What Is Capital Cost Allowance (CCA)?

Capital cost allowance (CCA) is an annual deduction in the Canadian income tax code that allows taxpayers to claim a portion of the cost o🍒f depreciable assets used for business or professional purposes.

Rather than deducting the entire cost in one year, the CCA is spread out over several years, based on th🐲e expected useful life of the asset. This deduction is typically applied to assets that are expected to last for a significant period, such as buildings or machinery.

How the Capital Cost Allowance (CCA) Works

The capital cost allowance allows eligible Canadian taxpayers to deduct the cost of 澳洲幸运5官方开奖结果体彩网:depreciable property over several years as long as it is used for professional or business purposes. This includes items like furniture, vehicles, machinery, equipment, and buildings.

Depreciable property is divided into different classes by the Canada Revenue Agency (CRA). Each class has a different rate of 澳洲幸运5官方开奖结果体彩网:depreciation. The following table is a sample of some of the classes and rates outlined by the country's taxing agency.

The taxpayer claiming the deduction doesn't need to claim the maximum allowable amount of CCA in any given year, but may instead claim any amount from zero to the maximum. Any amount less than the maximum can be claimed on the following year's return.

澳洲幸运5官方开奖结果体彩网:Taxpayers must complete Form T2125: Statement of Business or Professional Activities in order to claim the deduction.

CCA is determined by considering the undeapreciated capital cost as well. That includes legal expenses, accounting fees, or engineering costs that were needed for the purchase of the property. It also factors in the work, overhead, and materials the taxpayer used when constructing the property.

Special Considerations

The CCA is a useful tax reduction tool, particularly because of the flexibility with which the Supreme Court of Canada has handled related disputes in the past. The country's highest court has greenlighted deductions in cases in which the property questioned in the claim dispute wasn’🎃t held for very l🦩ong. 

However, not all 澳洲幸运5官方开奖结果体彩网:business assets qualify for CCA. There is an important list of exclusions that must be considered when calculating whether a business is eligible for CCA. Some exclusions include land, property that was bought without the intent of producing income, and artwork bought after Nov. 12, 1981.

Types of CCA

The Canada Revenue Agency sets out at least 19 classes of annual rates at which CCA can be claimed, varying by the type of asset.

Real estate has some of the lowest rates, ranging from 4% to 10%, depending on when it was acquired and the construction materials. Assets that rapidly depreciate, such as computers, systems software, and motor vehicles have high CCA rates of between 30% and 50%.

A few categories of tools, work uniforms, and computer software are claimable at 100%—that is, the full value may be claimed in the first eligible year for CCA. But many of those categories impose dollar limits on the purchase price of the item.

For instance, medical or dental instruments qualify for the 100%, full-year rule, but only if they were purchased for under $500.

For many eligible assets, the percentage that can be claimed varies depending upon which year the items were purchased.

The Bottom Line

Canadian taxpayers have a range of credits and dedu💯ctions they can use to lower their tax bills. The capital cost allowance al🌃lows eligible taxpayers to deduct the cost of certain depreciable business and professional assets over a number of years.

The Canada ℱRevenue Agency has a list of classes that group assets together, each with a different rate of depreciation.

Keep in mind, though, that assets purchased for personal use aren't eligible and that the personal use of business assets must be deducted when claiming the deduction.