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Capital Cost Allowance: How to Calculate CCA Classes

Capital Cost Allowance: How to Calculate CCA Classes

When you begin claiming business expenses, it’s important to understand the difference between an immediate expense, which is fully deductible in the year that you incur it, and a depreciable expense, which is deducted over time.

With regular business expenses, you can claim the full amount in the year the expense happened. However, you need to be aware that some expenses are depreciable. These are costs that, while also part of the expenses used to calculate net income (or loss), are subject to Capital Cost Allowance rules.

What is Capital Cost Allowance?

Capital Cost Allowance is a set of rates stating the amount you can claim each year on a depreciable property used for business activities. In the first year, you can only claim based on half the amount you paid. This rule is in place because if you acquired the equipment during the year, there is not a full year of depreciation.

How to Calculate CCA

Below is an illustration of how you use CCA to deduct equipment for your business. Say you bought a desk for $500. This falls under CCA’s Class 8, “Other Property”. Class 8 has a rate of 20%.

  • First Year $250 (half of $500) x 20% = $50 expense claim. This leaves a value of $450 next year.
  • Second Year $450 x 20% = $90 expense claim. This leaves a value of $360 next year.
  • Third Year $360 x 20% = $72 expense claim. This leaves a value of $288 next year.
  • You continue depreciating the desk this way until you are at $0

These calculations are done in Area A and Area B on page 4 of the T2125 form. It’s important to understand what class the equipment falls into, so that you can properly depreciate your equipment.

CCA Classes for Home Businesses

If you have a home business, the following four classes would likely be of the most interest to you:

  • Computer equipment and systems software: Class 50 (55%)
  • Data Network Equipment: Class 46 (30%)
  • Small tools ($500 limit): Class 12 (100%)
  • Other Property (furniture, appliances, fixtures, machinery, and equipment): Class 8 (20%)

You can find all the CRA’s CCA classes on their website.

As the claimable part is calculated with expenses, this is another case where you can claim expenses that exceed your business income.

What If You Receive Government Help?

It’s also important to understand how the Capital Cost Allowance works in conjunction with help from the government. In some cases, you might receive a business grant or a subsidy to help you buy equipment for your business. You will need to subtract the amount of the grant from the capital cost. Make the subtraction before you perform your depreciation calculations.

In our example above, if you receive a $200 subsidy to help you purchase that desk, you will start out with a capital cost of $300, rather than $500. That will change how much you can claim for depreciation over all. However, since you didn’t have to pay the entire amount for the desk on your own, it tends to even out.

It’s also possible to receive an input tax credit if you paid GST/HST on some of the depreciable property you bought for use in your business. This can provide you with a little extra help come tax time, so that you aren’t losing ground to other taxes on your capital costs.

Deferring Capital Gains or CCA Recapture

If you decide to depreciate your capital costs, you will also have to pay taxes on capital gains. If your capital property actually gains in value, and you receive more back than you paid for it when you sell it later, you will pay taxes on that gain. You also have to add any CCA recapture to your income.

You can defer the gains if you reinvest in replacement property relatively quickly. You need to make sure that you use the property for a similar purpose if you want to defer.

Comments

  1. Chinook Guy

    Hi Tom,

    Thanks a lot for this very informative blog article of yours. I learned more about CCA here in your blog, than any of the tax books I have read so far.

    You might want to check CCA for computers: just checked at the CRA website, to claim 100% for computers they want us to use Class 52 instead of Class 50.
    http://bit.ly/dogj2N

  2. Kary Perez

    Hello,

    I have a question, and perhaps you can help me to answer it.

    Last Dec.26th (Boxing day), I bought 3 home appliances (dryer, washer and stove) with mi current roommate. However, I’m moving out this summer and she told me she will discount me a 20% of depreciation, excluding the taxes. Is this fair?

    I’m really concerned about this issue, because I need the money;

    Thanks for your time,

    Sincerely,

    Kary

  3. Susan

    Does the CRA still allow 100% CCA for computers purchased in 2012?

    Thank you.

    • Jon Jennings

      Susan – no… the 100% allowance for computers was only on purchases up to Jan 2011 under the special “class 52” code. See http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/dprcbl-eng.html#class52 for the details.

