CHAPTER FIVE - DEPRECIABLE CAPITAL PROPERTY & ELIGIBLE
CAPITAL PROPERY S13,S14,S18(1)(b),S20(1)(a), (b), Reg.
1100, Reg. 7307(1), Reg. Sch II-IV
What is a capital asset and what deductions are allowed?
A capital expenditure is one which has “enduring” benefit, or benefits more than one tax
year. (In accounting we refer to these as capital assets or fixed assets.)
Consistent with accounting rules, no tax deduction is allowed for the capital cost of land.
Unlike accounting, no deductions are required
for other tangible or intangible capital
assets used in income earning activities. However, there are various provisions which
limited deductions (similar to amortization in accounting) for such expenditures
where they are incurred to earn income.
: S8(1)(j) allows a deduction by employees for capital cost
allowance (amortization) on motor vehicles or aircraft to the extent they are used (and
required to be used by contract) in employment related duties. (No other deductions
related to capital expenditures are allowed for employees.) The deduction is restricted by
Regulation. (7307,1100,Schedule II)
Business income and income from property
: Section 18(1)(b) denies any deduction for
capital expenditures, while Section 20(1)(a) over-rides this restriction and allows a capital
cost allowance (amortization) as permitted by Regulation. (Regulations 1100 and
Schedule II) These regulations deal with tangible capital assets and intangible capital
assets with restricted legal lives. (Class 44 also includes rights to use patented
information with unrestricted legal life.) S20(1)(b) allows a limited deduction for eligible
capital expenditures (intangibles of unrestricted legal life) but only when incurred to earn
income from business.
Capital cost allowance system
Depreciable capital assets (property for which a deduction may be made under S8(1)(j) or
S20(1)(a)) are pooled for tax purposes into different classes, which establish the method
and rate of CCA. Declining balance is the most common method, although straight line
method is also used for some classes.
Common CCA classes include:
Class 1 - 4% DB - most buildings acquired after 1987.
Class 1MB – 10% DB- buildings acquired after March 18, 2007 used at least 90% for
manufacturing & processing purposes.
Class 1NRB – 6% DB- other, non-residential buildings acquired after March 18, 2007.
(Can have buildings in more than one of these classes.)
Class 8 - 20% DB - miscellaneous capital property including furniture & fixtures,
office equipment such as photocopiers, fax machines & telephones,
outdoor advertising signs, tools costing >$500, etc. (default class)
Class 9 - 25% DB - aircraft.