Encyclopedia
Capital cost allowance (CCA)
The tax deduction for the cost of depreciable property, such as buildings and equipment, claimed over several years under Canada Revenue Agency (CRA) rules.
For example: A business that owns its building asks its accountant how CCA on the building and its improvements affects its tax. (Illustration only, not a real deal.)
Official source: CRA: claiming capital cost allowance
Example only, not a real client. Say you buy a commercial building as an investment. Your accountant claims capital cost allowance on the building each year, which reduces taxable income from rent. When you sell, some of it may be taxed back.
What I’d tell a friend
CCA can reduce tax while you own, but plan for recapture when you sell. Talk with your accountant before you buy.
Why it matters to you
It can shelter income from tax while you own the building. But it can be recaptured when you sell, so the tax bill on a sale may be larger than owners expect.
How to use it in your deal
Ask your accountant which CCA classes apply to your building and equipment and whether claiming the full amount makes sense each year. Agree on a reasonable allocation between land and building when you buy. Keep a record of the undepreciated capital cost, because it drives the tax result when you sell.
Land isn't depreciable, so the split between land and building in your purchase price matters; an appraisal or BC Assessment's split can support it. Each building bought after 1987 usually goes in its own class, and non-residential buildings may qualify for a higher rate if elected into a separate class.
CCA can't create or increase a rental loss in most cases. Claiming is optional each year, which helps with planning, but every dollar claimed may come back as recapture on sale.
Mistakes I see
Forgetting recapture when planning a sale. Allocating too much of the price to land and losing deductions. Claiming CCA in a way that creates or increases a rental loss where rules don't allow it.
In BC and Vancouver
These are federal rules that apply in BC. The CRA's guides explain classes, rates and rental property limits.
Official sources: CRA: claiming capital cost allowance · Income Tax Act (Justice Laws)
What it is
Capital cost allowance is the tax deduction for the wear and tear of buildings and equipment used to earn income in Canada. Land is not depreciable.
The rate depends on the class of asset, set by tax rules.
Things to plan
How you split the purchase price between land, building and equipment affects your claims.
Ask your accountant how CCA and recapture fit your plans, and whether claiming the full amount each year makes sense for you.
Keep records of improvements, since some may be added to the cost of the building.
Questions to ask before you sign
- Which CCA classes apply?
- Should I claim the maximum this year?
- How much recapture would I face if I sold?
- How should we allocate land and building?
Keep reading
Related terms: Recapture (CCA), Capital expenditure (CapEx)
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.