Who doesn’t love talking about income tax?
A photographer uses form T2125 to calculate the capital cost allowance (CCA) of their equipment when doing their income tax return. Each class of equipment has a different rate of depreciation.
Most camera gear goes into Class 8, most computer equipment goes into Class 50, and other business property, such as a vehicle, goes into other classes. Be sure to read the description for each class. The Income Tax Regulations have the official rules and good luck reading it.
And then there’s CCA Class 12.
Class 12 is a very desirable class because it has a 100% depreciation rate and often no half-year rule. (Some Class 12 items, like non-system software, are subject to the half-year rule.)
Class 12 includes, among other things, “tools” under $500. Surely every piece of photo gear is a tool. So anything a photographer buys for under $500 is a 100% write-off, right?
No.
What is a small tool?
“Tool” is not legally defined but Canada Revenue Agency (CRA) did publish Interpretation Bulletin (IT422) in 1978 which offered a vague explantion:
2. It is the Department’s view that a tool is an instrument of manual operation, that is, it is an instrument to be used and managed by hand instead of being moved and controlled by machinery. In order for an asset to be a tool it must be designed to create a physical change in something or to be used as an instrument of measurement or manipulation. Examples are hammers, saws, squares, screwdrivers and hand-held power tools.
3. The fact that an object can be moved or set up by hand does not, in itself, make it a tool for class 12 purposes. Thus, pallets that are moved by lift trucks when loaded with goods, or scaffolding which is assembled by hand and moved by and [sic] but not “manually used” are not class 12 items. However, shopping carts, metal trays used for carrying bread by hand, milk crates and returnable soft drink cases are class 12 assets when they are capitalized.
4. An asset can be a tool in a general sense but its predominating character may be that of machinery and equipment. Thus, an item such as a typewriter which might be considered a tool, is properly regarded as machinery and is placed in class 8.
A tool is something used by hand and is not machinery or equipment. Does that make it as clear as mud?
Photo Tools
I’m not an accountant, (if I was, I’d be wearing a very nice tie), but one such person did suggest that items such as, but not limited to, tripods, light stands, softboxes, umbrellas, light meters and camera bags would be small tools if under $500 each. These items are operated by hand.
Lenses are not tools because they’re not operated by hand. A lens must be attached to a camera in its normal use. A camera is operated by hand but it’s not a tool, it’s a machine or piece of equipment like the typewriter example mentioned earlier.
The CRA needs to update its classification of electronic devices such as digital cameras to reflect the short lifespan of these items. The current 20% (Class 8) depreciation rate might have been okay for film cameras but it’s painfully out-of-date for digital cameras.
Over the past several years, the CRA has updated the depreciation rate for computer equipment from 20% to 55%. So why not digital cameras?
As always, don’t believe anything on the Internet and check with an accountant.
Please check the date of this article because it contains information that may become out of date. Tax regulations, sales tax rules, copyright laws and privacy laws can change from time to time. Always check with proper government sources for up-to-date information.
Useful. Thanks.
Hi there,
I have a photo booth business – any idea what class a photo booth would fall under? It includes a camera, laptop computer, printer, computer monitor and all of that is enclosed into a hard plastic tower. It was sold as a package, but different components of the booth seem to fall into different categories. Thanks!
Hi Rebecca,
My *guess* is that it falls into Class 8. But by chance, do you have an itemized invoice listing each component, for example:
Camera – $2,000
Computer – $1,500
Printer – $500
Enclosure – $1,000
An itemized invoice would show you the price of each item and you might be able to depreciate each separately. Otherwise, I’m not sure if you’re allowed to “guess” the value of each item on your own.
By using Class 8, you “lose” on the laptop and printer which are normally Class 50.
To be sure, check with an accountant (and *not* with the CRA).
You can claim a body under class 50 since it is actually a computer that processes light from the image sensor.
@JD: I hope you have a good tax lawyer. If you can get away with claiming a digital camera in Class 50, you’ll be the first person in Canada to do so and you’ll set a welcome tax precedent for everyone else. You’ll be a hero to photographers, videographers and the TV and movie industries.
There are many other types of tools and machinery that use computer processors and sensors and they are not Class 50, so I have no idea why they would make an exception for cameras (but I wish they would).
Class 50 is only for “general purpose” data processing equipment.
So what class should I chose? I keep reading and reading and it is NOT clear. If what I buy is less than $500 can I leave it as small tools? If so, it’s 100% deductible right? So what about anything else? Do they all go to class 8 at 20%? Or is there another category I should look at in order to decide? It’s really confusing when it comes to computers and cell phones so I cannot figure out the Photography side of it. I have to wrap this up now or I will be dinged for late filing and I cannot figure this out. I didn’t make enough money this year as it’s a brand new business and all the equipment is bought out of pocket (no loan) so it is taking a long time to get good contracts due to not having all the required tools right away so to justify paying thousands of dollars to my accountant for him to do my bookkeeping is not an option.
