Capital Cost Allowance for Depreciation (CCA)
Capital Cost Allowance Definition and CCA Rates
The Capital Cost Allowance (CCA) is "a tax deduction that Canadian tax laws allow a business to claim for the loss in value of capital assets due to wear and tear or obsolescence" (Canada Revenue Agency (CRA)). U.S. businesses have a similar deduction (see the IRS Overview on the Depreciation of Assets).
So if you buy a property or a piece of equipment to use in your business, you can't deduct the entire cost of it on your income tax for that particular year.
Instead, you use Capital Cost Allowance to deduct a calculated portion of the expense as an income tax deduction and continue doing this over a period of years as the property or the equipment depreciates.
What is Capital Cost?
Capital cost is the total price paid for a property, which includes:
- the purchase cost
- any fees associated with buying the property, including legal, accounting, inspection, architectural, etc.
- the cost of any upgrades or improvements to the property that have not already been claimed as expenses
Note that if the property is real estate you can only claim CCA on the building portion, not the land. The same goes for fees - those that apply to land cannot be claimed as CCA.
You can begin to deduct CCA when a property becomes available for use, that is when it begins to earn income for your business, or, if not a building when you receive the property and it is ready to be used.
A building normally becomes available for use when begin using at least 90% of the premises for your business, or when upgrades or renovations are completed.
How Is Capital Cost Allowance Calculated?
How much Capital Cost Allowance you can claim each year depends on when you acquired the property and what CCA class it belongs to.
The Canada Revenue Agency has assigned classes to particular types of depreciable property, and there are assigned rates for each class.
CCA is calculated on a declining basis based on the assigned rate and the undepreciated cost of the asset in that year. For example, a business vehicle purchased for $30,000 belongs in CCA class 10 and would have a CCA rate of 30%. In the first year the CCA deduction would be $30,000 x 30% = $9000. In the 2nd year the deduction would be ($30,000 - $9,000) x 30% = $6,300, and so on in subsequent years until the vehicle depreciates to zero or is disposed of.
Need more help figuring out your CCA? See How to Calculate Capital Cost Allowance and How to Claim CCA (Capital Cost Allowance) on a Vehicle Bought for Business Use.
Do You Include the GST/HST You Paid When Claiming Capital Cost Allowance?
This is probably the most common questions about claiming CCA on income tax.
Yes, when you're claiming Capital Cost Allowance and first entering the capital cost of a property (buildings, furniture or equipment), you will include GST, HST or any provincial sales tax you paid when you purchased the asset. Here are the PST, GST and HST Rates for All the Different Provinces and Territories in Canada .
You will also include any delivery or shipping and handling charges if applicable.
As the Canada Revenue Agency explains it, "Generally, the capital cost of the property is what you pay for it".
This amount is the number that you will use to calculate the Capital Cost Allowance of the property in question on Form T2125, Statement of Business or Professional Activities.
Note that for most depreciable properties, when you are calculating Capital Cost Allowance, you will only be able to claim half of their capital cost the first year because of the half-year rule.
Common CCA Classes and Rates:
|CCA Class||CCA Rate||Description|
|1||4%||Most buildings acquired after 1987, unless belonging to other classes. Also includes plumbing, wiring, fixtures, heating/air-conditioning equipment, etc.|
|3||5%||Most buildings acquired before 1988 unless belonging in Class 6. Includes alterations up to a maximum value of $500,000 after 1987.|
|6||10%||Log, stucco, frame, or metal buildings acquired before 1979 or used for farming or fishing or having no footings - includes greenhouses and fences. Also includes the first $100,000 of alterations made after 1978.|
|8||20%||Property not belonging to other classes, such as furniture, appliances, tools, machinery, equipment, etc. Includes photocopiers, fax machines, and telephone equipment.|
|10.1||30%||Passenger vehicles purchased in 2015 and costing more than $30,000 (passenger vehicles have a $30,000 CCA limit)|
|12||100%||China, cutlery, linens, etc., tools, software (except systems software)|
|43||30%||Eligible machinery and equipment used for manufacturing of goods for sale|
|46||30%||Network infrastructure equipment and software|
|50||55%||General-purpose electronic data processing equipment and systems software that is mainly for electronic process control or monitoring, communications, or data handling. Includes system software.|
For more detail about classes and rates see the Canada Revenue Agency Classes of Depreciable Property.
Also Known As: CCA