Capital Cost Allowance (CCA) is the amount of amortization expense that the government allows a company to deduct from its income for tax reporting purposes. These rules are clearly set by the Canada Revenue Agency (CRA) and must be strictly followed.
Maximum CCA Allowable Amount
The "Maximum CCA Allowable Amount" refers to the highest amount of Capital Cost Allowance (CCA) you are permitted to claim for a particular asset or asset class in a given tax year. This limit is set by tax regulations and can vary based on the asset class and its corresponding CCA rate.
Example 1: Mary’s Vehicle Purchase
Mary purchased a vehicle for her business, which falls into Class 10 of the CCA system with a CCA rate of 30%.
This $6,000 is the maximum amount Mary can claim in the first year for CCA. However, she is not obligated to claim the full amount. She could choose to claim a lower amount or even none, depending on her tax strategy.
Class 10 CCA Calculation (Declining Balance Method)
Class 10 CCA is calculated on a declining balance method:
Lower Amount of CCA
You can claim a lower amount of Capital Cost Allowance (CCA) than the maximum allowed. You are not required to claim the full maximum amount in any given year; you can choose to claim any amount between zero and the maximum. If you do not have income tax to pay for the year, you might opt not to claim CCA. Keep in mind that claiming CCA will reduce the balance of the asset's class by the amount you claim.
Example 2: Mary Chooses to Claim Less CCA
Mary can choose to claim any amount up to the maximum of $6,000. She decides to claim only $3,000 in CCA. Consequently, the closing Undepreciated Capital Cost (UCC) for the next year will be reduced by $3,000 instead of the full $6,000.
For more information, visit the Canada Revenue Agency: Canada Revenue Agency
Posted on 18 September 2024