Expenses or Investments

In accounting, the classification of your company’s expenditures as expenses or investments can sometimes be confusing, especially when there is room for doubt. The criteria for distinction mainly lie in the economic lifespan and purpose of the expenditure: expenditures with a lifespan exceeding one year, related to renovation, improvement, or extension, are classified as investments. In contrast, expenditures lasting less than a year or those related to maintenance, repair, or replacement are considered expenses.

Taxation also plays a crucial role in this distinction. Expenses are fully deductible in the year they are incurred, providing immediate tax savings. Investments, on the other hand, are amortized over their lifespan and may qualify for an investment deduction under certain conditions.

This is where the roles of your company and the tax authorities become interesting. Although your company initially decides on the accounting classification, the tax authorities can challenge this choice. This is not so much a judgment on the opportunity but rather on compliance with accounting and tax standards. In case of disagreement, especially concerning large expenditures, it is essential that your company’s remuneration remains high enough to maintain the reduced tax rate, despite possible reclassifications by the tax authorities of items accounted for as expenses to amortization excesses.

In summary, although the distinction between expenses and investments may seem technical, it has direct and significant tax implications and may require careful and strategic navigation between internal decisions and the tax authorities’ requirements.