What is the nature of his farming activities?
One could argue that the house probably already had water from a well or municipal supply. It may not have been sufficient for his farming activities, necessitating the additional service, in which case, albeit still would be a capital expenditure, it could be fully amortized to the business versus just the percentage that he uses of the personal home portion. If that is the case, then it may even be able to be classified as a Class 8 or other addition (versus class 1) and would allow for more depreciation per year.
It would be even easier to claim it under the farm if it were on a separate meter from the house.
Capital expenditures, by definition, are those that have lasting value (i.e. longer than one year). “Fees” are not usually capital expenditures, but if those payments are actually for the property improvement work (i.e. pipes in the ground), I would call it capital. Permit fees, I would argue, are period costs, as they have no lasting value.
As to whether any of the expenditures are deductible, I think @dbush has explained it well.
The farmer’s home is strictly personal; no farming activities occur on the land where his home is located. The only business conducted at the personal property is the in-home office, e.g., ordering supplies/services, administrative tasks, etc.
I agree with your point if the water hookup is necessary for the farm business (e.g., irrigation, livestock, processing facilities), a portion may be deductible.
However, the crop is grown on leased land that is separate from the farmer’s land and property.
Agreed.
*I’m currently of the mindset that none of the costs/fees mentioned in the original post are deductible for this farmer on his T2042 - does anyone see it differently?
I can “see it differently” based on what you’ve posted, but without talking to the client or seeing all the paperwork, all I can say is that it is POSSIBLE.
For example, if you capitalize it, there might be CCA (i.e. if it could be considered class 8 or something), and CCA is a legitimate deduction.
I would claim a portion of the cost for home office expense - the same percentage I would use for any other expense. Depending on the dollar value I might consider it similar to a leasehold improvement in the home office.
I don’t see how ANY of the cap cost can be taken (ie the two large expenditures). Neither has anything to do with the business operation and the house at best is tangential to the business.
The permit fee for the water meter? Maybe, at the same rate as OIH %. But it’s so small it’s not really a big deal one way or the other if reviewed and disallowed.
Sorry @healthymanccc - after re-reading your explanation, I have to retract my last answer. I didn’t pay attention to all your detail.
IF the new water supply is ONLY for the taxpayer’s home, and cannot be used in the farm business, I agree with you and @SmallBizGuy - probably not deductible at all.
You might “get away with” claiming some of it as OIH, if CRA doesn’t investigate it (low probability). But, realistically, how much water is needed for that office work?
