I’m trying to figure out the tax treatment of software and applications a business uses in its operations.
I have read the category on the T2125 is Office Stationery and Supplies (Line 8811) for programs such as Adobe, Google Workspace, Zoom, Hootsuite, Buffer, Later, or any other subscription-based software required by many businesses (monthly/yearly subscription).
Additionally, I have read to use Class 12 for Computer application software (not systems software), including end-user applications such as word processors, spreadsheets, etc. Examples include Microsoft Office and Adobe Photoshop. The half-year rule applies.
What I’m gathering is software that is on monthly or a yearly based subscription may be expensed in Office Stationery and Supplies whereas the more long term computer software such as Mircosoft office or software that provides a license allowing more than one year of use is capitalized in class 12 and the 1/2 rule applies.
May anyone provide their thoughts?
Licensing fees. Expensed annually or amortized for the duration of the subscription if the duration is beyond one year.
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So on the T2125, you would enter the expense in Business taxes, licences and memberships line 8760?
Hi Healthymanccc:
Suggest, multi-year subscriptions paid at enrollment are not capitalized, but treated as a pre-paid expense. Expense the actual portion of the license consumed in that year or period and carry forward the balance to the future years until the pre-payment is exhausted.
Technically, you don’t have title to the asset, just renting it, so it is not capital in nature.
Class 12 definition only applies if you are purchasing a perpetual license that does not expiry. That was how many Microsoft products were previously sold until the move to subscription based engagements.
Greg.
Gregory Marko PEng, MBA, CPA CMA
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I’ve been depreciating these types of software as Class 12 using AIIP, meaning no 1/2 year rule and the entire amounts gets claimed in the tax year.
I understand what you are suggesting, that we don’t own these assets, and it makes sense, so I’ll change this practice going forward. I appreciate your reply. Thank you.
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