✔ Common CCA Business Tax Rates
✔ CCA and Deferred Taxes
✔ Available For Use Rule
✔ General Rule About Claiming CCA
✔ Other CCA Rules You Should Know
CCA (capital cost allowance) is the expensing of your capital expenditures over time for tax purposes. The accounting treatment (known as amortization or depreciation) is slightly different.
The allowable CCA tax rates are found in the Income Tax Act Regulations 1100 Schedule II . It has classified different types of assets into classes. Each class of asset has a different CCA tax rate.
Take care when you classify your assets. CRA does watch for this because if you pick the wrong classification and depreciate your assets too quickly, you would be deferring taxes.
Judy asked a few questions on reconciling CCA between your tax return and your books, so I talked about CCA and Deferred Taxes.
Too Shy to Say asked, " What is the adjusting entry that reconciles the difference between CCA and depreciation?"
It's a good question!
Join the discussion in the community bookkeeping forum by posting your comments ... or asking a bookkeeping question on something you don't understand.
As a small business owner, the most common CCA classes, along with their tax rates, that you would probably be interested in are:
You can find more business CCA classes along with their tax rates in the CRA publication T4002 Business and Professional Income. Look in chapter 4 under CCA classes.
Take note that the CRA guide shows software is classified as operating software (class 12) and systems software. As each type has a different CCA class, I think it's advantageous to track the two types separately in your books.
When you purchase a capital asset before year-end as part of your tax
planning strategies, you need to be aware of the available for use rule.
To
be eligible to claim CCA, the title to the asset has to have been
obtained, you must have possession of the asset, and it must be available for use (unlike in the U.S. where the asset has to be in use).
This means that having rights under a contract to acquire it in the future is not enough.
Find more on the subject on CRAs website under CCA> How to claim.
Here is another one of the things you should know about CCA. That is ...
You don't have to make a full CCA claim on your tax return every year. If you are losing money, then it is better NOT to claim CCA in a particular year. Save the tax deduction for a future year.
You can also take a partial deduction to bring your net business income to zero.
A general rule when deferring your CCA claim, defer your quickest depreciating assets first.
You have to hunt around to find the items but please do take the time.
To get a more thorough understanding of the complicated subject of CCA and how to apply the tax rates visit CRA's website page at
Businesses>Sole proprietorships and partnerships>Reporting>Capital Cost Allowance (CCA)> Calculating CCA.
Bookkeeping Essentials › Tax Rates Index › Capital Cost Allowance (CCA)
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