’s important to know big purchases are tax-deductible at different rates.
“For example, a tractor will be deducted at a different rate than, say, your farm vehicle so that these expenses will pool in what they call the CCA allowance,” Benevides said.
READ MORE: Good records crucial when filing income tax: FBC
Benevides says farmers also shouldn’t feel they need to use all of their cap allowance every year.
“There are years, say that your year doesn’t go as well as some that are much better than when you have a really, really good year. Obviously, the allowance should be used, but if you had a subpar year, whether it be to it being very, very dry or too wet, you may not want to use that capital cost allowance because you’re not very taxable, and you may want to save some of that pool.”
He says this is a conversation that you should have with your tax provider because that’s just about being proactive as opposed to using expense.”
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He says farmers should think of it this way.
“Using a $6000 expense in a year that I pay zero tax. Why would I still want to use that $6000 up? Unfortunately, in the accounting world, it’s very common to do it that way.”
Benevides says farmers should be looking at it on a year-to-year basis and asking themselves the following questions.
- Should it be used?
- Should it not be used?
- Here are the pros and cons of using it this year
