Depreciation of a New Building

by Maria
(Toronto, Canada)

What is the depreciation rate for a new building?

What is the depreciation rate for a new building?

The organization that I work for, just started operating their new building in September 2015. There are still small expenses to purchase standing lamp, small appliances, etc.

My question is: when I should start depreciate the Fixed assets-building?

Up to now, for Other Fixed Assets such as Equipment, Furniture, etc. we use 50% of the depreciation rate for NEW fixed assets.

For this new building, should we use 50% too? or we can use pro-rate starting Sep-Dec.2015?

Thank you in advance.

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Maria, you need to understand what depreciation is. You are booking the amount "used up" over a particular period which is generally a month, a quarter or a year. To do this you need to estimate how long the asset will last and expense the "used up" portion each period. Is the new building so poorly built that you expect it to only last two years. Are the furniture and equipment purchased by the company of such poor quality that they only last two years and then are disposed of?

The company's owner and the accountant should make this determination when year-end procedures are performed. This is not your call to make. However, as a general guide, take a look at CCA rates for buildings. Keep in mind that CCA is for tax purposes and is not GAAP.

CCA Class 1 is for buildings bought after 1987. The rate is 4% but there are exceptions. Another possibility is CCA Class 6 with a 6% depreciation rate.

(In New Zealand, I believe buildings with 50 year plus life expectancy are depreciated at 0%.)

Furniture and equipment over $500 are classified under CCA class 8 with a depreciation rate of 20%.

CCA Class 12 is usually the guide for purchases under $500. It has a 100% CCA rate and the half year rule doesn't apply. However if it was applied, 50% would be depreciated in the first year. I think this is where your 50% rate is coming from. Aggregate purchases must be considered before expensing items under $500.

Depreciation is more complex than it appears as decisions made about the appropriate rate affect the financial statements. The business owner and the company accountant should be making all decisions on how assets are depreciated. Please speak with either of them before you do anything. Junior bookkeepers should NEVER be expected to make the decisions around adjusting entries and year-end procedures.

Bookkeepers need to understand that when they make an error due to lack of knowledge, it could have long lasting financial implications for the owner of the company. I have even seen a business go under once an audit brought all the bookkeping problems to the forefront.

Business owners need to understand that while they can delegate responsibility, they cannot abdicate responsibility. When you sign your name to an income tax return, "you are accepting the burden that everything has been reported accurately and legally within the framework of tax law in Canada", no matter who did the work. With delegation also comes oversight responsibilities.

Comments for Depreciation of a New Building

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Jan 24, 2016
Depreciation of a new building
by: Maria

Thank you for the explanation. In my question, I mentioned that 50% of the depreciation rate which means 50% of 5%.

I wanted to know if I needed to use 50% of 5% or proportional rate of 5% as the building started in Sep.2015.

Thanks again.

Jan 25, 2016
Tax vs Book
by: Lake


I apologize I didn't read your question correctly.

I think you are confusing tax vs book depreciation.

The 50% rule pertains to tax (CCA and the half year rule) or would apply if the asset was purchased or available for use in July for a company with a December fiscal year end. Proration on number of days (some use months) in service is book.

Here is AIPB's Chapter Two of Mastering Depreciation PDF on depreciation under GAAP for book purposes:

Jan 27, 2016
Depreciation of a new building
by: Maria

Thank you, Lake.

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