Canadian Capital Cost Allowance

The Canadian tax publication T4002’s Chapter 4 defines a Capital Cost Allowance (CCA) as the procedure by which a taxpayer can deduct the cost of a capital asset, such as a building, furniture and/or equipment that is used in a business or professional activity.

To calculate CCA, the business needs to know:

  • When the asset became available for use
  • The capital cost
  • The type of depreciable property
  • The fair market value
  • If the transaction was an “Arm’s Length Transaction”
  • The proceeds of disposition

How much CCA can be claimed is determined by the type of property as defined by the “CCA Classes” table.

 

The calculation of CCA is based upon a declining balance of an asset that is determined by the Capital Cost less the CCA deduction taken in prior tax years.  The 50% Rule for assets “that became available for use” during the current tax year only allows the taxpayer to claim a CCA deduction on one-half of the current tax year’s acquisitions.

The taxpayer does not have to claim the maximum amount of CCA allowed in a given tax year.  For example, if a tax payer does not have a taxable income during a tax year that taxpayer need not claim any CCA for that tax year. Another situation would be that the tax payer only need to deduct a portion of the allowable CCA during a tax year needed to reduce their taxable income to zero.

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