Capital Cost Allowance - Explained
What is Capital Cost Allowance?
Written by J. Mance Gordon
Updated at April 17th, 2024
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
What is a Capital Cost Allowance?
A Capital Cost Allowance (CCA) refers to the deductible tax from the depreciable assets that an individual can claim on his business. CCA is a Canadian income tax code that enable business owners claim depreciation expenses on their assets. This deduction can be made annually on depreciable assets such as buildings, machinery and equipment and other assets that last for several years. CCA enable businesses claim losses in value of depreciable capital assets, this means that the owner of a business is allowed to deduct CCA form the income of a business in relation to depreciable. The percentage of depreciable tax that is deductible by individuals in dependent on the assets on which the claim is being made.
How Does a Capital Cost Allowance Work?
Capital Cost Allowance is used in the Canadian income tax code to describe the annual deduction that a business can claim on depreciable assets. Depending on the type of depreciable assets (buildings, equipment and machine), there are rates at which deductible tax can be claimed on a business. There is a maximum amount that is deductible in a year. However, CCA does not permit the deduction of full cost of a company's assets on its income tax. The full cost might eventually be deducted over a period of years and not just a year. Assets with short lifespan such as computers, vehicles and others have higher CCA rate than longer-life assets like buildings and equipment.