Arcade Business Tax Deductions in Canada: Game Machines, Rent, Repairs & Operating Costs
Arcade business tax deductions Canada offer ways to reduce your taxable income by including arcade tax write offs Canada such as arcade game machine tax deduction, equipment expenses, and maintenance costs. Gondaliya CPA guides you through managing arcade business expenses, GST/HST credits, payroll reporting, and CRA compliance to make sure your arcade accounting in Canada is accurate and beneficial.
Quick Summary
Arcades combine a cash-heavy taxable supply with a fleet of assets that are constantly repaired, rebuilt or replaced. Both sides carry traps that show up on review.
- The coin-operated GST relief covers 25¢ mechanical devices only — not yours.
- Arcade cabinets are Class 8, not Class 12.
- The half-year rule is suspended for property acquired after 2024.
- Prize stock bought for the business does carry input tax credits.
Reading time: 30 minutes.
Table of Contents
- Arcade Business Tax Deductions in Canada: Purpose and Scope
- Machines, Rent, Utilities and Operating Costs
- Tax Rules, Limits, and Special Considerations
- Documentation, Record-Keeping, and CRA Compliance
- Summary Tables and Comparison of Expense Categories
- Frequently Asked Questions and Next Steps
- Quick Reference and Checklists
The Numbers That Matter
This article covers Canada, with Ontario and Toronto context, and reflects rules current to 18 September 2026. It is written for incorporated arcades, barcades, redemption venues and route operators. Provincial amusement device licensing and municipal permits vary and are outside its scope. Capital cost allowance classification depends on the specific asset. This is educational information only and not tax or legal advice.
Arcade Business Tax Deductions in Canada: Purpose and Scope
Purpose and Scope
Foundations
Understanding Tax-Deductible Business Expenses and Arcade Tax Write-Offs
Deductible expenses are costs incurred to earn income under paragraph 18(1)(a), subject to the reasonableness test in section 67. Common ones:
- Equipment Purchases: gaming machines and other gear — capital, recovered through CCA.
- Rent Payments: monthly rent for your arcade space.
- Repairs and Maintenance: keeping machines working.
- Utilities: electricity to run the arcade.
Key Stat: The coin-operated relief in subsection 165.1(2) is far narrower than operators assume. Tax is zero only where a single coin of 25 cents or less is the total consideration, deposited in a mechanical device. A machine taking a loonie, two quarters, tokens or a card swipe is a fully taxable supply, and the tax is embedded in the coin drop: in Ontario you back it out at 13/113. Operators have been assessed for years of uncollected tax plus penalties on exactly this point — the machine’s inability to display or collect tax separately is not a defence.
Key Terms Related to Arcade Business Expenses and CRA Compliance
| Term | Meaning |
|---|---|
| Capital Cost Allowance Classes | Groups for assets that determine the annual deduction rate. |
| Half-Year Rule | Normally halves the first-year claim under Regulation 1100(2); suspended for eligible property acquired after 31 December 2024. |
| Payroll Remittance Due Dates | Set by your average monthly withholding amount, not by headcount. |
| T2 Corporate Tax Filing Deadline | Six months after fiscal year-end; the balance is due earlier. |
| GST/HST Input Tax Credit Deadlines | Generally four years; two years for registrants over $6 million in taxable supplies. |
Importance of Accurate Bookkeeping and Record-Keeping for Arcade Businesses
- Records Retention Period: six years from the end of the last taxation year to which the records relate, under subsection 230(4) — not six years from filing.
- Penalties on Late Payroll Remittance: 3% to 10% by days late, rising to 20% for a repeat failure under subsection 227(9).
Arcade game machine and equipment expenses: Capital cost allowance and repairs
Machines, Rent, Utilities and Operating Costs
Costs
Machines you own are capital assets. The capital cost includes freight and installation. You can only claim CCA on property you own — Regulation 1102(1)(c) restricts CCA to property acquired for the purpose of gaining income, and a machine placed by a route operator belongs to that operator.
