daycare client spent $7500 on renovations should i expense or amortize

I have a daycare client who spent $7500 to renovate the daycare.  Should I expense this amount or amortize it?  What class would this go under?


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First question is:  where is the space?  If it's the provider's "principal residence", then you have a problem and so does he/she.  Renovating to fix up a space to provide income is high on the list of "no-nos" as doing so will cause the home to lose - at least in part - the "principal residence" designation.

Assuming this space is NOT part of the principal residence, you have to look at just what was done.  If you're just talking repainting, new flooring (same quality as old), and generally work to replace worn bits, then you can expense it.  And, to be blunt, you're not going to get that much for $7,500 so I'd tend to go that route.  However, if there was a major structural change or upgrade, then CRA rules dictate it's capital in nature.

If you've determined it is really capital in nature, then you have to look at the whole set-up.  If the daycare operator owns the place, then you would add the cost of the renos to the ACB of the building (or, if this happens to be a condo structure, to the cost of the condo).  If, on the other hand, you are looking at a rental situation, then you would add the $7,500 to "leasehold improvements" and amortize the new net over the remaining life of the lease plus one renewal.

Hope this helps.


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