Capital Cost Allowance (CCA)

Capital Cost Allowance is (CCA) is a yearly deduction in the Canadian income tax code that can be claimed on depreciable assets. Generally, the CCA can be claimed on the assets that are expected to last for several years, such as buildings, plant and equipment, or machinery, as well as additions and improvements to such assets. CCA does not apply to expenses such as business supplies. CCA is generally calculated based on the declining balance method.

The Capital Cost Allowance (CCA) occurs when a business purchases a building, piece of equipment or some other long-term asset, and is not allowed to deduct the full cost of that asset on its income taxes. It is allowed to deduct the full cost only over a period of years.

The Canada Revenue Agency sets down the rates at which CCA can be claimed for various classes of assets. The CCA rate for assets that are subject to rapid obsolescence such as computers, software, and motor vehicles is much higher than the CCA rate for longer-life assets like buildings. There are 15 classes, with CCA rates beginning at 4%. Generally, the CCA covers depreciable assets, but for some assets, the full cost may be deducted.

Note that a business does not have to claim the maximum allowable amount of CCA in a given year, but can claim any amount from zero to the maximum. Any amount less than the maximum will be carried over to the next year and will be available to claim.