Amortization spreads the cost of an intangible asset, or the repayment of a loan, over time rather than recognising it all at once.
Amortization has two common meanings. In accounting it is the gradual expensing of an intangible asset, such as a patent, franchise right or purchased goodwill, over its useful life, mirroring how depreciation works for physical assets. In lending it describes how a loan's principal is paid down over a schedule of payments.
For tax, the equivalent of amortization on eligible capital property now runs through the capital cost allowance system, generally in Class 14.1 at a 5% declining-balance rate. So the accounting amortization on your financial statements and the tax deduction on your T2 are calculated separately and often differ.
Your company buys a franchise licence for $50,000 with a 10-year term. On the financial statements you amortize it at $5,000 a year. For tax, the cost is added to CCA Class 14.1 and deducted at the prescribed declining-balance rate instead.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
Book a Free 15-Minute CallCommon questions regarding our compliance workflows and service guarantees.