I am a bookkeeper but my field is Construction and Commercial Cleaning so this is WAY out of my league. I am stressing out , time is running out and I have no where to turn. All I want is to know what kind of GL I need in order to separate all these different types of Classes. Non of my other businesses have CCA except for their Computers so I have no clue what I am doing. Once that is done I can keep plugging away and my accountant can help me with the rest.
Any suggestions?
Hello Kitzy Sanchez,
A lot of terms are not fully defined by the CRA and some definitions are out of date :–(
A lot of what a photographer uses goes in Class 8, except for things like computer equipment, vehicle, etc.
A “cellular telephone” (i.e., “electronic telephone equipment”) is Class 8. This is from publication T4002 Rev.17 and those two phrases I put in quotes have been used for at least 20 years – long before smart phones.
Putting a cellphone in Class 8 assumes that you bought the cellphone outright instead of paying for a cell plan that includes a phone. A cell plan that includes a phone is a business expense not a depreciable asset.
For a cell plan with a cellphone to be a business expense, the cell plan cost must be “reasonable” AND it’s a “basic plan” with a fixed cost AND any personal use does not result in any overage charges. “Reasonable” and “basic plan” are not defined.
If you buy a cellphone outright, it could be Class 8. Your cell plan would be a business expense and it still must be “reasonable” and “basic” with a fixed cost.
By chance, while at an event tonight, an accountant said that one could make a case for putting a *smart* phone in Class 50 (“general-purpose electronic data processing equipment”). Class 50 does includes tablets and what’s the difference between a tablet and a smart phone? Only the ability to make voice calls which isn’t much.
I use my smart phone mostly as a cellular modem for my laptop, doing emails and for processing credit cards. I don’t have any games, movies or non-business-related apps on my cellphone. My voice calls are minimal and I have phone records to prove this. So I’m confident *my* smart phone could be considered Class 50. Your situation may be different.
The $500 limit for small tools is mentioned in the Interpretation Bulletin linked in the post above. But again, the accountant I met tonight said that he always fully deducts any item under $500 simply because, “it’s just too small to worry about.” But take that at your own risk!
But really, it’s silly to depreciate a $70 memory card
or a $150 lens filter. Neither of those two items meets the definition of a small tool.Memory cards and card readers are probably Class 50 which includes computer “storage devices” and related cables.I have been scouring the internet all day looking for this exact information. Thank you Warren for clarifying this– I was trying to justify buying a new CPU and Camera for my sole proprietorship – seeing that they are not in a class that is %100 – I am going to rethink getting multiple prime lenses and the tricked out MacPro. Bookmarking this page to show peers… THANKS
Thanks for this info, Warren. It’s very helpful. So for the smaller items that don’t seem to fit in the vague definition of tool for Class 12, do you think you would not list those as CCA, but rather as current expenses for materials used in providing services? I’m thinking along the lines of lenses that are under $500, the $150 filter that you mention, etc.? Turbotax seems to suggest anything over $200 would be considered CCA, but I have a $250 lens that doesn’t seem to fit into the CCA categories even though it’s an item who’s value will depreciate slowly over time.
Hi Jason,
“Turbotax seems to suggest anything over $200 would be considered CCA” – Is your Turbotax out of date? The small tool limit was changed from $200 to $500 about 13 or 14 years ago.
Lenses are Class 8 (20%). A lens isn’t a small tool because it can’t be used by hand, it must be attached to and operated by a camera.
I originally said that a lens filter is not a small tool because it must be attached to a lens to work. But this was a quick example off the top of my head. After more thought, a filter is managed and controlled by hand. The fact that a filter is often, but not always, attached to a lens is not important. A lens hood is a small tool.
A lens filter is Class 8 but I will suggest that if it’s under $500 then it becomes a small tool.
There really should be a simple way to fully deduct any item under, say, $500 and not have to depreciate it over time.
For Class 8 assets that either break prematurely or don’t have the expected lifespan that Class 8 implies, you can deduct a “terminal loss” in the year that it must be replaced. That figure is the remaining depreciation minus any amount you might get for selling as scrap, etc.
The assets have to be tracked separately to support this. Check with your accountant, but I think the major accounting software packages can be set up for this.
I shoot in manual most of the time and manually focus a lot. I can see the Class 8 for camera bodies but why not Class 12 for lenses under $500 (not that I have many under $500).
Ian
It’s not about how you focus a lens. A lens must always be attached to a camera in order to work. That’s what my accountant has told me. By comparison, binoculars are a hand tool.
But as I mentioned in the post above, another accountant told me that he just deducts almost anything under $500.
Talk with an accountant who might have access to up-to-date interpretations or other CRA bulletins.
Most of us are worried about a few hundred dollars and then you hear about people or companies writing off tens of millions of dollars.