Understanding Storage Choices: Shipping Containers Tax Guide for Local Canadian Businesses
Every local business in Canada needs to make the most of every dollar spent. One of the choices they often face is: Where should they store their goods? They could buy or finance a shipping container or rent a space at a self-storage facility. But which option gives the best bang for their buck, especially when it comes to taxes?
Shipping containers aren't just for moving things across oceans. They're becoming popular as storage units for local businesses. Then there are self-storage units, which are easy to rent and come in handy sizes. Both options have their benefits, but they offer different tax perks.
In this guide, we'll break down the tax advantages for Canadian businesses. Whether you're considering a shipping container or a rental storage space, we've got the insights you need to make the right choice for your local business.
Capital Cost Allowance (CCA):
- When you finance or purchase a shipping container, it's treated as a depreciable asset. This means you can deduct a portion of its cost each year. The amount you can deduct is based on prescribed rates set by the Canada Revenue Agency (CRA). This deduction is called the Capital Cost Allowance (CCA).
- The specific CCA class that the shipping container falls under and the associated rate would determine the amount you can deduct each year. The CRA's guidelines would provide details on the appropriate CCA class for shipping containers.
- If you finance the purchase of a shipping container, the interest on that financing could be deductible for tax purposes as a business expense, provided the container is used to earn business income.
Renting Storage Space:
- Rent or lease expenses for storage space are generally fully deductible in the year they are incurred since they are considered current operating expenses.
- There's no need to depreciate these costs over time, unlike with purchased assets.
Cash Flow Implications:
- Renting storage space may require less upfront cash compared to financing or buying a shipping container, which might be beneficial from a cash flow perspective.
- However, once you've paid off a financed container, you might have lower ongoing costs compared to continuously renting storage space.
- Renting storage space might offer more flexibility if your storage needs change frequently. For instance, it might be easier to expand or reduce rented space compared to buying or selling shipping containers.
Sale of the Asset:
- If you later sell the shipping container, there may be recaptured CCA if the sale price is more than the undepreciated capital cost, or a terminal loss if the sale price is less. This could have tax implications.