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Capital Cost Allowance (CCA)

 

You might acquire a depreciable property, such as a building, furniture, or equipment, to use in your business or professional activities. You cannot deduct the cost of the property when you calculate your net business or professional income for the year. However, since these properties wear out or become obsolete over time, you can deduct their cost over a period of several years. The deduction for this is called capital cost allowance (CCA).

 

The amount of CCA you can claim depends on the type of property you own, and the date you acquired it. You group the depreciable property you own into classes. A specific rate of CCA generally applies to each class.

 

For the most part, use the declining balance method to calculate your CCA. This means that you claim CCA on the capital cost of the property minus the CCA you claimed in previous years, if any. The remaining balance declines over the years as you claim CCA.

 

Example:

 

Last year, Murray bought a building for $ 60,000 to use in his business.

On his return for last year, he claimed CCA of $ 1,200 on the building. This year, Murray bases his CCA claim on the remaining balance of $ 58,800 ($ 60,000 - $ 1,200).

 

You do not have to claim the maximum amount of CCA in any given year. You can claim any amount you like, from zero to the maximum allowed for the year. For example, if you do not have to pay income tax for the year, you may not want to claim CCA.

 

Claiming CCA reduces the amount of CCA available to you for future years.

In the year you acquire a property, you can usually claim CCA only on one-half of your net additions to a class.

 

You cannot claim CCA on most land or on living things such as trees, shrubs, or animals. However, you can claim CCA on timber limits, cutting rights, and wood assets.

 

If you claim CCA, and you later dispose of the property, you may have to add an amount to your income as a recapture of CCA. Alternatively, you may be able to deduct an additional amount from your income as a terminal loss.

 

If you receive income from a quarry, sand, or gravel pit, or a woodlot, you can claim a type of allowance known as a depletion allowance.

 

Example:

 

How do I calculate my CCA claim if I start a business and my first fiscal period is from June 1, 2006, to December 31, 2006?

 

If your fiscal period is less than 365 days, you have to prorate your CCA claim. Base your CCA claim on the number of days in your fiscal period compared to 365 days.

 

DEFINITIONS

 

To calculate your CCA claim, you will need to know the meaning of the following terms:

 

Available For Use Defined HERE.

Capital Cost Defined HERE

Depreciable Property Defined HERE

Fair Market Value (FMV) Defined HERE

Non-Arm's Length Defined HERE

Undepreciated Capital Cost (UCC) Defined HERE

Recapture of CCA Defined HERE

Terminal Loss Defined HERE

 

ADJUSTMENT FOR CURRENT YEAR ADDITIONS

 

In the year you acquire or make additions to a property, you can usually claim CCA on only one-half of your net additions, called the the 50% rule. For example, if you acquired a property in your 2006 fiscal period for $ 30,000, you would base your CCA claim on $ 15,000 ($ 30,000 x 50 %).

 

CAPITAL GAINS

 

If you sell a property for more than it cost, you may have a capital gain which is separately taxable.

 

Note:

You cannot have a capital loss when you sell depreciable property. However, you may have a terminal loss

 

SPECIAL RULES FOR DISPOSING OF A BUILDING IN THE YEAR

 

If you disposed of a building in the year, special rules may apply that make the proceeds of disposition an amount other than the actual proceeds of disposition. This happens when you meet both of the following conditions:

  1. you disposed of the building for an amount less than both its cost amount, as calculated below, and its capital cost to you; and

  2. you, or a person with whom you do not deal at armís-length, owned the land where the building is located, or the land next to it that was necessary for the buildingís use.

 

Calculate the cost amount as follows:

     

  1. if the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before you disposed of the building;

  2. if there is more than one property in the same class, you have to calculate the cost amount of each building as follows:

 

Capital cost of the building

--------------------------------------    X    UCC of the class = Cost Amount    

Capital cost of all property

in the class not previously

disposed of

 

Note:

 

If any property in the class of the building that was acquired at non-armís-length was previously used for a purpose other than gaining or producing income, or if the portion of a property used for gaining or producing income has changed, the capital cost of such property has to be recalculated to determine the cost amount of the property.

 

REPLACEMENT PROPERTY

 

In a few cases, you can postpone or defer adding a capital gain or recapture to income. This happens to the extent that the proceeds of disposition of the former property are reinvested by you in a replacement property within a certain period of time and it is reasonable to conclude that the property was acquired by you to replace the former property or it was acquired and used by you or a person related to you for the same or similar use to which you or the person.

 

CLASSES OF DEPRECIABLE PROPERTY

 

Click HERE for a comprehensive list of CCA classes.

