2. Capital Cost Allowance (CCA)
Depreciation is not a tax deductible expense
CCA is the tax equivalent of depreciation
CCA may be used as a method of amortization, particularly by smaller companies
CCA follows procedures similar to those for the declining-balance method
Uses rates (the CCA rate) prescribed by the Canada Revenue Agency (CRA)
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3. Capital Cost Allowance (CCA)
Assets are grouped into classes
Each class has a CCA rate prescribed by the CRA
In the year of acquisition, the half-year rule applies
Half-year rule is applied to each class on net additions
CCA may be claimed even if it results in a UCC (Undepreciated Capital Cost) that is less than estimated residual value
Not required to take the maximum rate of CCA or even any CCA in a given year
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4. Selected Examples of CCA Classes
Automotive equipment, processing equipment
30% 10
Machinery or equipment not in another class
20% 8
Bridge, canal, or building 4% 1
Examples
Rate
Class
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5. Capital Cost Allowance (CCA)
When an asset is disposed of, the lower of its original cost or the proceeds from disposition is deducted from its CCA class
If no assets remain in a particular class:
any remaining undepreciated balance is deducted from taxable income (terminal loss)
if a credit (negative) balance results, that credit is added to taxable income (recapture of CCA)
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6. CCA – An Example
On March 28, 2013, equipment is acquired; this is the only asset in the CCA class
Cost: $500,000 CCA Class:
Useful Life: 10 years CCA Rate: %
Residual Value: $30,000
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7. CCA – An Example
360,000
450,000
500,000
$288,000
$360,000
$450,000
UCC – Dec. 31st
72,000
90,000
50,000
CCA
$500,000 x ½ x 20%
$450,000 x 20%
$360,000 x 20%
Disposals
Addition $
UCC – January 1st
2015
2014
2013
Description
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8. CCA – An Example Continuation of example above:
In 2016, additional equipment was purchased for $700,000
In 2017, equipment purchased in is sold for $300,000
3. In 2018, remaining Class 8 assets sold for $500,000 -No other assets remain in the class
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9. CCA – An Example
(51,680)
560,400
988,000 $
$448,320
$860,400
UCC – Dec. 31st
51,680
112,080
127,600
CCA
(288,000 x 20%) + (700,000 x ½ x 20%)
560,400 x 20%
Recaptured CCA
500,000
300,000
Disposals (lower of cost or proceeds)
700,000
Addition
$288,000
UCC - January 1st
2018
2017
2016
Description
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10. COPYRIGHT
Copyright © 2013 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.