Depreciation

Depreciation is the gradual reduction in the value of a business asset over time due to usage, wear and tear, or obsolescence. Instead of claiming the full cost of an asset (like machinery, vehicles, or computers) in one year, the expense is spread across its useful life.

For tax purposes, depreciation is allowed as a deduction under the Income Tax Act, which helps reduce taxable income. Different asset categories have prescribed depreciation rates, and methods like Written Down Value (WDV) are commonly used.

In simple terms, depreciation ensures that the cost of an asset is matched with the revenue it helps generate over time, while also giving businesses a legitimate way to lower their tax liability.