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.
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.
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.
Further information about immediate expensing is 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.
There is information in T4012 Corporation Income Tax Guide about immediate expensing for CCPCs. As of December 17, 2022 it has not been updated to include the fact that the legislation for this proposal was enacted on June 23, 2022.
The immediate expensing proposal was expanded in the legislation.
An "eligible person or partnership" (EPOP) for the purposes of immediate expensing includes:
Characteristics of the immediate expensing proposal:
See Immediate Expensing on the Budget 2021 website - some provisions have changed from what was announced here.
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.
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.
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:
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:
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)
Eligibility for Enhanced CCA for ZEVs and ZEPVs
Qualifying zero-emission vehicles must be fully electric, plug-in hybrids with battery capacity of at least 7 kWh, or fully powered by hydrogen.
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 not eligible for the first-year immediate expensing.
New Capital Cost Allowance Classes for Zero-Emission Vehicles
Two new CCA classes were created by Budget 2019 for zero-emission vehicles acquired after March 18, 2019 and before 2028.
New CCA class 56 was created by the 2021 Budget for property acquired and available for use after March 1, 2020 and before 2028.
This class includes automotive equipment not designed for use on highways or streets such as zero-emission aircraft, watercraft, trolley buses, and railway locomotives.
See CRA information on Class 56 in the T4012 Corporation Income Tax Guide.
First-year enhanced CCA is available in the amount of:
Calculating CCA Classes 54 and 55
See the CRA information on steps to be done before calculating the CCA for classes 54 and 55, in T4012 Corporation Income Tax Guide - scroll down from this link.
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
- employees: T4044 Employment Expenses Zero-Emission Vehicles
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.
Revised: December 17, 2022
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