Cabinets go to Class 8 at 20%. Class 12 at 100% is for tools costing under $500, uniforms, dies and similar items, and does not cover arcade cabinets.
A Scarborough arcade bought a pinball cabinet for $15,000 plus $1,200 freight and installation, entering Class 8 at a $16,200 capital cost. A $500 monitor repair was expensed immediately with the service receipt retained. Figures changed for privacy.
Maintenance costs, including arcade machine repairs and leasehold improvements
Repairs that restore without improving are current: fixing coin mechanisms, replacing worn wiring, cleaning and recalibrating.
Leasehold improvements go to Class 13, written off straight line over the lease term plus the first renewal period, subject to a five-year minimum and forty-year maximum. There is no measure allowing them to be expensed immediately.
Risk Warning: Calling a rebuild a repair is the most common reassessment in this sector. Swapping a failed board to restore the original game is a repair; fitting a new LCD, a new board set and a new control panel so the cabinet runs a different or upgraded game is a betterment and joins the class. The distinguishing evidence is the technician’s scope of work, not the invoice total — a $300 line reading “repair” and a $5,000 line reading “repair” will be read very differently on review.
Rent and property-related expenses for arcade locations
Base rent and common area maintenance charges are current expenses under paragraph 18(1)(a), supported by the lease. Tenant fit-out creating permanent fixtures is capital in Class 13.
Utility expenses: Electricity and telephone costs associated with arcade operations
Electricity for the operating floor is deductible on the business portion, with submetering the cleanest evidence where space is shared. Business telephone and internet lines are deductible, apportioned where shared with personal use.
Employee-related expenses: Salaries, wages, benefits, and payroll reporting requirements
Wages to floor staff and technicians are deductible, with the employer’s CPP and EI contributions deductible alongside. T4 slips are due by the last day of February.
| Remitter Type | Average Monthly Withholding | Due |
|---|---|---|
| Regular | Under $25,000 | 15th of the month following |
| Accelerated, Threshold 1 | $25,000 to under $100,000 | Twice monthly |
| Accelerated, Threshold 2 | $100,000 or more | Within three working days of the pay period ending |
A chain with ten staff across several locations pays roughly $350,000 in annual wages. At that level the average monthly withholding sits under $25,000, so it is a regular remitter paying by the 15th of the following month — monthly, not quarterly. Figures changed for privacy.
Advertising and promotional expenses for arcade businesses
Advertising promoting the arcade is deductible where reasonable. Note sections 19 and 19.1, which restrict the deduction for advertising directed at a Canadian market placed in non-Canadian newspapers, periodicals or with foreign broadcasters.
Tournament prize stock is inventory. Track counts and match awards to purchase invoices, keeping shrinkage visible rather than buried in cost of sales.
Insurance premiums relevant to arcade business operations
Liability and property premiums are deductible under paragraph 18(1)(a). Where a premium spans two fiscal years, subsection 18(9) requires the prepaid portion to be deducted in the later year.
Supplies and prize stock usage in arcade settings
Tokens, tickets and prizes on hand are inventory, valued under section 10 at the lower of cost and fair market value for tax, and under ASPE Section 3031 for the statements. Count at year-end, and keep redemption logs so awarded prizes tie back to purchases.
Travel and business-related transportation expenses for arcade owners and staff
Travel to manage sites, meet vendors or service machines is deductible where documented with mileage logs and receipts. Vehicle running costs are claimed on the business-use portion, and where a vehicle meets the passenger vehicle definition in subsection 248(1) the 2026 ceilings apply: a $39,000 capital cost limit, $1,100 monthly lease cap and $350 monthly interest cap. A van or pickup used more than 90% to carry equipment falls outside that definition and goes to Class 10 with no ceiling.
Legal and accounting fees relating to the business are deductible; fees incurred to acquire a capital asset are added to its cost.
Tax Rules, Limits, and Special Considerations for Arcade Expenses
Tax Rules, Limits, and Special Considerations
Rules
- Arcade machine repairs: deductible where they restore rather than improve.
