Intro to Capital Cost Allowance (CCA).
Many times, we are asked the question: Can I write off my “vehicle”, “computer”, “toaster-oven”, “insert any business-related asset here”.
Let’s dig a little deeper into the topic.
To start off with, as any Seinfeld viewer would already understand, a “write-off” is a deductible expense that reduces taxable income. These expenses must relate to earning current or future revenues from a business. Next, we need to distinguish between current and capital expenses. Current expenses are recurring expenses that provide a short-term benefit, while capital would provide a benefit that usually lasts for several years. For a current expense, think of office supplies that would need to be replenished regularly (pens, paper, staples). For a capital item, think of a desk that will last 20 years or a piece of machinery that will last 5-10.
Now that we’ve distinguished what a capital expense looks like, we should have a pretty good understanding of which items should be classified as such. So, how do we claim these expenses for tax purposes?
This is where depreciation or the fancy term Capital Cost Allowance (CCA) comes into play. We are allowed to claim, as an expense, a portion of the capital cost of an item in any given year. The amount will depend on specific CCA percentages that are prescribed based on the type of asset. Motor vehicles, for example, are depreciated at the CCA rate of 30%.
Of course, this was just a brief overview, and there are more complications to consider when claiming CCA. There are different rules for the year of acquisition and disposal. We must ensure the CCA claim is correct based on the proportionate business use of any given asset. We even find sometimes that claiming the CCA could be detrimental in the short or long term. These are things your friendly local accountant at T&A is always considering and would be thrilled to discuss in greater detail!