Not everything a business buys can be touched. Class 14.1 is for goodwill and certain intangibles — the value of the business itself, and rights that have no end date. Their cost is deducted over years through capital cost allowance (CCA), on a declining-balance basis. On Form T2125, Statement of Business or Professional Activities, the class is one of the rows in Area A.
What goes in this class
Starting January 1, 2017, Class 14.1 includes property that:
- is goodwill
- was eligible capital property immediately before January 1, 2017 and was owned at the beginning of that day
- is acquired after 2016
For a business, a profession, or a fishing business, the usual examples are franchises, concessions, or licences for an unlimited period. For farming, the Canada Revenue Agency (CRA) gives milk and egg quotas.
The class has its own rate, set out on the CRA's page of classes.
What does not
A franchise, concession, or licence for a limited period. That belongs to Class 14 instead.
Tangible property. Anything tangible or corporeal is excluded, as is property not acquired to gain or produce income from the business, and property for which an amount is deductible some other way.
Investments and financial instruments. An interest in a trust or a partnership, and a share, bond, debenture, mortgage, hypothecary claim, note, bill or other similar property, are all excluded — as is a right in, or a right to acquire, any of them.
Worth knowing
Older property depreciates differently for a while. Property in Class 14.1 that you acquired before January 1, 2017 is depreciable at a higher transitional rate for tax years that end before 2027. Transitional rules apply.
GST/HST treats it differently. Property in Class 14.1 is excluded from the definition of capital property for GST/HST purposes.
What to keep
Keep the purchase or sale agreement for the business or the right you bought, along with any invoice, showing the parties, the date, and what was acquired. Goodwill usually appears as a line in an agreement rather than on a receipt, so the agreement is the evidence.
Keep the franchise or licence document too — whether the period is limited or unlimited is what separates Class 14.1 from Class 14. Dossier tags the document and files it with the year's records so it is there when you file. Don't send it in with your return — keep it in case the CRA asks to see it.
Official CRA sources
Source: Canada Revenue Agency (canada.ca). Not tax advice.