- Machine rebuilds or upgrades: capital, added to the class.
- Rent payments: deductible with a lease agreement.
- Location commissions: deductible where contracts exist.
- Prize stock: inventory, relieved through cost of goods sold.
Distinguishing Repairs Versus Capital Expenditures for Arcade Equipment
The test sits in paragraph 18(1)(b), which denies a deduction for outlays on account of capital. Repairs maintain existing function; capital costs add function or extend life.
Claiming Capital Cost Allowance (CCA) and Accelerated CCA for Arcade Assets
Cabinets sit in Class 8 at 20% declining balance. The first-year position has changed and now favours buying.
| Measure | Effect on a 2026 purchase |
|---|---|
| Half-year rule, Regulation 1100(2) | Normally halves the first-year claim |
| Reaccelerated Investment Incentive | Suspends the half-year rule for eligible property acquired after 31 December 2024 and available for use before 2034 |
| Productivity-enhancing assets | Classes 44, 46 and 50 acquired on or after 16 April 2024 and available for use before 1 January 2027 may be written off at 100% |
A $15,000 pinball machine acquired in 2026 and available for use that year no longer produces a $1,500 half-year claim. With the half-year rule suspended, the first-year deduction is the full Class 8 rate on the addition — $3,000. The old arithmetic understated the first-year deduction by half. Figures changed for privacy.
GST/HST Input Tax Credits Eligibility for Arcade Purchases and Expenses
Registrants claim input tax credits on GST/HST paid on inputs to commercial activity. Use need not be exclusive — where property is used partly outside commercial activity, apportion on a fair and reasonable basis under section 141.01.
Documentation must meet the Input Tax Credit Information Regulations under section 169, including the supplier’s registration number. Claim within four years, or two where annual taxable supplies exceed $6 million.
Limits on Meals and Entertainment Deductions Within Arcade Business Operations
Section 67.1 limits food, beverage and entertainment to 50%. Three exceptions matter here:
- Food and beverage sold to customers in the ordinary course of business — a barcade’s bar and kitchen stock is cost of goods sold, not a 50% item.
- Events to which all employees at a place of business are invited, up to six a year, are fully deductible.
- Meals at a work site where an employee cannot reasonably return home daily.
Treatment of Leased Arcade Machines and Related Tax Implications
Lease payments are deductible current expenses under a signed agreement. Revenue-share commissions are deductible where the contract sets them out. You cannot claim CCA on a machine you do not own — that belongs to the lessor or route operator.
Compliance with Income Tax and Excise Tax Acts Applicable to Arcade Businesses
Paragraph 18(1)(a) requires the expense to be incurred to earn income. On the GST/HST side, subsection 165.1(2) relieves only single-coin mechanical devices taking 25 cents or less, and subsection 165.1(3) extends that to the supply of a right to use such a device. Everything else is taxable at the place-of-supply rate.
Employer Obligations: CPP/EI Considerations and T4/T4A Filing for Arcade Employees
Withhold CPP and EI and remit at your threshold. Issue T4 slips for employees and T4A slips for contractors by the last day of February. Worker status is decided on control, tools, chance of profit and risk of loss.
Handling Bad Debts and Doubtful Accounts in Arcade Business Tax Filings
A debt established to have become bad is deducted under paragraph 20(1)(p) where the amount was included in income. A doubtful debt reserve is available under paragraph 20(1)(l) while collection continues; a general provision is denied by paragraph 18(1)(e).
On the GST/HST side, section 231 allows a deduction from net tax for the tax on a bad debt written off, with any later recovery added back under subsection 231(3).
Impact of Location Commissions and Rental Agreements on Deductible Amounts
Commissions paid to site owners under contract are current expenses. Rent is deductible; fit-out creating fixtures is capital in Class 13.
Pro Tip: On a revenue-share route, settle in writing whether the site owner is receiving a commission from you or whether you are receiving a share from them, because the two produce different gross revenue, different GST/HST and a different registration picture. Where the location collects the coin and pays you a share, you are not reporting the full drop as your revenue. Where you collect and pay them a commission, you are — and their commission may itself carry GST/HST that you can recover.
