Capital Cost Allowance (CCA): What do you need to know?
Capital Cost Allowance (CCA) is the tax deduction for depreciable property (properties that wear over time), such as furniture, equipment, vehicles, computers or even buildings.
Capital Cost Allowance means that when you buy depreciable property, you can’t just claim the entire cost of the property as an expense; instead you have to deduct the cost of the depreciable property gradually over a period of years.
As a rule of thumb, if your purchase is going to provide a long-term benefit, then it is a capital expense and you’ll have to write it off over time, otherwise it is a current expense.
Depreciable property is organized into different classes by the (CRA) Canada Revenue Agency and the CCA class a property is in determines how much CCA you can claim on that property. Equipment for instance fall into Class 8, with a CCA rate of 20%.
For most depreciable properties, CCA is limited to half its cost on its first year (called the half year rule). This half-year-rule also applies when you transfer personal property into your business.
Also, you don’t have to claim the whole amount of CCA you are able to deduct in any given year. You can claim all of it, none of it, or a portion of it, and the rest will be carried over and available to you in the next tax year – very handy if you have a low income year and don’t need to take your CCA deduction at that time.