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Home  ->  Business -> Capital Cost Allowance (CCA) and Rates

Capital Cost Allowance

Income Tax Act s. 20(1)(a), Regulations Parts XI, XVII

Capital cost allowance (CCA) is the depreciation that is allowed to be expensed for tax purposes for fixed assets, except land.  Different types of assets are allocated to different CCA classes, and each class has its own rate for capital cost allowance.  For instance, most automobiles would be class 10, which is expensed at 30% per year on a declining balance basis.  In most cases, the CCA allowed in the year an asset is purchased is only 50% of the normal amount - this is the "half-year" rule.  Thus, the class 10 CCA would be 15% in the first year.  See below for more information on the half-year rule.

What is Included in Cost of Assets?

The cost to be capitalized includes any taxes paid that are not refundable to the purchaser.  If the purchaser is not registered for GST so they cannot recover GST as an input tax credit, the cost would include the GST paid.  For a GST registrant, GST would not be included in the cost.

Immediate Expensing of Certain Capital Assets

The draft legislation for this proposal was released for consultation on February 4, 2022, with submissions to be received by March 7, 2022.  CRA has stated that "The legislation must be tabled in the House of Commons before you can include any claims with your T2 Return".

This legislation (Income Tax Regulations Section 1100) is included in Bill C-19 which was tabled in the House of Commons on April 28, 2022, so claims for this can now be included with your T2 return.  In a communication to CPA Canada included in CPA Canada News April 27, 2022, the CRA stated that adjustment requests to recognize immediate expensing for returns that have already been filed cannot be processed until after Royal Assent has been received.  Bill C-19 received Royal Assent on June 23, 2022, so adjustment requests can now be filed.

As per CPA Canada's May 19, 2022 news, an updated T2 Schedule 8 (not available yet as of June 30, 2022) is the prescribed form to be used when an immediate expensing limit is to be shared amongst an associated group of CCPCs.  

When form T2 Schedule 8 is updated it will be published on the CRA website, and further information about immediate expensing and how to claim it will be posted on the What's New for Corporations web page.

See the Video Tax News Life in the Tax Lane July 2022 for more information on this.

The immediate expensing proposal was expanded in the legislation.

An "eligible person or partnership" (EPOP) for the purposes of immediate expensing includes:

bulleta corporation that was a Canadian-controlled private corporation (CCPC) throughout the year;
bulletan individual (other than a trust) who was resident in Canada throughout the year; or
bulleta Canadian partnership, all the members of which were, throughout the period, either a CCPC or an individual as described above, or a combination thereof.

Characteristics of the immediate expensing proposal:

bullettemporary measure
bulletfor "designated immediate expensing property" (DIEP) acquired
bulletby an "eligible person or partnership" (EPOP) after April 18, 2021, if the EPOP is a CCPC, or
bulletby an EPOP that is an individual or a Canadian partnership, after December 31, 2021.
bulletfor DIEP that becomes available for use
bulletbefore 2025, if the EPOP is an individual or a Canadian partnership all of the members of which are individuals throughout the year, and
bulletin any other case, before 2024.
bulletonly available for the year in which the property becomes available for use, as long as the property:
bullethas not been used for any purpose before it was acquired by the EPOP, and
bulletis not a property in respect of which an amount has been deducted under paragraph 20(1)(a) or subsection 20(16) of the Income Tax Act by any person or partnership for a taxation year ending before the time the property was acquired by the EPOP
bulletmaximum "immediate expensing limit" (IEL) amount is the lesser of:
bulletthe UCC of the DIEP to the EPOP (before making any CCA deductions for the tax year;
bulletthe EPOP's IEL for the year (generally $1.5 million, subject to requirements to allocate among group members, prorated for tax years shorter than 365 days); and
bulletif the EPOP is not a CCPC, the income (before any CCA deductions), if any, earned from the business or property in which the relevant DIEP is used.
bulletthe IEL cannot be used to create or increase a loss of an individual or a partnership.
bullethalf-year rule suspended for these properties
bulletno carry-forward of excess capacity for CCPCs with less than $1.5 million of eligible capital costs
bulleteligible property is capital property of a prescribed class, other than property included in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51, which are generally long-lived assets.

See Immediate Expensing on the CRA website on their What's New for Corporations page.  It does not reflect the legislative changes at the time of writing this article.

See Immediate Expensing on the Budget 2021 website - some provisions have changed from what was announced here.

Related articles:

Immediate expensing: buyer beware by M. Ruphina Kaulback, CPA, CA, on the bakertilly website.

Immediate Expensing Rules - Delays in implementing by Anni Zhu, CPA, CA and David Zheng, CPA, Welch LLP.

Capital Cost Allowance Classes and Rates

There are many classes of capital cost allowance (CCA).  Lists of many of the classes, as well as information on calculating capital cost allowance, can be found in the following Canada Revenue Agency guides:

T2 Corporation Income Tax Guide (T4012), T2 return - for information on CCA rates, search for the phrase "CCA rates and classes" in T4012.  To search any web page or pdf document, do ctrl-f to bring up the search box.

T4002 Self-employed Business, Professional, Commission, Farming and Fishing Income Guide for unincorporated businesses has CCA rates (Chapter 4) as well as a table which explains how to determine if a cost is an expense or should be capitalized (Chapter 3 - current or capital expenses?).

Rental Income Tax Guide (T4036) lists some of the classes which are more likely to be used by someone with a rental property.

Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance, including information on capital vs current expenditures.

Income Tax Folio S3-F8-C2, Tax Incentives for Clean Energy Equipment - includes information re accelerated CCA, enhanced CCA, and investment tax credits.

