Get comfy, because I’m about to talk nerdy to you. We need to have a conversation about assets vs. expenses because I’m seeing far too many people spend excessively assuming their purchase can just be written off. 

In this blog I’ll break down the exact difference between assets and expenses so you can make empowered decisions in your business! 

Difference Between Assets and Expenses and How it Impacts your Taxes

In a nutshell:

Business Assets are purchases that last more than 1 fiscal year (e.g. laptops, camera equipment, furniture & fixtures, vehicles).

Business Expenses are consumable purchases that typically get used up within the fiscal year (e.g. printer ink, office supplies, meals and entertainment, rent, insurance).

Why It Matters

It matters to us business owners because it impacts the timing of our tax deductions.

Expenses can be taken as a tax deduction in the year that they are purchased, while assets get deducted (aka depreciated) over time (i.e. you can't take that deduction all in one year, instead, the tax deduction is spread out over the useful life of the asset). 

Assets vs. Expenses Illustrated

Let’s say you had a great year and you purchased a brand new MacBook for $5,000 and a 1 year subscription to Adobe Photoshop for $300. 

Your photoshop subscription is considered an expense (remember, it’s consumable), and the $5,000 MacBook is an asset because it will last you for a number of years. 

When it comes time to file your taxes, Canadian tax rules won’t allow you to take that full $5,000 MacBook expense in year 1. Instead, the CRA allows you to take 30% (in this case $1,500) as a deduction each year until the asset is “used up.”

On the other hand, your $300 Adobe Photoshop subscription can be claimed as an expense, in full, at the end of the year. 

Disclaimer: this is a super simplistic example and should not be taken as professional advice, talk to your accountant to discuss your specific situation.

The Bottom Line

Expenses immediately help reduce your tax bill, while assets improve your net worth. That’s why you’ll hear talk of “accumulating” assets to increase your wealth because assets have longevity. 

Being aware of your spending in business takes time. Tax season is a great opportunity to take a holistic look at your revenue and expenses to determine what needs to be changed in the upcoming year.

Maybe you’ve been spending too much on the wrong things assuming they were assets that benefit you in the long term, when they’re really just costing you money! Just be aware that not all purchases are created equal. Some purchases save you tax money immediately, while others do not.

Money Anxiety in Business is a Real Thing… Here’s How You Can Avoid It!

I’ve mastered the art of differentiating good spending, bad spending and necessary spending. And I want to pass that knowledge along to you so you can make confident spending decisions! 

Are you ready to level up your money game and learn how to properly track your assets and expenses?

Then my Bookkeeping Bootcamp is the place to be! This is a place where Canadian service based business owners come to learn the ins and outs of bookkeeping so they can keep more money in their pocket with less problems come tax time. 

Sound too good to be true? See what one of my student’s had to say:

I FOUND MORE CLARITY AND IMPROVED MY WORKFLOW FOR MY BUSINESS.

Kristine made a typically dry topic so much more fun and approachable. She talked about the balance sheet, burn rates, etc. in layman’s terms. I never felt overwhelmed or stressed over my accounting protocols. 

I found this extremely helpful and I can feel more confident come tax time. I would absolutely recommend this online course!

Don’t just take our word for it! For more information on Bookkeeping Bootcamp, click here.