When I’m auditing or reviewing a file the capital assets section (both in the working paper file and the tax return) is often the easiest one to do.

I don’t know what you are talking about when you say the asset is not taxed: ever heard of terminal loss, recapture, reduced CCA (due to dispostions within CCA pools)?

It is very simple – if the government allows business, on average, to write off the cost of an asset faster than the true economic substance then that is a tax subsidy.

It would be like the government told a company to properly account for inventory. Then take 20% of that inventory and write that off too.

That is a timing difference and anyone who understands the time value of money realizes that it is better to get the deduction today than it is to get it next year.

The government ensures businesses get more than their fair deduction today by allowing them to write off more than the true economic depreciation on the asset.

It is all about matching revenue to expenses; and capital assets are *assets* that generate revenue over time and, therefore, should be expensed over time.

Hence, accrual accounting – i.e. GAAP with some relevant modifications to reconcile GAAP to taxable income (which is rarely difficult – except for large, consolidated company structures).

Now, if you want to make the tax system simpler all you would have to do is eliminate capital gains/losses. No more section 85, 55, 39 etc…

Those are the hard sections.

You are also wrong about zero rated firms having a guaranteed yearly audit. I deal with many fishing companies and they rarely get audited.

I have experience in this field with literally hundreds of clients so I know you are either speaking from some very rare experience or you are blowing smoke.

Applying CCA is not hard but the cost of ensuring compliance is. It’s possibly the most complicated part of the T2 return the majority of small businesses have work with.

I file a T2 return every year, and QuickTax does a pretty good job, but it’s far from perfect.

As for the U.S. system being better wholesale. No one said that. But there are a lot of things we could learn from their system, and high-grade for our own.

You look at the CCA like its a subsidy, that it’s lost revenue for the government. This doesn’t make a lot of sense to me because at the end of the amortization period, the asset is not taxed, in fact its 100% net reducing — so, therefor imho they’re collecting money over the amortization period they’re really not entitled to in the long run.

Now I’ve given my fair share of interest free loans to the cra, but they tend to pay them back on time so its not a big deal, but why add a significant startup cost for money you’re not going to receive in the long run? It doesn’t make a lot of sense, but then again I’m not an accountant.

Eliminating the CCA would eliminate a lot of accountants though — so I guess thats why you’re getting upset.

On another topic, why does the GST form not include a specific Zero-Rated Sales line? The computed form requires them to ask why you made x revenue and didn’t collect x * 6% gst. Resulting in a guranteed, yearly, audit for outsourcing firms applying the zero-rated rule.

I also do not care what the US does – I have seen many things that they do that make absolutely no sense.

Given your limited knowledge of our tax system you will have to excuse me if I don’t believe your claims on how much better the US system is – I know, in some ways it is, in many ways it is royally screwed up (go ask the middle class about AMT as just one example).

Bill – interest is deductible in Canada if it is incurred to earn income. Yes, there can be some complicated rules in some cases.

Sure, one may not be able to write off interest on the purchase of Porsche (since the monthly limit is $300) but if a person is a trucker he can certainly write off the interest on his rig since he is using it to earn income (since his rig is not a “passenger” vehicle).

I also am not confident in your knowledge of Canada’s tax system, never mind the US, to bother taking this conversation further.

Once again: there is a reason most businesses show future tax liabilities and it is generally because they write off equipment faster for tax purposes than they do for accounting purposes. Since these companies are supposed to try and match the accounting amortization with the useful life of the asset (granted, this is just an estimate) it is clear that a future tax liability is created (and measured) on the basis that the tax UCC is significantly lower than the accounting accumulated amortization.

Once again, it comes down to the time value of money. The government has given up tax revenue now in order to receive it sometime down the road. That is a tax subsidy, clear and simple.