Documentation, Record-Keeping, and CRA Compliance for Arcade Businesses
Documentation, Record-Keeping, and CRA Compliance
Records
Required documentation to support arcade business expense claims
- Purchase invoices showing cost including freight and installation
- Lease agreements for premises and for placed or leased machines
- Receipts for repairs, upkeep and utilities
- Payroll records showing wages and source deductions remitted
Keep these six years from the end of the last taxation year to which they relate.
Best practices for record-keeping and audit readiness in arcade accounting
- An asset register listing every machine with date, cost, class and disposal
- Service logs separating repairs from upgrades, with technician scopes attached
- Digital copies alongside originals; CRA accepts electronic images meeting its standards
Importance of timely corporate tax filing and payroll reporting for arcades
| What You File | Deadline | Penalty if Late |
|---|---|---|
| T2 corporate return | Six months after fiscal year-end | 5% plus 1% per complete month, maximum 12, s.162(1) |
| Corporate tax balance | Two months after year-end; three for an eligible CCPC | Interest compounded daily, s.161 |
| Payroll source deductions | By your remitter threshold | 3% to 10%; 20% on repeat, s.227(9) |
| T4 and T4A slips | Last day of February | $10 per day, $100 minimum, $1,000 maximum for 1–50 slips |
| GST/HST return | One month after a monthly or quarterly period | 1% plus 0.25% per complete month, maximum 12, ETA s.280.1 |
Common CRA compliance issues and how to avoid penalties and interest
- Claiming CCA on machines placed by a route operator and therefore not owned
- Treating substantial rebuilds as simple repairs
- Incomplete asset registers or missing lease papers
- Treating coin-operated play as relieved when the 25-cent test is not met
- Free plays for owners and family not reported as a shareholder benefit
Utilizing proper invoicing and receipt management for arcade transactions
Sort receipts by vendor and date, scan promptly, and reconcile bank deposits monthly. In a cash-heavy operation the coin count, the meter reading and the deposit should all reconcile, and that trail is what supports both revenue and the input tax credits claimed.
Software and tools recommended for managing arcade bookkeeping in Canada
| Software | Why It Works For Arcades |
|---|---|
| QuickBooks | Tracks assets; connects payroll and GST/HST |
| Xero | Cloud ledger with automatic bank feeds |
| Wagepoint | Payroll processing aligned to CRA schedules |
| Hubdoc | Captures receipts digitally for the record trail |
Summary Tables and Comparison of Arcade Business Expense Categories
Summary Tables and Comparison of Expense Categories
Tables
Table Summarizing Eligible Versus Non-Eligible Arcade Business Expenses
| Expense Category | Treatment | Conditions | Basis |
|---|---|---|---|
| Arcade game machine purchase | Capital, recovered by CCA | Only where owned; Reg 1102(1)(c) | Class 8 |
| Machine repairs and servicing | Current expense | Restores without improving | ITA 18(1)(a) and 18(1)(b) |
| Machine rebuilds and upgrades | Capital | Adds function or extends life | ITA 18(1)(b) |
| Rent for premises | Current expense | Fit-out may be Class 13 | ITA 18(1)(a) |
| Utilities | Current expense | Business portion; submeter where shared | ITA 18(1)(a) |
| Insurance premiums | Current expense | Prepaid portion under 18(9) | ITA 18(1)(a) |
| Advertising | Current expense | Reasonable; note ss.19 and 19.1 | ITA 18(1)(a), 67 |
| Employee wages and benefits | Current expense | Remitted at the correct threshold | ITA 18(1)(a) |
| Prize stock and redemption items | Inventory, relieved via COGS | Counted at year-end | ITA s.10 |
| Meals and entertainment | 50%, with exceptions | 100% for resale and all-staff events | ITA s.67.1 |
Comparison of Capital Cost Allowance Classes Relevant to Arcade Assets
| Asset | Class | Rate | Disposal Effect |
|---|---|---|---|
| Cabinets bought outright, furniture, general equipment | Class 8 | 20% declining balance | Recapture or terminal loss |
| Leasehold improvements | Class 13 | Straight line, lease term plus first renewal, 5 to 40 years | Terminal loss on lease end |
| Computers and systems software | Class 50 | 55% | Recapture or terminal loss |
| Applications software, tools under $500 | Class 12 | 100% | Threshold is $500 |
| Rebuilds and upgrades | Same class as the asset | Same rate | Added to the class as a new addition |
Freight and installation form part of the capital cost.
