Business -> Capital Cost Allowance (CCA) and Rates
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.
As proposed by the 2021 Federal Budget:
See Immediate Expensing on the Budget 2021 website.
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 and bulletin:T2 Corporation Income Tax Guide (T4012), other Guides, T2 return and schedules - 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.
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.
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:- a die, jig, pattern, mould or last
- the cutting or shaping part in a machine
- a motion picture film or video tape that is a television commercial message
- a certified feature film or certified production
- 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.
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:
- Class 14 assets
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), 7307(1.1)
Two new CCA classes were created by Budget 2019 for zero-emission vehicles acquired after March 18, 2019 and before 2028. First-year enhanced CCA is available in the amount of:
- 100% after March 18, 2019 and before 2024
- 75% after 2023 and before 2026
- 55% after 2025 and before 2028
Vehicles for which assistance is paid under the new federal purchase incentive announced in Budget 2019 will be ineligible for the first-year immediate expensing.
There is a $55,000 cost limit for class 55 (includes taxis and rental cars), which will be reviewed annually for appropriateness.
Class 54 (zero-emission passenger vehicle (ZEPV) which is not a taxi or rental car) has a capital cost limit of $30,000.
For further CRA information on this, see:
- corporations: T4012 CCA Rates and Classes
- 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:
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.
Revised: April 29, 2021
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