Capital Cost Allowance (CCA) is a tax deduction in Canada that allows businesses to gradually deduct the cost of certain capital assets over time. Rather than deducting the full cost of an asset, such as buildings, vehicles, or equipment, in the year it is purchased, the CCA system spreads the deduction over the asset's useful life. This process mimics depreciation used in accounting, but it’s specifically for tax purposes.
The Canada Revenue Agency (CRA) specifies CCA rates based on the type of asset, grouping assets into different CCA classes, each with its own rate. The deduction is calculated on a declining balance basis, meaning a percentage of the remaining balance (Undepreciated Capital Cost, or UCC) is deducted each year.
CCA is essential for businesses because it helps reduce taxable income by allowing a portion of the asset's cost to be deducted annually.
CCA Classes
CCA (Capital Cost Allowance) classes are categories assigned to different types of assets, each with a specific depreciation rate that determines how much of the asset's cost can be deducted annually for tax purposes. The rate is applied to the remaining balance of the asset's value, called the Undepreciated Capital Cost (UCC).
Here are some common CCA classes and their rates:
Class 1 (4%) – Buildings: Includes most buildings acquired after 1987. Example: A commercial office building purchased for business use.
Class 8 (20%) – General Equipment: Includes items such as furniture, appliances, and office equipment not classified elsewhere. Example: Office desks, chairs, filing cabinets, and photocopiers.
Class 10 (30%) – Motor Vehicles: Covers motor vehicles and some passenger vehicles that do not fall in class 10.1. Example: A company car used for business purposes, such as a delivery van.
Class 10.1 (30%) –Passenger Vehicles (Costing more than $30,000) to $ 37,000 plus taxes: These amounts are indexed to inflation on an annual basis. Example: A luxury car used by a business executive.
Class 12 (100%) – Small Tools and Software: For tools with a cost under $500 and certain software with a limited useful life. Example: Hand tools for a repair shop or off-the-shelf software.
Class 16 (40%) – Taxis and Rental Cars: Includes taxis, rental cars, and heavy vehicles like trucks. Example: A taxi purchased for use in a ride-hailing service.
Class 43.1 (30%) – Clean Energy Generation Equipment: Equipment used to generate energy from renewable sources like wind, solar, and geothermal. Example: Solar panels installed to generate electricity for a business.
Class 50 (55%) – Computer Equipment: Includes computer hardware and system software acquired after March 18, 2007. Example: Servers, desktops, and networking equipment for a company's IT department.
Class 53 (50%) – Manufacturing and Processing Equipment: Machinery and equipment used in manufacturing or processing, acquired after 2015. Example: Industrial machinery used in a factory for producing goods.
Class 54 (30%): Created for zero-emission vehicles that would otherwise be included in Class 10 or 10.1, with the same CCA rate of 30%. Example: Zero-emission passenger vehicle.
Class 55 (40%): Created for zero-emission vehicles otherwise included in Class 16, with the same CCA rate of 40%. Example: Zero-emission vehicles otherwise included in Class 16.
Example on How to Calculate CCA
Let's say you purchased a delivery van for your business in Class 10 (with a CCA rate of 30%) for $20,000 at the start of the year. There were no prior purchases or sales.
Opening UCC: $0 (new purchase, so no prior value).
Additions: $20,000 (the cost of the new delivery van).
Half-Year Rule: Since this is the first year, only 50% of the $20,000 addition can be used for the CCA calculation: $20,000 × 50% = $10,000 (eligible amount).
Dispositions: No asset was sold, so this remains $0.
Base for CCA: The base for calculating CCA is $10,000 (after applying the half-year rule).
CCA Deduction: Apply the 30% CCA rate for Class 10: $10,000 × 30% = $3,000 (CCA deduction for the year).
Ending UCC: Subtract the CCA deduction from the original cost to get the ending balance: $20,000 (total cost) − $3,000 (CCA deduction) = $17,000 (UCC balance at year-end).
For more information, visit the Canada Revenue Agency: Canada Revenue Agency