Summary of Percentage Limits and Restrictions on Common Arcade Deductions
| Expense Category | Limit or Restriction | Basis |
|---|---|---|
| Meals and entertainment | 50%, with resale, all-staff event and work site exceptions | ITA s.67.1 |
| Non-cash gifts and awards to employees | Deductible in full to the employer; up to $500 a year is not a taxable benefit to the employee | CRA administrative policy |
| Club dues and recreational facilities | Not deductible | ITA paragraph 18(1)(l) |
| Fines and penalties | Not deductible | ITA section 67.6 |
| Owner personal use | Not deductible; may be a shareholder benefit | ITA subsection 15(1) |
| Passenger vehicle capital cost | $39,000 for 2026 | ITA 13(7)(g), Reg 7307 |
Risk Warning: The $500 gift and award figure is not a deduction cap. The employer deducts the full cost of staff gifts as compensation. What $500 governs is CRA’s administrative policy on when a non-cash gift stops being a taxable benefit to the employee. Treating it as a ceiling on your own deduction leaves a real expense unclaimed; ignoring it on the employee side leaves a benefit off the T4.
Overview of GST/HST Input Tax Credit Applicability by Arcade Expense Category
| Expense Category | Input tax credit | Notes |
|---|---|---|
| Rent | Eligible | Lease showing tax charged |
| Utilities | Eligible | Apportion where shared |
| Equipment purchases | Eligible where acquired for commercial activity | Ownership and invoice |
| Repairs and maintenance | Eligible | Invoices showing parts and labour |
| Advertising | Eligible | Invoices meeting s.169 requirements |
| Prize stock and redemption items | Eligible | Inventory acquired for commercial activity carries ITCs like any other input |
| Employee wages | Not applicable | No GST/HST is charged on wages |
| Meals and entertainment | Restricted | ITCs recaptured to align with the 50% income tax limit, ETA s.236 |
The one to correct if your ledger says otherwise: prize stock does carry input tax credits. Being inventory does not disqualify it — it is an input acquired for use in commercial activity.
Frequently Asked Questions and Next Steps for Arcade Business Tax Planning
Frequently Asked Questions and Next Steps
FAQ
Common questions about arcade tax deductions and write-offs in Canada
Costs must be incurred to earn income and be reasonable. A cabinet bought outright is a capital asset recovered through CCA; a leased or placed machine is not yours to depreciate.
Clarifications on eligibility criteria for specific arcade expenses
- Operating costs such as utilities and wages are deductible as incurred
- Leasehold improvements are capital in Class 13
- Repairs and upgrades are claimed differently
- Records are what carry the position on review
Guidance on distinguishing personal versus business use in arcade operations
Only the business portion of a mixed-use cost is deductible. Free plays taken by an owner or their family are a shareholder benefit under subsection 15(1), included in the shareholder’s income at value — and unlike an employee benefit, it is not deductible to the corporation.
Tips for year-end tax planning and maximizing arcade business deductions
- Confirm machine ownership before claiming CCA
- Record all current expenses before filing
- Review lease terms for rent and fit-out treatment
- Count prize stock for cost of goods sold
- Prepare slips ahead of the February deadline
- Hold GST/HST invoices meeting section 169
What is the Half-Year Rule Fraction and how does it affect arcade asset depreciation?+
It normally halves the first-year claim under Regulation 1100(2). It is suspended for eligible property acquired after 31 December 2024 under the Reaccelerated Investment Incentive, so a 2026 addition generally attracts the full class rate in year one.
