[iherald]

I know I should talk to an accountant, but I thought someone might have some basic thoughts on this. I bought a duplex in August. The apartment portion hadn't been upgraded in probably 20 years. So I updated the apartment, new kitchen, new floors etc.

The apartment had 70 year old hardwood floors in it. They had worn out, so I put new hardwood in. Since I'm only updating, and not upgrading anything, this is a current expense, correct?

I put new appliances in, so that's a CCA (class 8 I believe). What about kitchen cabinets? I merely replaced the old ones that were falling apart with new ones. I think this is a current expense under the theory that I'm just putting the apartment back to how it was. Thoughts?

What about tile in the bathroom (part of it was vinyl before, though there were some tile, so I think CCA) or toilet? I put in a low flow one, so CCA?

Thanks in advance. It's my first year with a rental suite, so I want to try and start doing it correctly.

 

[stardancer]

You are on the right track. Any repairs/maintenance to an integral part of the property can be a current expense. So replacing hardwood with hardwood is an expense.

Anything not integral to the property is a capital expense- such as the new appliances, an air conditioning unit, carpets, etc. I think the new toilet would fall into here (although I wouldn't put it in a class by itself).

However: a material improvement of property beyond its original condition is a capital expense, as is the test of time. An improvement that will last only a year or two can be a current expense, but a repair that will last for years is a capital expense. So you have to decide for yourself. Did you replace the cupboards with substantially better ones?

Intent is also important. If the repairs are done to make the property suitable for habitation or for selling, that is considered capital.

The difference between capital cost and expenses is not crystal clear. I have had apartments for many years, and I still have to make judgments when doing major jobs on them. One thing I have done is to take the total contractor's bill for major renovations and put 15% (or whatever) under expenses and the balance under capital with no problems from CRA. You can juggle this ratio according to your needs, as long as you have some justification in case CRA asks.

 

[leslie]

Although I agree with a lot of that, I would come to the other conclusion. All seems to be capital in nature to me.

Regarding the justification: This is what I do "with no problems from CRA" ....... You cannot conclude that just because CRA has not complained that they agree with something you do. It is only an audit that will make that presumption clear. Until then you may only 'be getting away with it' temporarily.

Somethings you file are checked by computers and trigger changes to your assessment, but the line items within a business's Income Statement - no. Especially when the issue is subjectively decided.

 

[iherald]

Although I agree with a lot of that, I would come to the other conclusion. All seems to be capital in nature to me.

Can you explain why you think it's a capital expense? According to the CRA's Rental Income form:

"An expense that simply restores a property to its original condition is usually a current expense. For example, the cost of repairing wooden steps is a current expense."

whereas:

"The cost of a repair that improves a property beyond its original condition is probably a capital expense. If you replace wooden steps with concrete steps, the cost is a capital expense."

I look at it and say if it's replacing old cabinets with new ones, assuming they are the same quality, it's a current expense.

 

[CanadianCapitalist]

I would have guessed that putting in new floors, appliances, tiles etc. would count as capital expense as well, not current expense.

 

[iherald]

I would have guessed that putting in new floors, appliances, tiles etc. would count as capital expense as well, not current expense.

I thought so too, but I'm reading the forms to say that floors are current expenses.

Here's another question, let's say everything is a capital expense. What about the labour to put the floors in? Current?

 

[OptsyEagle]

"What about the labour to put the floors in? Current? "

As long as it is not your labour, then it is recorded as part of the expense, wherever the material costs go, it goes as well. If it is your own labour, it is not deductible in any form.

 

[Berubeland]

In my real life experience higher ticket items get classified as a capital expense. Lower priced items are expensed.

For example toilets even thought they are low flow and materially better than the old ones get expensed. Price tag is around 100.

Kitchens are classified as a capital expense.

Roofs also called a capital expense even thought they are not really better usually then the ones they are replacing. Except of course the holes

 

[iherald]

In my real life experience higher ticket items get classified as a capital expense. Lower priced items are expensed.

For example toilets even thought they are low flow and materially better than the old ones get expensed. Price tag is around 100.

Kitchens are classified as a capital expense.

Roofs also called a capital expense even thought they are not really better usually then the ones they are replacing. Except of course the holes

Not that folks probably care, but I've decided that most of the renovation is a capital expense. The two things I'm going to expense are the electical (since the CRA booklet says it's a current expense) and the hardwood floors because I can show that they were falling apart and replacing them is simply to put it back to safe.

The rest of the apartment didn't NEED to get renovated, and so I'm putting it as a capital expense.

Thanks everyone for their points. It's nice to hear people's opinions so that I can learn and better inform my decisions.