The rewards for employing technology include business efficiency and enhanced personal communication. Even the tax system provides benefits to those who embrace the cyber world.
Let’s start with tax write-offs for computer equipment: Computers used in a business are capital assets that may be depreciated over time. But currently, a temporary 100% write-off is available for eligible computer hardware and software purchased before February 2011. Further, the half-year rule that ordinarily restricts the capital cost allowance (CCA) deduction in the year of acquisition to one-half of the write-off doesn’t apply to this temporary measure.
This accelerated write-off applies to general-purpose electronic-data-processing equipment, including computers, servers, storage devices, monitors, drives, cables and printers, as well as system software. But it doesn’t apply to application software purchased separately from the hardware, phone systems, data networks, data-handling equipment and electronic process control or monitoring equipment.
For acquisitions after January 2011, the CCA rate for computer hardware and system software will revert to 55% (27.5% in the year of acquisition).
Businesses that devote resources to technological advancement may be eligible for significant tax incentives. For instance, the federal Scientific Research and Experimental Development (SR&ED) program provides investment tax credits (ITCs) and tax deductions for eligible expenditures relating to research and development in Canada that will lead to new or improved products or processes.
Small- to medium-sized Canadian-controlled private corporations may claim ITCs of 35% on the first $3 million of qualified expenditures, and 20% on any excess amount. They may also receive all or a portion of the ITCs earned as a tax refund. Other Canadian corporations, individuals, partnerships and trusts may claim ITCs at a rate of 20%. Unused ITCs may be carried back three years and forward 20 years.
Eligible expenditures are fully deductible in the year incurred (or a future year), but the amount deductible is reduced by any ITC claimed in the prior year or any other government assistance.
But in order for work or activity to qualify for SR&ED tax credits:
- The project must be for scientific or technological advancement;
- There must be scientific or technological uncertainty;
- There must be scientific and technical content-documented systematic investigation; and
- In relation to IT, the project must push the body of knowledge beyond what’s known and available.
Finally, in addition to e-filing tax returns, taxpayers can access and manage tax information through the CRA electronic services. My Account for individuals permits the viewing of tax information, including assessments for the current and six preceding years; carryover amounts, including capital and non-capital losses; RRSP contribution room; and various account balances. Changes can also be made to returns already filed.
My Business Account allows business owners, officers and directors to access various tax accounts and certain communications from the CRA. Both programs can be used to file objections to CRA assessments.
If you manage tax affairs, clients can provide online authorization for you to access most of this online tax information and communicate with the CRA on your client’s behalf.
Note: Remind clients to beware of fraudulent e-mails that appear to come from the CRA. These e-mails may direct taxpayers to a website that appears official, where they’re asked to provide personal financial information. The CRA never requests information by e-mail.
Gena katz, FCA, CFP, an executive director with
target=”_blank”> Ernst & Young’s National Tax Practice in Toronto. Her column appears
monthly in Advisor’s Edge