Guidelines for Using the Capital Cost Allowance

Under the Canadian income tax system, you cannot always deduct the cost of capital expenditures from income in the year they are incurred. Instead, the total cost of capital expenditures are deducted annually over several years.

These annual charges to income are called capital cost allowance.

When using the capital cost allowance:

• You group the depreciable property into prescribed classes.

• The capital cost allowance for this group is generally calculated using a declining balance basis at the prescribed rate on the capital cost of the group that has not been depreciated.

• You can make a discretionary claim with respect to an eligible capital acquisition equal to any amount up to the maximum allowed under the regulations.

Using the new enhanced depreciation methods, you can:

• Provide the reduction rate and control its applicability to the transactions.

• Associate assets with their capital cost allowance classes.

• Work out the expected capital cost allowance amounts for every tax year.