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Capital Cost Allowance

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Capital Cost Allowance

Working out Capital Cost Allowance

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Definition:

The Capital Cost Allowance is "a tax deduction that Canadian tax laws allow a business to claim for the loss in value of capital assets due to wear and tear or obsolescence" (Canada Revenue Agency).

So if you buy a property or a piece of equipment to use in your business, you can't deduct the entire cost of it on your income tax for that particular year. Instead, you use the Capital Cost Allowance to deduct a calculated portion of the expense as an income tax deduction and continue doing this over a period of years as the property or the equipment depreciates.

How much Capital Cost Allowance you can claim each year depends on when you acquired the property and what CCA class it belongs to. The Canada Revenue Agency has assigned classes to particular types of depreciable property, and there are assigned rates for each class. To learn the details about Capital Cost Allowance rates, refer to Chapter 4 of the Canada Revenue Agency's Guide For Canadian Small Businesses.

Need help figuring out your CCA? See my article How to Calculate Capital Cost Allowance.

Also Known As: CCA
Common Misspellings: Capital Cost Allowence, Captial Cost Allowance, Capitol Cost Allowance.
Examples:
Computer hardware and systems software for that equipment, including ancillary data-processing equipment, acquired after March 18, 2007 is in Capital Class Allowance Class 50 with a CCA rate of 55%. However, computer hardware and systems software acquired after January 27, 2009, and before February 2011 is in Capital Class Allowance Class 52 with a CCA rate of 100%.

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