What is Capital Cost Allowance?
Capital cost allowance, or CCA, is a tax deduction for businesses purchasing depreciating property or assets. Capital cost allowance is deductible on a yearly basis over a period of several years, to account for the amortization of the property.
Types of assets you can claim capital claim allowance for include:
- Buildings, office premises and other property
- Furniture and appliances
- Machinery and equipment
- Musical instruments
- Patents, franchises and concessions
The CRA groups different types of assets into different classes for the purpose of deducting capital cost allowance. See the CRA classes of depreciable property.
Capital cost allowances range from 4% to 100% of the purchase price of eligible items and property, depending on the asset and which class it falls into. The purpose of CCA is to account for the amortization of your business propertiers over time and reimburse your business for the declining worth of the assets.
How to calculate CCA for your business tax claim
You can claim capital cost allowance for your variable depreciable assets at each tax time for a few years. To calculate how much you can claim, see the following example.
You have purchased office furniture for $5000. Furniture is in Class 8 and the capital cost allowance is 20%. Each year, you can claim 20% of the undepreciated cost of the furniture.
In the first year, you will be able to claim $1000 in CCA.
$5000 x 20% = $1000
The next year, you will be able to claim $800.
First, subtract the CCA you deducted from the furniture cost to find the undepreciated :
$5000 - $1000 = $4000
$4000 x 20% = $800
In the third year, your CCA deduction will equal $640.
$3200 x 20% = $640 and so on.
You can claim CCA each year until the undepreciated cost of your asset reaches $0.
See our article on claiming vehicle capital cost allowance as a business, self-employed or employed individual.
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