What Is Capital Cost Allowance (CCA)?
Capital Cost Allowance (CCA) is an annual deduction in the Canadian income tax code that can be claimed on depreciable assets when figuring taxable income under the umbrella of the Income Tax Act. Claimed as a percentage of the asset's cost for a number of years, the CCA is typically allowed for purchases that are expected to last for several years, such as buildings. However, the deduction is not allowed in full for a single year; rather, the full cost is spread out over a number of years on tax returns.
- When figuring taxable income, taxpayers can claim annual deductions on their depreciable assets through the Capital Cost Allowance (CCA).
- The CCA is allowable when purchases are anticipated to last for years, such as equipment and machinery.
- Businesses can claim from zero to the maximum amount of CCA in any given year, and carry over any amount less than the maximum to claim for the next year.
- Land does not count as a qualified CCA deduction. There are other important exclusions as well.
- For certain purchases, the full value can be deducted in the first year instead of having to spread it out over many years.
CCA status is not granted for all business assets. There is an important list of exclusions that must be considered when calculating whether a business is eligible for CCA. Some exclusions include land, property that was bought without the intent of producing income, and artwork bought after Nov. 12, 1981.
CCA is figured by considering undepreciated capital cost as well. That includes legal expenses, accounting fees, or engineering costs that are shouldered by the taxpayer for the purchase of the property. It also factors in the work, overhead, and materials the taxpayer used when constructing the property.
Under the Capital Cost Allowance deduction, buildings qualify for different percentages of deductions depending upon which year they were purchased. Some might only qualify for a 4% rate, while others are at a 5% rate.
Types of Capital Cost Allowance (CCA)
The Canada Revenue Agency sets out at least 19 classes of annual rates at which CCA can be claimed, varying by the type of asset. Real estate has some of the lowest rates, ranging from 4% to 10%, depending on when it was acquired and the construction materials. As assets that rapidly depreciate, computers, systems software, and motor vehicles have high CCA rates, of between 30% and 50%.
A few categories of tools, work uniforms, and computer software are claimable at 100%—that is, the full value may be claimed in the first eligible year for CCA. But many of those categories impose dollar limits on the purchase price of the item. For instance, medical or dental instruments qualify for the 100 percent, full-year rule, but only if they were purchased for under $500. For many of the assets, the percentage that can be claimed varies depending upon which year the items were purchased.
A business needn't claim the maximum allowable amount of CCA in any given year, but may instead claim any amount from zero to the maximum. Any amount less than the maximum will be carried over to the next year and will be available to claim.
The CCA is a useful tax reduction tool to use, in part because of the flexibility in which the Supreme Court of Canada has handled disputes of claims from the Canada Revenue Agency in the past. It has green-lighted deductions in cases where the property questioned in the claim dispute wasn’t held for very long.
In the battery industry, CCA stands for Cold Cranking Amps, which is a rating used to describe a battery’s capabilities of starting an engine in cold temperatures. Specifically, a CCA is the number of amps that a lead-acid battery delivers at 0°F for 30 seconds. However, the CCA must maintain at least 1.2 volts.