Claiming CCA on your principal residence can result in you losing your principal residence exemption, so claiming it would be a mistake. You cannot use CCA to create or increase a loss anyway.

CCA is really a deferral, since it is recaptured (fully taxed) whenever you sell, before you calculate your capital gain/loss on sale. You will eventually sell, even if it is on your death.

Yes, the principals of CCA for rentals are the same as on automobiles, except that it is a different asset class and rate.

Ed

Yes, you both show it. The form lists partners and the proportion each owns, so that you can show half the income/loss on each of your returns.

Ed

I would suggest not to claim CCA in your case. It sounds like your situation probably applies, so that you can file the election to consider your property as still being your principal residence, even though you are renting it out temporarily.

Are you planning to sell it or move back in?

If you claim CCA, you can lose your principal residence exemption, which is normally far greater than the temporary deferral from claiming CCA.

Ed

Thanks for your help.

I do not plan to hold the rental much longer. Maybe another year, or 2 at most, for a total of 2.5 – 3 years. How should I go about my CCA for this year? Again, thanks for all your help!!!

Basically, you are right. If you are not claiming CCA and you owned the property before last year, just enter the class of the building and then put in the UCC carried forward from last year and show the same figure as the end of year. In software, you may have to override the CCA calculated.

The key thing here is that the asset is the building – not the land. They must be 2 separate assets. You can only claim depreciation on the building – not the land. So you may have to figure a reasonable split between land and building, which is often done based on the proportion used on your property tax. An objective measure is better than a subjective measure.

For a townhouse, assuming the entire value is the building is probably reasonable, unless it is a freehold townhouse. Usually, you don’t actually own any of the land, so it may be reasonable to assume that 100% of the cost is the building.

Many people do not claim CCA because it will be recaptured when you sell. Claiming it is often smarter though (as long as it is not your principal residence).

Claiming the CCA is a tax deferral, which is usually good. Think of it like claiming an RRSP deduction. You could defer the deduction because you are going to have to pay it back when you withdraw the money, but in the mean time, you have the use of the tax saved and you may well be in a higher tax bracket today then when you sell the property.

Most commonly, we claim the CCA for our clients in order to bring the taxable income of the rental down to zero (unless the client is in a low tax bracket).

Ed

Now my question is, I am filling out T776 (statement of real estate rentals) and in area A-Calulation of Capital Cost Allowance Claim…do i need to put anything in that area? Previous accountants put the entire cost of our rental townhome in the UCC Start of The Year box and that same amount in the UCC End of Year box. If I am not claiming CCA, i simply enter that same amount this year??? And do i do this each year that i own the rental property until i sell it?

Thank you in advance.

You are allowed to declare one property as your principal residence. If the main purpose of owning that property is to be your residence, then you can rent out part of it and still claim it all as a principal residence.

Ed

On the other hand, my interpretation (which is very likely flawed) of CRA documents is that the moment I rent out a portion of my house, I lose “principle residence” status on that portion of the property anyway regardless of any claim of CCA. Is this interpretation true?

I am most entirely confused on the subject of “principle residence” status. I have looked high and low for strategic information on this subject but resources remain elusive. I’m hopeful that you can shed some light on this subject.

I have a few follow up questions.
I recently purchased my primary residence and it has an attached rental suite which came with kitchen appliances and shared laundry.

1- When claiming CAA, is it “all or nothing”? For example, if possible is there a time when it would beneficial to claim appliances and fixtures as CAA but not the building? Would that avoid gains penalties on the house when sold?

2- The acquired laundry equipment was in rough shape (not economical to repair) and was replaced with new. Should this be considered a capital cost or repair and deducted as an expense? (The equipment is used by both the tenant and us).

3- Are tools purchased for the repair and maintenance considered a capitol cost or a deductible expense? Hand tools, lawn equipment, ladders ect…

Please forgive my current ignorance on this subject.

Thanks for the great post on CCA. When you say in your Post 12 that “The one time you should never claim CCA is if you rent out a part of your home.” you are referring solely to claiming CCA for my home…correct? Claiming CCA for equipment and computers purchased (Class 8 & 45 respectively) will not affect my Principal Residence designation….correct?

Any help is appreciated.

MA

You can lose the tax-free status of your principal residence if you claim CCA on it. It sounds like this condo is your home, so you should not claim CCA.

It might be possible on specific “leasehold improvements”, if you can clearly idenditfy specific renovations just for your business, but otherwise, you should avoid CCA on your principal residence.

Ed

I own a condo I bought in 2007. In 2008 I started creating a small business that I will be running out of my condo. I have some business expenses but as of yet, I do not have any income/sales from it.
Do I put my condo as a Capitol Cost Allowance?
If so, how do I do it?

Thank you!

Don’t forget that claiming CCA on a property can come with a hefty penalty when you sell it. If the property has increased in value, then in addition to paying capital gains tax (50% of the gain is added to your income), you will have to pay back 100% of the CCA deductions. All this is added to your income in a single year, which might push you into a higher tax bracket (assuming you’re not already in the highest). So while you can get the deductions each year at your current marginal rate, you might have to pay them back at a higher rate! Now lets say you did something smart with the deductions each year, like paying down your mortgage or making good investments. If you sell the property in 10 years, the savings/earnings that you accumulate could very easily exceed the penalty incurred upon sale. That is why I stated earlier that CCA may be bad if you’re selling soon. Claiming CCA may also be bad if you currently have a low marginal rate (deduction isn’t worth as much) or if you spend the deduction instead of investing it.