How does Location Commission impact deductible expenses for arcades?+
Commissions paid to site owners under contract are current expenses. Whether you report the full coin drop as revenue and deduct the commission, or only your share, depends on who collects the money and what the agreement says.
What qualifies as a Shareholder Benefit in arcade businesses?+
Free play or other value conferred on an owner or a non-arm’s length person is included in their income under subsection 15(1) at fair value. The corporation gets no deduction for it, which is what distinguishes it from an employee benefit.
When does Terminal Loss or Recapture apply in arcade asset sales?+
Recapture under subsection 13(1) arises where proceeds take the class balance below zero. A terminal loss under subsection 20(16) arises where the class is emptied with a balance remaining.
Are Club Dues deductible for arcade businesses?+
No. Paragraph 18(1)(l) denies dues for membership in any club whose main purpose is dining, recreational or sporting facilities, regardless of business purpose.
What are Payroll Remittance Due Dates and why are they important?+
They follow your average monthly withholding amount: under $25,000, by the 15th of the following month; from $25,000, twice monthly; from $100,000, within three working days of the pay period ending.
What is the T2 Corporate Tax Filing Deadline for arcades?+
Six months after fiscal year-end. The balance of tax is due two months after year-end, or three for a CCPC claiming the small business deduction, which is earlier than the filing date.
What Penalties apply on Late Payroll Filing?+
Late remittance is 3% to 10% depending on days late, rising to 20% for a repeat failure under subsection 227(9). Late slips are $10 per day, $100 minimum and $1,000 maximum for 1 to 50 slips.
What is the Meals and Entertainment Limit for arcade tax deductions?+
50% under section 67.1. Food and beverage sold to customers in the ordinary course is cost of goods sold and not limited; all-staff events up to six a year are fully deductible.
What triggers a CRA review of an arcade business tax return?+
CCA claimed on machines not owned, large repairs without technician scopes, coin revenue that does not reconcile to meter readings and deposits, and coin-operated play treated as GST-relieved without meeting the 25-cent test.
How do you catch up if records are behind for arcade bookkeeping?+
Rebuild from bank deposits, meter readings and supplier statements, then reconstruct the asset register from purchase invoices. Consider the Voluntary Disclosures Program before CRA makes contact; relief is discretionary and the tax remains payable.
Can I claim full cost of leased arcade machines as expenses?+
Lease payments are deductible as incurred, but no capital cost allowance is available because you do not own the asset. Where an arrangement is in substance a purchase financed over time, the treatment can differ, so the agreement should be read rather than assumed.
What records prove an upgrade versus repair during machine servicing?+
The technician’s scope of work naming parts replaced and whether function changed. “Restored to original operating condition” and “converted to a new title with new board set and display” are different answers on the same invoice template.
Do arcade machines qualify for the coin-operated GST relief?+
Almost never. Subsection 165.1(2) relieves only a mechanical device designed to accept a single coin of 25 cents or less as the total consideration. A dollar-coin, multi-coin, token or card machine is a taxable supply, with the tax embedded in the drop at 13/113 in Ontario.
Are arcade cabinets Class 8 or Class 12?+
Class 8 at 20%. Class 12 at 100% covers tools and similar items costing under $500, plus uniforms and applications software, and does not extend to arcade cabinets.
Quick Reference and Checklists
Quick Reference and Checklists
Reference
Top Deduction Mistakes Arcades Make and How to Prevent Them
- Misclassifying capital upgrades as repairs — keep technician scopes
- Missing payroll remittance deadlines — set the threshold correctly
- Ignoring leasehold improvement amortisation — track Class 13 properly
- Claiming CCA on placed machines you do not own
- Treating coin play as GST-relieved without meeting the 25-cent test
- Leaving prize stock input tax credits unclaimed
What to Prepare Before Deduction Work Starts (Checklist)
- Purchase invoices including freight and installation
- Lease agreements and commission contracts
- Repair bills distinguishing fixes from upgrades
- Payroll registers with source deduction details
- Prize inventory counts and receipts
- Meter readings reconciled to coin counts and deposits
Which Deductions Matter Most Across 10 Segments?
