We have a client that has large software costs that get capitalized into class 12, to which the half year rule applies generally (ex. vs. small tools where the half year restriction is lifted for the class).
Noticed TaxCycle wasn’t calculating the accelerated rate (i.e. 100%) on additions even when we indicated them as eligible for AIIP, called support and it sounds like they got that direction from CRA.
I don’t see where this restriction on class 12 would come from. We talked with a senior agent at CRA and they pointed to a “computer software tax shelter” exception, which I haven’t found a clear definition of, but I believe tends to apply to situations where the amount being capitalized isn’t paid for in cash (ex. 70% debt financed with a note due in 20 years).
Have found nothing else to support CRA’s position re: the class 12 restriction for legitimate software costs that are paid for in cash, but have found multiple articles that seem to indicate the 100% rate should apply:
Wondering if anyone provide further clarity, or support for CRA’s position?
I called the CRA back and spoke with another senior agent to discuss the “computer software tax shelter” exception that our employee was pointed to earlier, and he agreed that the tax shelter rules would not apply generally to capitalized computer software.
Difficult to find support, but he was able to find a statement in the fall economic update 2018 (so at least coming right from the gov’t) indicating a 100% rate would apply on computer software, which aligns with the articles above. It doesn’t necessarily indicate class 12 unfortunately, but the 50% normal first year deduction indicated in table 3.1 does line up with class 12:
Class 12 is eligible for accelerated CCA and any post Nov 20/18 addition to it (whether half year rule applies or not) is eligible for 100% CCA in the year of acquisition.
When half year question in S8Asset == No, TaxCycle currently correctly claims 100% of CCA in the year of acquisition. However, when this question is answered Yes, TaxCycle only applies 50% of CCA when it should calculate 100% of CCA. This is a bug and a fix is on its way soon.
To get around it, please answer No to the half year question in S8Asset for class 12. My apologies for any inconvenience this may have caused.
Hey @rick.s ! I am wondering if Class 12 would apply to software tools that can have a large degree of customization/configuration required (without any coding required). I own a mobile car detailing business, and I invested 2 months of my time building workflows and configurations within our CRM software that I could argue has (and will continue) to benefit the company for more than 12 months. Despite the software costing a monthly fee, I am curious if the CRA would allow me to “capitalize” my time invested in improving the software tool for my business.
In your case, was your clients “large software costs” related to purchasing actual code that they owned? Or was it similar to my case where they were paying for the software application license costs?
Typically anything created by the business is not deductible, except for outlays (things that were actually paid for). If your business is a corporation, and you are an employee, your time would be compensated though your paycheques, and the wage expense would be deductible in the corporation. If your business is a proprietorship, you’re out of luck.