The sixty-second answer
Classify by intent. Goods bought to resell are inventory, recorded under GIFI 8320 and deducted as they sell. Things you keep and use for years are capital assets, such as GIFI 1740, 1742, 1744 or 1774, deducted gradually through capital cost allowance. Things you use up are expenses. Small tools under five hundred dollars sit in between.
Why the classification matters
Every purchase eventually reduces taxable income. What classification changes is when. Inventory is deducted when it sells, as cost of goods sold. A capital asset is deducted a slice at a time over several years through capital cost allowance. A current expense is deducted in the year you incur it.
The CRA puts the rule simply: you cannot claim expenses you incur to buy capital property, but as a rule you can deduct any reasonable current expense you incur to earn income [3]. Get the class wrong and the deduction lands in the wrong year. Expense a truck and you have overclaimed this year. Capitalize a box of stock and you have underclaimed the cost of goods sold, then carry a phantom asset on the balance sheet.
Classification also decides where things show up when you look for them. Stock belongs in an inventory count. Equipment belongs in an asset register, with a location and a person responsible. A purchase in the wrong list is effectively lost from the other.
Inventory: what you buy to resell
Inventory is anything held for sale in the ordinary course of business, plus the materials that go into things you sell. The test is not what the item is but why you bought it. A hardware store's drills are inventory. The drill a contractor uses on job sites is not.
On the corporate return, purchases of materials and merchandise are reported under GIFI 8320, Purchases/cost of materials, in the cost of sales section [1]. Stock still on hand at year end goes on the balance sheet, for example under 1121, Inventory of goods for sale [1]. For tax purposes, inventory at the end of the year is valued at the lower of its cost and its fair market value [6]. When the goods are sold, their cost moves to expense in the same period as the sale [7].
The practical consequence is that stock you have paid for but not sold is not yet a deduction. It sits on the balance sheet until it sells, which is why year-end inventory counts matter so much to the final number.
Capital assets: what you keep and use
A capital asset is something the business keeps and uses to earn income over more than one year. The CRA's first question for telling capital from current is whether the expense provides a lasting benefit; a capital expense generally gives a lasting benefit or advantage [2].
GIFI has specific balance sheet lines for the assets a small business most often owns [1]:
1740, Machinery, equipment, furniture and fixtures. The general line, which also works as the summary for the more specific items below.
1742, Motor vehicles. Trucks, vans and cars used in the business.
1744, Tools and dies. Tools that are capital property rather than small tools expensed in the year.
1774, Computer equipment/software. Laptops, desktops, servers and the software bought with them.
Each of these has a matching accumulated amortization line, because capital assets are written down over time rather than expensed at once [1].
Capital cost allowance: how the deduction works
For tax, the write-down is capital cost allowance. Depreciable property is grouped into classes, each with its own rate, and the deduction is usually calculated on a declining balance: the class rate is applied to the remaining balance each year [5].
The classes that matter most to a small business are few [4]. Class 8, at twenty percent, includes furniture, appliances, and tools costing five hundred dollars or more per tool, along with most other equipment. Class 10, at thirty percent, includes motor vehicles. Class 50, at fifty-five percent, covers general-purpose computer hardware and systems software. Class 12, at one hundred percent, is the small-items class discussed below.
The class affects how fast you recover the cost, not whether you recover it. That makes the asset register the source of truth: the CCA schedule is only as good as the list of what the business owns and what it paid for each item.
Expenses: what you use up
Current expenses are the things consumed in running the business: supplies, repairs that restore rather than improve, fuel, rent, services. The CRA contrasts them with capital expenses: a current expense is one that usually recurs after a short period [2]. They are deducted in the year incurred.
GIFI has operating expense lines for many of these, including 9131 for small tools and 9133 for uniforms [1]. Those two are worth noticing because they overlap with the capital side.
The grey zone: small tools, uniforms and low-cost items
Class 12 is where the capital rules meet the expense rules. It includes tools, kitchen utensils and medical or dental instruments costing less than five hundred dollars, and it also includes uniforms [4]. Its rate is one hundred percent, and the CRA notes that most small tools in Class 12 are not subject to the half-year rule and are fully deductible in the year of purchase [4]. In effect, small tools are written off in the year, which is why GIFI has a small tools expense line as well [1].
The dividing line is the five hundred dollar mark per tool. A cordless drill kit under the line is effectively an expense. A heavier tool over the line goes to Class 8 and is depreciated at twenty percent [4].
Written off does not mean forgotten. A business with a van full of small tools still needs to know which ones it has and who has them. The tax treatment and the tracking are separate decisions.
One item, three possible answers
The classification follows intent, so the same product can land in all three places. A welding supply shop buys ten grinders. Nine go on the shelf as inventory. One goes into the shop's own repair bay, and if it is under the small tool line it is written off in the year; if it is over, it goes to the asset register. The purchase was a single bill.
That is why the decision is best made line by line, at the time of purchase, by someone who knows what each item is for. Trying to reclassify a year of mixed supplier bills at filing time is guesswork, and it is the bookkeeper guessing about decisions the owner made months before.
When intent changes
Businesses change their minds. A demo unit bought for resale ends up as the office computer. A tool from the rental fleet gets sold off. When that happens, move the item: out of inventory and into the asset register at its cost, or out of the register and into a disposal. Leaving it where it started keeps both lists wrong.
How MapleInventory handles it
MapleInventory makes the split at the point of purchase. Receipts and bills filed in MapleExpense under resale or asset GIFI codes land in the MapleInventory receiving queue, and Maple-AI sorts each line into resale stock, company asset, freight or duty, or ignore. You confirm the sort.
Resale stock is valued at weighted-average landed cost and reported by category, location and vendor, with a CSV export and an AI summary. Company assets go into a separate register that covers tools, equipment, vehicles, IT, furniture, clothing and uniforms, with an assigned person, a location, a status of in service, in repair, lost or disposed, and a record of disposal. The company assets report can be run by category, location, person, GIFI code or status, which gives your accountant a starting list for the capital cost allowance schedule rather than a pile of bills.