Fixed assets
Learn what fixed assets are, how they're recorded and depreciated, and how capital cost allowance works in Canada.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Fixed assets are long-term physical resources your business owns and uses to earn income, such as equipment, vehicles, and property. They're also called property, plant, and equipment (PP&E).
- You don't buy fixed assets to resell them. They stay on your balance sheet for more than 1 year and lose value over time through depreciation.
- For tax, you claim capital cost allowance (CCA) set by the Canada Revenue Agency (CRA) rather than accounting depreciation.
- Keeping a fixed asset register and tracking depreciation helps you plan replacements, manage cash flow, and meet CRA record-keeping rules.
What are fixed assets?
Fixed assets are long-term tangible items your business owns and uses to operate and earn revenue. You don't buy them to sell quickly; they provide value over several years.
In accounting, fixed assets are often called property, plant, and equipment (PP&E). You'll find them listed under non-current assets on your balance sheet. They represent a big investment and form the backbone of day-to-day operations.
Common examples include office buildings, delivery vans, machinery, and computer equipment. What makes something a fixed asset rather than an everyday expense is its useful life: if you expect to use it for more than 1 year, it's usually a fixed asset.
Why fixed assets matter for your business
Understanding your fixed assets gives you a clearer picture of what your business is worth. Their value affects your balance sheet, your borrowing capacity, and the decisions you make.
Fixed assets also shape your tax position. For tax, you claim capital cost allowance on qualifying assets rather than accounting depreciation, so getting the records right from the start saves time when you file.
Key characteristics of fixed assets
Not every purchase counts as a fixed asset. A few characteristics set fixed assets apart from day-to-day expenses and other assets on your balance sheet.
Tangibility
Fixed assets are physical items you can see and touch. This sets them apart from intangible assets like patents, trademarks, and goodwill. If it has a physical form and your business uses it over the long term, it's likely a tangible fixed asset.
Long useful life
A fixed asset is expected to last and provide benefit for more than 1 accounting period, which usually means more than 12 months. A laptop you'll use for 3 years is a fixed asset; a pack of printer paper you'll use this week is not.
Not intended for resale
Your business buys fixed assets to use them, not to sell them on. A delivery van used to move goods is a fixed asset. But if you run a car dealership, the vehicles on your lot are inventory, not fixed assets, because you hold them to sell.
Capitalization and depreciation
When you buy a fixed asset, you capitalize the cost rather than expensing it right away. The purchase price goes onto your balance sheet as an asset, and you gradually write off the cost over its useful life through depreciation. This matches the expense to the periods when the asset earns revenue.
Illiquidity
Fixed assets aren't easy to turn into cash quickly. Unlike money in the bank or unpaid invoices, selling machinery or a building takes time and effort. That's why they sit in the non-current section of your balance sheet.
Examples of fixed assets
Fixed assets cover a wide range of items, depending on your industry and business type. Here are the most common categories you'll come across as a small business owner:
- Land: plots your business owns and uses (land doesn't depreciate)
- Buildings: offices, warehouses, workshops, and retail premises you own
- Vehicles: delivery vans, company cars, trucks, and other transport used in operations
- Machinery and equipment: production machines, construction equipment, and tools
- Computer equipment: laptops, desktops, servers, printers, and networking hardware
- Office furniture and fittings: desks, chairs, shelving, and lighting
- Leasehold improvements: renovations to a rented space that add lasting value
The items that qualify depend on your capitalization policy. Many small businesses set a minimum cost threshold, and anything below it gets expensed right away rather than capitalized.
Fixed assets vs current assets
Your balance sheet splits assets into 2 main groups: fixed (non-current) assets and current assets. Knowing the difference helps you read your financial statements and make better decisions.
Current assets are items your business expects to use up, sell, or convert to cash within 12 months. They include cash, inventory, accounts receivable, and prepayments. These short-term resources keep your day-to-day operations running.
Fixed assets, by contrast, are the long-term items you rely on for more than 1 year. You hold them for use in your business, not for quick sale. Current assets tend to move month to month, while fixed assets stay put and lose value gradually through depreciation.
The distinction matters for financial health. Strong current assets point to good short-term liquidity, while substantial fixed assets show investment in long-term capacity. You can compare the 2 in the current vs fixed assets glossary guide.
How fixed assets are recorded on the balance sheet
Recording fixed assets correctly keeps your financial reporting and tax records accurate. Here's how it works from purchase to ongoing reporting.
Capitalizing the cost
When you buy a fixed asset, you record the full purchase price as an asset on your balance sheet rather than as an expense. The amount you capitalize includes the purchase price plus any costs needed to get the asset ready for use, such as delivery, installation, and setup.
Where fixed assets sit on the balance sheet
Fixed assets appear in the non-current assets section of your balance sheet. You typically list them at net book value, which is the original cost minus accumulated depreciation to date. This gives anyone reading your accounts a realistic view of what those assets are worth now.
Accumulated depreciation
Each year, you record a depreciation charge that reduces the asset's carrying value. The total charged since purchase is called accumulated depreciation. It sits against the asset's original cost, so the balance sheet shows net book value at any point.
Depreciation of fixed assets
Depreciation spreads the cost of a fixed asset over its useful life. Instead of recording the whole cost when you buy the asset, you recognize part of it in each period the asset is in use.
Why depreciation matters
Depreciation keeps your financial statements in line with the true cost of running your business each period. Without it, profits would look artificially low in the year of purchase and high in the years after. It also helps you plan for replacements by showing how much value your assets have lost.