Equipment purchases; repairs and maintenance; rent and location commissions; utilities; employee wages and benefits; advertising; insurance; prize stock and supplies; travel and transportation; meals and entertainment limits.
A Realistic Numeric Walkthrough
A $20,000 machine plus $2,000 installation gives a $22,000 Class 8 addition. Under the old half-year rule the first-year claim was $2,200. With the rule suspended for property acquired after 2024, the 2026 first-year claim is $4,400. A $500 repair is deducted in full the same year, rent of $4,000 a month is expensed, and payroll is deducted once remitted. Figures changed for privacy.
How to Choose the Right CPA Firm in Ontario?
Look for experience with coin and card-operated revenue, a clear approach to repair against betterment, transparent pricing and verifiable CPA Ontario registration.
Why Trust Gondaliya CPA?
We work with incorporated arcades, barcades and route operators across Canada on asset classification, coin revenue reconciliation and GST/HST, backed by over 1300 five-star Google reviews.
Quick Answers: Key Numbers & Concepts at a Glance
At a Glance
| Question | Answer |
|---|---|
| Coin-operated GST relief | Single mechanical coin, 25¢ or less, ETA s.165.1(2) |
| Ontario tax embedded in the drop | 13/113 |
| Arcade cabinets | Class 8, 20% |
| Class 12 threshold | $500 |
| Leasehold improvements | Class 13, 5 to 40 years |
| Half-year rule | Suspended for property acquired after 2024 |
| CCA on placed machines | Not available — you must own the asset |
| Prize stock ITCs | Eligible |
| Meals and entertainment | 50%, s.67.1, with resale and staff event exceptions |
| Staff gifts | Fully deductible; $500 is the employee benefit threshold |
| Club dues | Denied, paragraph 18(1)(l) |
| Fines and penalties | Denied, section 67.6 |
| Free plays for owners | Shareholder benefit, subsection 15(1) |
| Record retention | Six years, ITA s.230(4) |
Who This Is For / Not For
Fit Check
- For: Incorporated arcades, barcades, redemption venues and route operators running owned or placed machines across one or more sites.
- Not For: Operators seeking advice on provincial amusement device licensing or gaming regulation, which are regulatory rather than tax questions, and charities running occasional games, which follow different rules.
People Also Ask
Quick Answers
Do you charge GST/HST on arcade game play?+
Yes, unless the machine is a mechanical device taking a single coin of 25 cents or less. Everything else is a taxable supply, with the tax embedded in the price paid — in Ontario you extract it at 13/113 of the drop rather than adding it on top.
Can you write off an arcade machine in the year you buy it?+
Not in full. A cabinet is capital and goes to Class 8 at 20%. What has changed is the first year: the half-year rule is suspended for property acquired after 2024, so the first-year claim is double what the old calculation produced.
Can you claim depreciation on machines placed by a route operator?+
No. Capital cost allowance requires ownership, and a placed machine belongs to the route operator. Your deduction is the commission or lease payment you make, not depreciation on someone else’s asset.
Is a machine rebuild a repair or a capital expense?+
Restoring original function is a repair; adding function, converting to a different title or extending useful life is a betterment and joins the class. The technician’s scope of work is the evidence that decides it.
Are free plays for the owner taxable?+
Generally yes. Value conferred on a shareholder is included in their income under subsection 15(1), and the corporation gets no offsetting deduction. Tracking comped plays through the meter system is the practical answer.
Glossary of Key Terms
Plain-English Definitions
- Capital cost: Purchase price plus freight and installation.
- Betterment: Work improving an asset beyond original condition, treated as capital.
- Placed machine: A machine owned by a route operator and sited in your venue.
