You don't have to make a full CCA claim on your tax return every year.
What You Should Know About CCA and ...
Common Capital Cost Allowance Business Tax Rates
by L. Kenway BComm CPB
What You'll Find In This Chat ...
✔ 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.
As a small business owner, the most common CCA classes, along with their tax rates, that you would probably be interested in are:
- CCA Class 8 office furniture, office equipment, small tools over $500 and equipment not listed in another class at 20%
- CCA class 10 and 10.1 vehicles at 30%
- CCA Class 10 computer hardware and systems software acquired before March 23, 2004 at 30% - see also class 45
- CCA class 12 computer software other than your operating system and small tools under $500 at 100%
✔ prior to May 1, 2006 the threshold amount was $200
✔ do not include systems software here
✔ refer to the CCH publication Preparing Your Income Tax Returns to find out which class 12 items are exempt from the half year rule making the item 100% deductible in the year of purchase
✔ see bookkeeping for a small restaurant in information on aggregate purchases of small items and how to classify them
- CCA class 45 computer equipment and systems software acquired after March 22, 2004 at 45% - see also class 50
- CCA class 46 network equipment and associated systems software (that would have been included in class 8) acquired after March 22, 2004 at 30%
- CCA Class 50 computer equipment and systems software acquired after March 18, 2007, that is not used principally as electronic process control, communications control, or monitor equipment, and the systems software related to such equipment, and data handling equipment that is not ancillary to general purpose computer equipment at 55%
- CCA class 52 computers acquired between January 28, 2009 and January 31, 2011 at 100%
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.
CCA Rules You Should Know About
Know the rules before you claim CCA.
good bookkeeping practice
CCA Available for Use Rule
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.
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.
General Rule About Claiming CCA
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.
GOOD TO KNOW
MORE "Things You SHOULD Know About CCA"
You have to hunt around to find the items but please do take the time.
- the 50% rule (half year rule) - only 50% of CCA can be claimed in the year of acquisition
- available for use rule (it's important to understand this rule)
- land and living things - you cannot claim CCA on most land or on living things such as trees, shrubs, or animals.
- possible recapture of CCA - upon disposal of asset
- possible terminal loss - upon disposal of asset
- depletion allowance - wood lots, gravel pit, etc.
- T5013 and T5013A slips and your CCA claim - you cannot personally claim CCA from a partnership
- First fiscal period is less than a year (short year) - you must prorate
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.
See you on the next page ...
Your tutor Lake