      • gina

        so what class and % do we use if we bought a computer in 2012?

        • Jon Jennings

          For computers bought in 2012, the code switches back to class 50 with a 55% allowance.

          When you read the description for class 50 (here: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/dprcbl-eng.html#class50) you’ll see it’s saying approximately “computers bought after March 2007 unless they’re in class 52” and class 52 says “computers bought in 2009/10”.

          The way to look at it is this: computers have a 55% CCA… that’s the rule, HOWEVER in 2009/10, to encourage capital spending and keep the economy buoyant, the govt gave you a temporary benefit allowing you to claim 100% of your computer’s cost in the purchase year.

  4. Gerard

    I have a question about CCA for property values. It’s generally never stated anywhere about how you would determine the percentage of value associated with the land and the percentage associated with the property itself. I’ve searched but have not found any ‘rough guidelines’ or otherwise on the internet. I assume it is because “every situation is unique so you should pay an accountant to tell you the number”, but surely there are other ways to get this figure.

    Ever seen any posted?

    • Teri Babcock

      Your property assessment from your municipality will have land value and residence value listed separately

  5. Cynthia

    Hello Tom –
    Regarding CCA on a car that is used only partly for business – what if the business proportion varies from year to year? The calculation ends after the first year at box 10 (UCC at end of year). Am I stuck forever with this number? What if in 2014 the proportion used for business was 10%, and in 2015 it’s up to 50%, and the cost of the new-to-me vehicle was $12,000. There would be a significant difference in what I could claim. How best to handle this? Thank you!

  6. Emili

    Hi There Jon:
    Thank you for your post. I have learned a lot as well.
    I have a predicament. I just completed 7 years worth of taxes and am owing around $18000 cdn not including penalties.

    I just noticed that I bought my car in 2011 for $23000. My tax guy used 30% for my 2012 taxes, but since I didn’t make any money in 2012 and 2013 I lose the opportunity to use CCA as a deduction those years.

    CAN I Retroactively use it for 2008, 2010 instead which are my highest earning years?

    Thank you so much for your answer.

    Emili

  7. Donna

    Hello! Thank you for such great information. I find the whole classification schedule so overwhelming! I am wanting to know what class an iPhone would fall under. I haven’t been able to find that specifically and I really don’t want to make an error filing my first T2125!
    Thank you in advance for any assistance you can lend.

  8. Sanford J Yang

    Hello Tom,

    I have a question: Beside the Amortization of rental property(this is for the building and equipment), there is another Amortization of deferred charges (these are for Mortgage financing costs and Land title charge). Can I put the second item into to CCA? If yes, which class it belong to?

    Tank you very much!

    Sanford

  9. Marie

    I am a commission salesperson. I had my car last year for employee use but traded it in October 2016 and bought a new one. I stopped working in November 2016. Do I have to prorate the days of use for CCA on the autos?

  10. Cyndi

    Hello, I am so confused. Not sure what to claim and where to put it. We replaced our heating system in our rental property. We went from electric to gas/hot water boiler system. How do I claim this? Worker’s wage, minor parts like bolts, pipes, etc…. The boiler system anf any other repairs with it. Thank you Cyndi

  11. Tara

    A question related to tools & CCA. I have a Small business. I spent $1200 with the majority ($900) on a variety of small tools – mostly molds (candy-making business). In this article, it suggests small tools can be 100% deductible:

    “Small tools ($500 limit): Class 12 (100%)”

    To be sure I understand, if each of the tools is under $500, can I claim the entire amount?

    Or is there a total limit of $500 for all tools claimed?

    Tara

    • Teri Babcock

      To be sure I understand, if each of the tools is under $500, can I claim the entire amount?

      That is correct.

  12. Deborah

    For buying furniture under a $500, such as a chair for $200 or a lamp for $60. Do I still do a CCA calculation?

  13. Mark

    This was really helpful thank you. But what if for example I bought a cell phone and use it for work (my own business). How would we calculate that? Do I need to estimate the amount of time I use it for work? Or the amount of data?

    Thanks!

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