Capital Cost Allowance – Definition

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Capital Cost Allowance Definition

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.

A Little More on What is Capital Cost Allowance

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.

References for Capital Cost Allowance

Academic Research on Capital Cost Allowance (CCA)

The Effects of Capital Cost Allowance Measures on Capital Accumulation in the Canadian Manufacturing Sector, McFetridge, D. G., & May, J. D. (1976). Public Finance Quarterly, 4(3), 307-322.

Capital Cost Allowance and Tax Neutrality: A Case Study of Saskatchewan Farmers’ Claims Versus Actual Depreciation, Schoney, R. A., & Rinholm, R. A. (1989). Canadian Journal of Agricultural Economics/Revue canadienne d’agroeconomie, 37(1), 47-62.

CURRENT ISSUES RESPECTING THE CANADIAN CAPITAL COST ALLOWANCE SYSTEM, Cohen, M. A. (1973, January). In Proceedings of the Annual Conference on Taxation Held under the Auspices of the National Tax Association-Tax Institute of America (pp. 61-67). National Tax Association-Tax Institute of America.

Public policy analysis and microcomputers: the capital cost allowance proposal in the November 1981 budget, Kahl, A. L., & Rentz, W. F. (1982).

Does exposure to possible capital cost allowance changes influence the choice of accounting depreciation policy? An empirical analysis of Canadian …, Jacobs, M. A. (1992).

Capital investment strategies under uncertain regulation, Teisberg, E. O. (1993). The RAND Journal of Economics, 591-604.

The effect of allowance allocation on the cost of carbon emission trading, Burtraw, D., Palmer, K., Bharvirkar, R., & Paul, A. (2001). Resources for the Future Discussion Paper, 01-30.

Taxation and the cost of capital, King, M. A. (1974). The Review of Economic Studies, 41(1), 21-35.

Long-run equilibrium modeling of emissions allowance allocation systems in electric power markets, Zhao, J., Hobbs, B. F., & Pang, J. S. (2010). Operations research, 58(3), 529-548.

Tightening environmental standards: the benefit-cost or the no-cost paradigm?, Palmer, K., Oates, W. E., & Portney, P. R. (1995). Journal of economic perspectives, 9(4), 119-132.

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