Current or Capital Expenses

Claiming Capital Cost Allowance

Classes of Depreciable Property

The Income Tax Regulations contain the classes and rates for capital cost allowance, at

    - Part XI Capital Cost Allowances

    - Schedule II and Schedule III to VI Capital Cost Allowance Rates  

The Income Tax Act and Regulations can be accessed from the Canada Department of Justice.

Capital Cost Allowance Half-Year Rule

Income Tax Regulations s. 1100(2) to (2.4)

For most capital additions in the year, you can only claim CCA on one-half of your net additions to the CCA class in the year.  The net additions amount is the cost of additions in the year less the lower of cost or proceeds of disposition for assets disposed of during the year.

Some additions are not subject to the half-year rule.  These include additions in classes 13, 14, 23, 24, 27, 29, 34, and 52, as well as most of the additions to Class 12.

Class 12, which has a CCA rate of 100%, includes a variety of assets, including small tools, kitchen utensils, and medical or dental instruments costing less than $500 (less than $200 for purchases before May 3, 2006), as well as linens, uniforms, computer software and other items.  The half-year rule does not apply to most items in Class 12, allowing 100% write-off in the year of acquisition.  The only items in Class 12 to which the half-year rule does apply are:

bullet a die, jig, pattern, mould or last
bullet the cutting or shaping part in a machine
bullet a motion picture film or video tape that is a television commercial message
bullet a certified feature film or certified production
bullet class 12(o), which is computer software, but this does not include systems software, which is included in class 10

See paragraph 1.38 Half-year rule in the CRA Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance, for more detail on this topic.

Capital Cost Allowance  - Short Fiscal Year

Income Tax Regulations s. 1100(3) Taxation Years Less Than 12 Months

When the fiscal year is shorter than 365 days, generally the capital cost allowance must be prorated.  For instance, if the fiscal year is 200 days, first calculate the maximum CCA claim for a full year, then multiply by 200 and divide by 365.  This must be done for all property except classes of property that are excluded by Regulation 1100(3).  The property classes that are not prorated for a short fiscal year include:

bullet Class 14 assets
bulletClass 15 assets
bullet timber limits and cutting rights
bullet industrial mineral mines
bulletcertified productions
bullet Canadian film or video productions, and
bullet certain mining equipment in classes 28 and 41

Zero-Emission Vehicles (ZEVs and ZEVPs)

Income Tax Act s. 13(7)(i), 248(1), Regulations Sch II, s. 1100(1)(a)(xl),(xli), 1100(2)A(e)(i),(f)(i), 1102(26), 1103(2j), 7307(1.1)

Two new CCA classes were created by Budget 2019 for zero-emission vehicles acquired after March 18, 2019 and before 2028.

Class 55 was created for ZEVs that would otherwise be included in Class 16, which includes taxis and rental cars.

Class 54 was created for zero-emission passenger vehicles (ZEPVs) which would otherwise be included in class 10 or 10.1. Vehicles in Class 54 have a capital cost limit of $55,000 plus taxes, increased to $59,000 as of January 1, 2022.

First-year enhanced CCA is available in the amount of:

bullet 100% after March 18, 2019 and before 2024
bullet 75% after 2023 and before 2026
bullet 55% after 2025 and before 2028

Note that for vehicles acquired prior to March 2, 2020 to be included as a ZEV they must not have been used for any purpose prior to the acquisition by the taxpayer.  This restriction was removed in 2021 for vehicles acquired after March 1, 2020 so that vehicles acquired after that date could qualify whether new or used.  See T4012 CCA Rates and Classes which includes the updated information, as well as T4002 Definition of ZEV which includes the updated information.

Vehicles for which assistance is paid under the new federal purchase incentive announced in Budget 2019 are ineligible for the first-year immediate expensing.

Recapture and Terminal Loss

Terminal losses cannot be claimed for CCA Class 10.1 vehicles, and vehicles in this class are not subject to recapture.  Vehicles in the new CCA classes for ZEVs are subject to recapture, and terminal losses can be claimed.

Election Out of Class 54 or 55

Regulation 1103(2j) allows a taxpayer, in the taxation year in which the vehicle is acquired, to elect to not include the vehicle in these classes.  The vehicle would then be included in the usual CCA class 10, 10.1 or 16.

Canada Revenue Agency Resources

Corporations: T4012 CCA Rates and Classes re ZEVs

Self-employed: T4002 Class 54 (30%) and Class 55 (40%) - Zero-Emission Vehicles

 - employees: T4044 Employment Expenses Zero-Emission Vehicles

Retroactive Adjustment of Capital Cost Allowance Claims

A 2020 Tax Court case denied the appellant the ability to retroactively reduce capital cost allowance claims.  See the following:

December 2020 Life in the Tax Lane re retroactive CCA adjustments

St. Benedict Catholic Secondary School Trust v. The Queen 2020 TCC 109 - re attempt to retroactively reduce CCA in order to reduce non-capital losses carried forward.  This case subsequently went to the Federal Court of Appeal, 2022 FCA 125, and is also discussed in the September 2022 Life in the Tax Lane video.

A 1984 CRA Information Circular, IC 84-1, Revision of Capital Cost Allowance Claims and Other Permissive Deductions, provides information on CRA practices in relation to claims for revision of capital cost allowance or other permissive deductions.

TaxTips.ca Resources

Recapture

Non-Capital Losses

Terminal Loss

Property Rental

Employment Expenses

Tax Tips

bulletIf you are planning to buy an asset and yearend is approaching, buy it before yearend so that you will get the full CCA write-off sooner.  Note that the asset must be available for use in order to claim CCA.
bulletDon't create or increase a non-capital loss with CCA if it's likely that the losses will expire.

Revised: August 30, 2022

 

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