- Location commission: The share paid to a site owner under contract.
- Subsection 165.1(2): The narrow GST relief for 25-cent mechanical coin devices.
- Shareholder benefit: Value conferred on an owner, taxed under subsection 15(1).
- Recapture: Previously claimed CCA brought back into income on disposal.
- Class 8: The 20% class covering arcade cabinets and general equipment.
- Prize stock: Redemption inventory, relieved through cost of goods sold.
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Three checks carry most of the money here. Confirm you own a machine before claiming a cent of capital cost allowance, because a placed machine is the route operator’s asset and your deduction is the commission instead. Keep the technician’s scope of work on every substantial job, since that document rather than the invoice decides repair against betterment. And treat coin and card play as fully taxable unless the machine is a mechanical 25-cent device, extracting the tax from the drop rather than adding it on. Then take the credits you are entitled to: prize stock carries input tax credits, staff gifts are fully deductible, and the first-year CCA claim on 2026 additions is double what the old half-year arithmetic gave you.
2026 Update — what is current as at 18 September 2026: First-year capital cost allowance has changed in favour of buyers, which matters for operators refreshing cabinets. Bill C-15 received Royal Assent on 26 March 2026, introducing the Reaccelerated Investment Incentive for property acquired after 31 December 2024, which suspends the half-year rule for eligible property available for use before 2034. Additions to Classes 44, 46 and 50 acquired on or after 16 April 2024 and available for use before 1 January 2027 qualify for immediate expensing at 100%. On 15 September 2026 Finance released draft legislation for a Productivity Mega Deduction extending permanent immediate expensing to a broad range of property acquired and available for use after 14 September 2026; it remains a proposal. The 2026 passenger vehicle limits are a $39,000 capital cost ceiling, a $1,100 monthly lease cap and a $350 monthly interest cap. Unchanged for 2026: the coin-operated relief in ETA subsection 165.1(2), still limited to a single mechanical coin of 25 cents or less; the 50% meals limit in section 67.1 with its resale and all-staff event exceptions; the denial of club dues under paragraph 18(1)(l) and of fines under section 67.6; shareholder benefits under subsection 15(1); payroll remitter thresholds at $25,000 and $100,000; slips by the last day of February; the T2 six-month deadline with the 162(1) penalty; and six-year record retention under subsection 230(4).
Arcade Business Taxes: How Gondaliya CPA Supports You
Owned machines, placed machines, and a lot of coin?
We build the asset register with ownership confirmed and classes set, test rebuilds against technician scopes, reconcile meter readings to coin counts and deposits, get the GST/HST right on coin and card play, claim the input tax credits your prize stock carries, and prepare the T2 and payroll filings — on a flat annual fee stated before the work starts.
Next Steps
Please book a free consultation with Gondaliya CPA and bring your last filed corporate return, your machine list showing which are owned and which are placed, and the service invoices for any substantial work done this year. Those three settle the CCA position, the repair question and the GST/HST treatment in one sitting. You will get a flat fee stated before any work begins.
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Editorial policy: Figures, classes and statutory references are verified against the Income Tax Act, the Excise Tax Act, their Regulations and CRA publications before publication, and updated when the rules change.
Disclaimer: This article is educational information only and is not tax, legal, or financial advice. Capital cost allowance classification depends on the specific asset and should be confirmed for your facts. Provincial amusement device licensing is outside its scope. Please speak with a CPA before acting.
Sharad Gondaliya is a CPA Canada & CPA USA with 15 Years+ experience of Accounting, Tax, Payroll of Corporate Small Businesses as Tax Accountant. He is fully certified CPA Ontario and CPA USA and is well known among corporate small businesses for tax planning, efficient tax solutions, and affordable CPA services. Sharad is the Principal (Director) of Gondaliya CPA – Affordable CPA Firm in Canada. Licenses: CPA Ontario: 61040184 | CPA USA (MT): PAC-CPAP-LIC-033176 | CPA USA (WA): 57629 | CPA Firm License: 61330051 View Full Author Bio