Comments on: How Capital Cost Allowance Works (CCA)

By: jryni

jryni — Thu, 07 Jul 2011 08:37:19 +0000

FrugalTrader:
Thanks for your posting. But not very correct about the first year calculation:
The First year, there are two CCA depreciation applicable:
First year of Business Rule
+ The current year of purchase rule
——————————–
= Total CCA for the First year CCA

Couple of accountants over the internet made the same explanation as you did, but I believe the equation above is more accurate, I am not an accountant. jry

By: FrugalTrader

FrugalTrader — Sat, 07 May 2011 20:46:50 +0000

@lilacwind, if the truck was purchased for the business, then yes, the portion of the truck used solely for business can be claimed. My understanding though is that you should track the KM’s used for business when claiming.

By: Lilacwind

Lilacwind — Sat, 07 May 2011 19:47:06 +0000

Question if a sole proprietor just starting his business in January 2011 purchases a truck for the business in December 2010. Can he claim the truck CCA in 2011 as it was purchased for the new business and he was not self employed in 2010 so did not use the deduction.

By: King K

King K — Sun, 01 May 2011 19:23:47 +0000

I understand if you change use of a rental property to a prinicpal residence you can use a s.45(3) election to defer paying the related tax until such time that you actually sell the property. This is on the basis that you did not claim cca on the property in calculating rental income previously. My question is does this mean you could ot claim any cca whatsoever, or can you claim cca on classes other than buildings (eg. furniture and equipement; I rented out my condo furnished) in order to be able to file the section 45(3) election?
Thanks in advance.

By: citybug

citybug — Wed, 27 Apr 2011 07:00:36 +0000

I own a house and am a massage therapist. Last year I renovated the basement purely for my business and the basement is now my massage therapy clinic. Can I claim the renovation costs? As expenses or as CCA? The renovation would include things like carpets, framing, painting, drywall. I know I can claim the furniture, shelves, etc as CCA. I am not sure if I should claim the renovations – will there be problems when I sell the house later? Thanks for your help!!

By: Amit

Amit — Thu, 21 Apr 2011 14:16:42 +0000

Is claiming CCA required for USA rentals?

Since in Canada claiming the CCA is optional I have never claimed it for my USA rental as in the beginning years I had a loss, and also I know that the price will be much higher when I sell, but I am not sure if I have to claim CCA on the building when filing US tax returns (1040NR) or is it optional in USA too? Can anyone clarify? Thanks in advance.

By: Lyn

Lyn — Thu, 07 Apr 2011 11:56:39 +0000

I haven’t seen the rate at 50% for solar equipment. If you search the CRA site, there is a class 43 that is quoted for the FIT program.

By: Elizabeth Van Den Hurk

Elizabeth Van Den Hurk — Thu, 05 Aug 2010 15:20:50 +0000

I am considering buying solar panels. Say my cost is $75,000. Once I own the equipment I enter into a 20 year contract to sell the hydro I produce. CCA is straight line at 50%. Does this mean I can claim under CCA 50% of $75,000 in the first year, then 50% of $37,500 and so on (I think this is a declining balance) or how do I figure out the “set dollar” value. I need this information to decide whether the investment is worthwhile. In this case if the CCA is used only for equipment (not, for example, on a building which I would later sell) and not be worth anything (scrap) at the end of 20 years is the depreciated amount added back on anywhere? Since the euipment I own is independant of the contract I sign is the CCA depreciation tied to the length of the contract?

By: FrugalTrader

FrugalTrader — Wed, 28 Apr 2010 10:22:13 +0000

Personally, I would consider exercise equipment for a fitness studio to be a capital cost, therefore depreciated on an annual basis. However, you should double check with an accountant

By: Stella

Stella — Wed, 28 Apr 2010 10:19:37 +0000

I have a question about Class 12. I have a fitness studio operating out of my home. 2009 was year 1. Is there a difference between claiming all of my small equipment like exercise bands and boxing gloves under my current expenses, or am I required to claim them under Class 12? Administratively speaking, claiming them under Class 12 is a lot more work, but claiming them under “supplies” in business expenses is generating a large expense relative to income because this is year 1. Should I take the time to spell out all these little expenses under Class 12 just to be safe? Any thought about this would be greatly appreciated.

By: Betty

Betty — Tue, 27 Apr 2010 05:05:45 +0000

Ed could you answer this for me? We have a condo in a rental pool. We’ve only had it 2 years but plan to sell soon. I’ve not claimed any CCA but should I on the Class 12 assets or FFE?
Thank you.

By: lois

lois — Mon, 12 Apr 2010 18:47:20 +0000

My sister and I own a rental property jointly. I want to move into it. If it becomes my personal residence, do I calculate CGtax for my share only as a deemed disposition? We never claimed any CCA over the years. Are full amount capital purchases deductible on deemed sale or are they depreciated values?

Thanks

By: Ed Rempel

Ed Rempel — Mon, 08 Mar 2010 05:26:24 +0000

Hi Kristina,

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.

By: Ed Rempel

Ed Rempel — Mon, 08 Mar 2010 05:21:46 +0000

Hi Mohammad,

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.

By: Ed Rempel

Ed Rempel — Mon, 08 Mar 2010 05:20:42 +0000

Hi Kyle,

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.

By: kristina

kristina — Sun, 07 Mar 2010 03:26:40 +0000

does cca for rentals work the same as for employment expenses(vehicle)?

By: kristina

kristina — Sun, 07 Mar 2010 03:21:23 +0000

does anyone know if you live up and rent only down(the basement) if you can still claim cca? Also we had more expenses than profit from the rental,..which gives us a rental loss….can we still claim cca? I didnt know you had to pay back when you sell your home? what if you never sold?

By: Mohammad

Mohammad — Sat, 06 Mar 2010 21:40:39 +0000

I have a question about filling out T776 (statement of real estate rentals). I am a 50% co-owner of a rental property. Do both co owners have to fill out form T776?

Thanks for your help.

By: kyle

kyle — Thu, 04 Mar 2010 07:54:41 +0000

I have a question for Mr. Ed Rempel, but first, thanks for all the great posts, you really are a help for a lot of people.
I moved out of my primary residence in July and began renting it out July 1st to move back home and care for my younger siblings and mother. I am having a hard time doing my taxes right now lol trying to figure out my CCA/Value of the home, and whether or not I should even claim it. You made a comment in post #10.
“If you have not bought a new home and there is doubt as to how long you will hold the condo, you can elect to have your former residence temporarily maintained as an principal residence for up to 4 years.”

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!!!

By: Ed Rempel

Ed Rempel — Sat, 06 Feb 2010 16:19:12 +0000

Hi Eva,

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).