 

The following are some of the more common types of depreciable properties. You will find a complete list in Schedule II of the Income Tax Regulations.

 

Note:

Land is not depreciable property (but some enhancements to land can be). Therefore, when you acquire property, only include the cost that relates to the building.

 

Class number: 1
Description: Most buildings made of brick, stone, or cement acquired after 1987, including their component parts such as electric wiring, lighting fixtures, plumbing, heating and cooling equipment, elevators, and escalators

CCA rate: 4%

 

Class number: 3
Description: Most buildings made of brick, stone, or cement acquired before 1988, including their component parts as listed in class 1 above
CCA rate: 5%

 

Class number: 6
Description: Buildings made of frame, log, stucco on frame, galvanized iron, or corrugated metal that are used in the business of farming or fishing, or that have no footings below-ground; fences and most greenhouses
CCA rate: 10%

 

Class number: 7
Description: Canoes, boats, and most other vessels, including their furniture, fittings, or equipment
CCA rate: 15%

 

Class number: 8
Description: Property that is not included in any other class such as furniture, calculators and cash registers (that do not record multiple sales taxes), photocopy and fax machines, printers, display fixtures, refrigeration equipment, machinery, tools costing $200 or more, and outdoor advertising billboards and greenhouses with rigid frames and plastic covers acquired after 1987
CCA rate: 20%

 

Class number: 9
Description: Aircraft, including furniture, fittings, or equipment attached, and their spare parts
CCA rate: 25%

 

Class number: 10
Description: Automobiles (except taxis and others used for lease or rent), vans, wagons, trucks, buses, tractors, trailers, drive-in theatres, general-purpose electronic data-processing equipment (e.g., personal computers) and systems software, and timber cutting and removing equipment
CCA rate: 30%

 

Class number: 10.1
Description: Passenger vehicles costing more than $30,000 if acquired after 2000 ($27,000 if acquired in 2000; $26,000 if acquired after 1997 and before 2000; $25,000 if acquired in 1997; $24,000 if acquired after August 31, 1989, and before 1997; and $20,000 if acquired before September 1989)
CCA rate: 30%

 

Class number: 12
Description: Chinaware, cutlery, linen, uniforms, dies, jigs, moulds or lasts, computer software (except systems software), cutting or shaping parts of a machine, certain property used for earning rental income such as apparel or costumes, and videotape cassettes; certain property costing less than $200 such as kitchen utensils, tools, and medical or dental equipment; certain property acquired after August 8, 1989, and before 1993 for use in a business of selling or providing services such as electronic bar-code scanners, and cash registers used to record multiple sales taxes
CCA rate: 100%

 

Class number: 13
Description: Property that is leasehold interest (the maximum CCA rate depends on the type of the leasehold and the terms of the lease)
CCA rate: N/A

 

Class number: 14
Description: Patents, franchises, concessions, and licences for a limited period - the CCA is limited to whichever is less:

  1. the capital cost of the property spread out over the life of the property; or

  2. the undepreciated capital cost of the property at the end of the taxation year

Class 14 also includes patents, and licences to use patents for a limited period, that you elect not to include in class 44
CCA rate: N/A

 

Class number: 16
Description: Automobiles for lease or rent, taxicabs, and coin-operated video games or pinball machines; certain tractors and large trucks acquired after December 6, 1991, that are used to haul freight and that weigh more than 11,788 kilograms
CCA rate: 40%

 

Class number: 17
Description: Roads, sidewalks, parking-lot or storage areas, telephone, telegraph, or non-electronic data communication switching equipment
CCA rate: 8%

 

Class number: 38
Description: Most power-operated movable equipment acquired after 1987 used for moving, excavating, placing, or compacting earth, rock, concrete, or asphalt
CCA rate: 30%

 

Class number: 39
Description: Machinery and equipment acquired after 1987 that is used in Canada primarily to manufacture and process goods for sale or lease
CCA rate: 25%

 

Class number: 43
Description: Manufacturing and processing machinery and equipment acquired after February 25, 1992, described in class 39 above
CCA rate: 30%

 

Class number: 44
Description: Patents and licences to use patents for a limited or unlimited period that the corporation acquired after April 26, 1993. However, you can elect not to include such property in class 44 by attaching a letter to the return for the year the corporation acquired the property. In the letter, indicate the property you do not want to include in class 44
CCA rate: 25%

 

 

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Keith Anderson, BComm, CA-IT Copyright September 9, 1999 Last Modified :10/17/13 12:22 PM