Common depreciation methods
There are a few ways to calculate depreciation. The 2 methods Canadian small businesses use most are straight-line and declining balance:
- Straight-line depreciation: you spread the cost evenly across the useful life, so a $10,000 machine with a 5-year life and no residual value depreciates at $2,000 per year
- Declining balance depreciation: you apply a fixed percentage to the asset's remaining book value each year, which front-loads the expense toward the earlier years
Your choice should reflect how the asset actually loses value. You can learn more in the what is depreciation guide.
Assets that don't depreciate
Land is the main exception. Because land generally doesn't wear out or become obsolete, you can't claim CCA on it. If you buy a property that includes land and a building, you split the cost and depreciate only the building portion.
Depreciation and Canadian tax: capital cost allowance (CCA)
For tax, the CRA doesn't use your accounting depreciation. Instead, you claim capital cost allowance, a declining-balance deduction for depreciable property. CCA is discretionary, so you can claim anywhere from zero up to the maximum in a given year.
In the year you acquire an asset, the half-year rule generally lets you claim CCA on only half your net additions to a class. Claiming less in a low-income year preserves more deduction for later.
Assets are grouped into CCA classes, each with a set rate. Class 1 buildings are 4% and Class 8 general equipment is 20%. Class 10 motor vehicles are 30%, and Class 50 computer hardware and systems software is 55%.
The Accelerated Investment Incentive gives an enhanced first-year CCA and suspends the half-year rule for eligible property. The property must be acquired after November 20, 2018 and available for use before 2028. The enhanced amount phases down for property available for use from 2024 to 2027.
If you're in Quebec, note that the province's additional 30% capital cost allowance was abolished for property acquired on or after January 1, 2024. This is a Quebec-only rule and doesn't change the federal CCA system.
The fixed asset lifecycle
Every fixed asset follows a predictable path from the day you buy it to the day you dispose of it. Understanding this lifecycle helps you manage costs and plan ahead.
Acquisition
The lifecycle starts when you buy or acquire the asset. You record the full cost on your balance sheet, including directly related expenses like delivery and installation. You also assign a useful life and choose a depreciation method.
Use and maintenance
During its working life, the asset supports your operations. Regular maintenance helps extend its useful life and preserve its value. You record annual depreciation and account for any significant repairs or improvements that add to its life or capacity.
Review and impairment
It's good practice to review your fixed assets from time to time. If an asset's value drops well below its book value through damage, obsolescence, or market changes, you may need to record an impairment loss. This adjusts the balance sheet to reflect the asset's recoverable value.
Disposal
When an asset reaches the end of its useful life, or you no longer need it, you dispose of it by selling, scrapping, or trading it in. You remove its cost and accumulated depreciation from your books, and record a gain or loss if the proceeds differ from net book value.
Disposal also affects your tax position, as the CRA sets out for capital cost allowance. It can trigger recapture, where a negative class balance is added to your income. It can also create a terminal loss, where a positive balance left with no property in the class is deductible.
Fixed asset management for small businesses
Keeping track of your fixed assets doesn't have to be complicated, but it does need some structure. Good asset management saves you time at year-end and shows you clearly what your business owns.
Keeping a fixed asset register
A fixed asset register lists every fixed asset your business owns. For each one, you note the description, purchase date, cost, depreciation method, useful life, and current net book value. The CRA requires you to keep supporting records for 6 years from the end of the last tax year they relate to.
Tracking depreciation
Calculating and recording depreciation each period keeps your financial statements accurate. Accounting software can automate these calculations, saving you manual spreadsheet work and reducing errors. Automated tracking also keeps your balance sheet and profit figures up to date.
Planning for replacements
By watching how much useful life your assets have left, you can budget for replacements before they become urgent. This helps most with costly items like vehicles and machinery, where an unexpected breakdown could disrupt operations and cash flow.
Claiming capital cost allowance
Make the most of the tax deduction available on qualifying fixed assets. You claim capital cost allowance based on the right class and rate, and you decide how much to claim each year. Your accountant or bookkeeper can help you identify which assets qualify and claim the right amount.
Manage your fixed assets with confidence
A clear view of your fixed assets helps you decide when to invest, when to replace, and how much CCA to claim. Accurate records also make tax time and financial reporting far easier.
Cloud accounting software tracks your assets, automates depreciation, and keeps your books up to date, so you spend less time on manual admin. Get one month free.
FAQs on fixed assets
Here are some frequently asked questions about fixed assets and how they work in practice.
Is inventory a fixed asset?
No. Inventory is a current asset because you hold it to sell, while fixed assets are items you use in your operations over the long term.
Are intangible assets the same as fixed assets?
Not quite. Fixed assets are tangible, whereas intangible assets such as patents, trademarks, and software licences lack physical form and sit in a separate category on the balance sheet.
What is a fixed asset register?
It's a record of every fixed asset your business owns, with details like cost, purchase date, and depreciation. The CRA doesn't require sole proprietors to keep one, but it's best practice and supports the records you keep for tax.
Can fixed assets increase in value?
Some, such as land and buildings, can rise in market value, but most fixed assets are recorded at cost minus accumulated depreciation. Small businesses usually stick with the cost model for simplicity.
How do you calculate net fixed assets?
Net fixed assets equal the total original cost of your fixed assets minus total accumulated depreciation. This figure, also called net book value, shows how much value remains in your long-term assets.
Related terms
Learn more about fixed assets
Handy resources
Advisor directory
You can search for experts in our advisor directory
Xero Small Business Guides
Discover resources to help you do better business
Fixed assets in Xero
Manage your fixed assets with easy-to-use accounting software
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.