The cost of a capital asset is generally not deductible as an expense. However, you can depreciate certain business assets for tax purposes. The tax term for such depreciation is “capital cost allowance” (CCA).
Depreciable assets are grouped into classes according to their type and use. There are more than 50 different classes, each with its own rate of depreciation.
The government also adjusts CCA rates to provide economic incentives or to better reflect the useful life of the property. The following are some of the more significant examples:
Most classes of assets are depreciated on a declining-balance basis. Some of the more common CCA classes and their applicable CCA rates are noted in the tables at the back of this book.
The amount of depreciation you can claim for a year is determined by multiplying the remaining balance in the asset class by the specified percentage rate for that specific class (generally pro-rated for short taxation years). The remaining balance, referred to as the undepreciated capital cost (UCC), is calculated on a continuous basis.
Each year (subject to the available-for-use rules—see below), you add the cost of assets acquired in the year to the previous year’s closing balance. If you have disposed of an asset, you subtract the proceeds up to the original cost of the asset.
The amount of CCA determined by this method represents the maximum amount that can be claimed. You do not have to claim the maximum amount. For example, if your business is in a loss position, you may decide not to claim depreciation for that particular year.