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Something you should know about CCA (Capital Cost Allowances) - Part 1


Whenever you buy a depreciable capital stock (property asset), the capital cost along with it will be generated. During the life of your capital stock, you can claim CCA out of your capital expenses as an income tax deduction, which will greatly increase the flexibility of your tax planning.


The CRA sets the different classes and CCA rates for different types of assets, the detailed information is shown in the CRA’s website:

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes.html


The CCA will be ready to be claimed when your asset is in use. Generally, the rates are determined based on the life of the asset. Short-life assets like vehicles from a car-rental business have substantially higher rates than long-life assets like buildings. The CCA rate is the maximum amount that you can claim for your assets, however, you can claim any amount between 0 to the maximum amount for a tax year.


For each new tax year, the amount of capital costs you claimed the previous year should be subtracted from the value of your asset to calculate the CCA (for example, if last year your company bought a car for $50,000, and you claimed the CCA of $5,000 at the same year, the value of the vehicle this year will be $50,000-$5,000=$45,000, and you should calculate the CCA based on this value) If you have your asset for both business and personal use, you should decide the proportion of each purpose.


When you sell your asset, a measurement of CCA recapture should be applied. The UCC (undepreciated capital cost) will be calculated using the original price of your asset minus accumulated CCA. If your sale price of your asset exceeds the UCC, the excess amount will be your recaptured CCA, being included in your business income of the year when the disposal of your asset happens.

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