Buying Capital Assets

In computing income from a business, capital cost allowance (CCA), or tax depreciation, is allowed as a deduction. When capital assets are purchased and available for use, they are grouped into classes based on the type of capital asset purchased. CCA is claimed annually against each class. The “declining balance” method is used for most classes. Under that method, the maximum CCA you can claim against each class is a fixed percentage of the undepreciated capital cost (UCC), which is the running balance of the capital cost of capital assets in a class that has not yet been deducted in previous years. What you claim then reduces the UCC balance for the next year’s claim.

For most assets, only one-half of the CCA you could otherwise claim for the assets is allowed in the year of acquisition. As a result, acquiring an asset just before your year-end will accelerate the timing of your tax write-off, while acquiring the asset at the beginning of the year will delay your CCA claim.

If you would like more information about the timing of your capital asset purchases, seek the advice of a Chartered Professional Accountant.