Basic information about capital cost allowance

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• Determining capital cost
• Determining capital cost allowance
• First fiscal period is less than 365 days

Determining capital cost

Capital cost is generally your full cost of acquiring a property. The capital cost of a property is usually the total of the following:

• the purchase price (not including the cost of land, which is not depreciable)
• the part of your legal, accounting, engineering, installation, and other fees that relate to buying or constructing the property (not including the part that applies to land)
• the cost of any additions or improvements you made to the property after you acquired it, if you did not claim these costs as a current expense (such as modifications to accommodate persons with disabilities)
• for a building, soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating, or altering the building, if these expenses have not been deducted as current expenses

Determining capital cost allowance

To decide whether an amount is a current expense or a capital expense, go to Current or capital expenses.

For the most part, use the declining balance method to calculate your capital cost allowance (CCA), as it is the most common one. This means that you apply the CCA rate to the capital cost. Over the life of the property, the rate is applied against the remaining balance. The remaining balance declines each year that you claim CCA.

You do not have to claim the maximum amount of CCA in any given year. You can claim any amount you like, from zero to the maximum allowed for the year. If you do not have to pay income tax for the year, you may not want to claim CCA. Claiming CCA reduces the balance of the class by the amount of CCA claimed. As a result, the amount of CCA available for you to claim in future years will be reduced.

In the year you acquire a depreciable property, you can usually claim CCA only on one-half of your net additions to a class. This is called the half-year rule.

You cannot claim CCA on most land or on living things such as trees, shrubs, or animals. However, you can claim CCA on timber limits, cutting rights, and wood assets.

If you claim CCA and you later dispose of the property, you may have to add an amount to your income as a recapture of CCA. Alternatively, you may be able to deduct an additional amount from your income as a terminal loss.

If you receive income from a quarry, sand or gravel pit, or a woodlot, you can claim a type of allowance known as a "depletion allowance."

If you are a member of a partnership, you cannot separately claim CCA for depreciable property owned by the partnership. Instead, the partnership can deduct CCA when calculating its net income or loss for the year. The partnership's net income or loss is then allocated between the partners and each partner's share is shown on their respective slip T5013, Statement of Partnership Income. If the partnership does not need to file a partnership information return, you will not get a T5013 slip. In such cases, you will have to fill in Area A of your T2125 form to report the CCA claim for the partnership.

First fiscal period is less than 365 days

If your fiscal period is less than 365 days, you have to prorate your CCA claim. Calculate your CCA using the rules discussed in How to calculate the deduction for capital cost allowance (CCA). However, base your CCA claim on the number of days in your fiscal period compared to 365 days.

Forms and publications

• Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income
• Slip T5013, Statement of Partnership Income
• Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance
• Income Tax Folio S4-F11-C1, Meaning of Farming and Farming Business
• Interpretation Bulletin IT-373, Woodlots
• Interpretation Bulletin IT-481, Timber Resource Property and Timber Limits
• Interpretation Bulletin IT-492, Capital Cost Allowance – Industrial Mineral Mines
• Interpretation Bulletin IT-501, Capital Cost Allowance – Logging Assets
• Interpretation Bulletin IT-501SR, Capital Cost Allowance – Logging Assets

Related links

• Column 7 – UCC after additions and dispositions
• Column 18 – Adjustment for current-year additions subject to the half-year rule