When you purchase certain items for your business, the Canada Revenue Agency (CRA) will not allow you to deduct the entire value of the item for the year of purchase. Instead, the CRA allows you to write off a portion of the item’s depreciable value over a period of several years by claiming Capital Cost Allowance (CCA). However, there is no set formula to determine this value. Instead, the CRA groups assets into different classes depending on a variety of factors.
Below are some of the most common classes for depreciable property:
Classes 1, 3 and 6 – Buildings
Buildings and most of their major components including electrical wiring, lighting fixtures, plumbing, sprinkler systems, HVAC equipment, elevators and escalators fit into Class 1, 3 or 6. The CRA groups buildings into these classes depending on when they were built and the materials used in their structure.
Buildings made of frame, log, stucco on frame, galvanized iron, and corrugated metal or iron fall into class 6. Expenses related to installing any of the above components, major repairs, additions and alterations to these buildings also fall into this category. Class 6 has a Capital Cost Allowance rate of 10 percent.
However, if your building was built before 1979, has no supports below ground level, or is used in the pursuit of farming or fishing income, it will fall into a different category. In this situation, consult CRA for guidance on which class to use.
If your building does not fall into class 6 and you acquired it after 1987, the building will be considered a Class 1 depreciable asset with a CCA of four percent.
Buildings acquired prior to 1988 that are do not qualify for Class 6 will be considered Class 3, with a CCA rate of five percent.
For example, if you bought a building for your business for $100,000, it would typically fall into Class 1 based on the date of purchase. On your tax return, you would be able to claim $4,000 as an allowable business expense.
However, if you purchased a building made of stucco, it would be considered a Class 6 asset. In this scenario, the CCA rate would be 10 percent and you could claim $10,000 for the year of purchase.
Any property you have acquired that does not fall into another class will typically fall into Class 8. The class often includes furniture, appliances, some fixtures, machinery and other equipment. Class 8 also includes electronic communications equipment, data network infrastructure equipment and systems software for that equipment. Class 8 has a CCA rate of 20 percent.
The CRA includes electronic data-processing equipment, computer hardware and systems software in Class 10. Items that fall into this category include computers, software and firmware.
Data-processing equipment also includes tablets, servers, or any equipment or system used to store, manipulate, manage, display, receive or transmit information. Items are in Class 10 are subject to a CCA rate of 30 percent.
It is important to note that the CRA also includes in this class most motor and passenger vehicles that cost less than $30,000 before tax. However, some restrictions exist in this category for motor vehicles. Before categorizing a motor vehicle as a class 10 asset, you should review the subsections of the CRA’s description of this class.
Vehicles costing more than $30,000 are considered to be Class 10.1 assets and are listed separately. Vehicles in Class 10.1 also have a rate of 30 percent.
Zero-Emission Vehicles (ZEV) have separate classes entirely and owners of these vehicles should see this TurboTax article for more information: Zero-Emission Vehicles
While items in Class 12 are technically classed as depreciable assets, Class 12 has a CCA rate of 100 percent. This means that you are able to claim these expenses as if they are current expenses.
When filing your taxes, you can include the cost of china, cutlery, linen and uniforms in this class. The cutting or shaping of parts of machines, as well as dies, jigs and moulds also fall into this category. Software that is not systems software also falls into this class.
For example, if you spend $100 buying a program for your computer, you may claim the entire amount since this category has a CCA rate of 100 percent.
In contrast, if you spend $100 on an operating system for your computer, this expense will be considered systems software. Since systems software falls into class 10, you may only deduct 30 percent of the purchase cost.
However, if you acquired tools, kitchen utensils, medical or dental instruments on or after May 2, 2006, the CRA will apply a $500 cap to your allowable claim. Instead of receiving the generous CCA rate of class 12, your expense falls into class 8. You can claim 30 percent of class 8 costs as expenses for the year of purchase.
Include in Class 50 property acquired after March 18, 2007, that is general-purpose electronic data processing equipment and systems software for that equipment, including ancillary data processing equipment. This means computers, electronic office equipment and systems software for that equipment falls into Class 50 with a CCA rate of 55 percent if it was purchased after that date.
If you purchased equipment that falls into this category prior to this date, check out this TurboTax FAQ for the CCA classes: What CCA classes should be used for computer and electronic office equipment, networking equipment, and software?
More Capital Cost Allowance (CCA) information from CRA can be found in these links:
- Canada Revenue Agency: Claiming capital cost allowance (CCA)
- Canada Revenue Agency: Basic information about capital cost allowance (CCA)
- Canada Revenue Agency: Classes of depreciable property
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