CCA (Capital Cost Allowance) is a common calculation for taxes and when you are selling an income producing asset.

It is a way to calculate the depreciation of an asset at the time of sale from the time you made the initial purchase. This depreciation expenses can be calculated as taxable income under the Income Tax Act of Canada.

You should definitely consult your accountant on this; this blog is strictly conveying information from sources deemed accurate but should be used at your own risk.

According to the CRA (from their website):

You cannot deduct the cost of the property when you calculate your net rental income for the year. However, since these properties wear out or become obsolete over time, you can deduct their cost over a period of several years. This deduction is called capital cost allowance (CCA).

The amount of deduction is based on the type of property and when it was acquired. Rental buildings may fall into a few different classes (31 & 32):

Class 1 (4%)

A building may belong to class 1, 3, or 6, depending on what the building is made of and the date you acquired it. You also include in these classes the parts that make up the building, such as:
  • electrical wiring;
  • lighting fixtures;
  • plumbing;
  • sprinkler systems;
  • heating equipment;
  • air-conditioning equipment (other than window units);
  • elevators; and
  • escalators.
Class 1 includes most buildings acquired after 1987, unless they specifically belong in another class. Class 1 also includes the cost of certain additions or alterations you made to a Class 1 building or certain buildings of another classafter 1987.
The CCA rate for eligible non-residential buildings acquired by a taxpayer after March 18, 2007, and used in Canada to manufacture or process goods for sale or lease includes an additional allowance of 6% for a total rate of 10%. The CCA rate for other eligible non-residential buildings includes an additional allowance of 2% for a total rate of 6%.
To be eligible for one of the additional allowances, you must elect to put the building in a separate class. To make the election, attach a letter to your return for the tax year in which you acquired the building. If you do not file an election to put it in a separate class, the 4% rate will apply.
The additional allowance applies to buildings acquired after March 18, 2007, (including a new building, if any part of it is acquired after March 18, 2007, when the building was under construction on March 19, 2007) that have not been used or acquired for use before March 19, 2007.
To be eligible for the 6% additional allowance, at least 90% of a building (measured by square footage) must be used in Canada for the designated purpose at the end of the tax year. Manufacturing and processing buildings that do not meet the 90% use test will be eligible for the additional 2% allowance if at least 90% of the building is used in Canada for non-residential purposes at the end of the tax year.

Class 3 (5%)
Most buildings acquired before 1988 are included in Class 3 or Class 6.
If you acquired a building before 1990 that does not fall into Class 6, you can include it in Class 3 if one of the following applies:
  • you acquired the building under the terms of a written agreement entered into before June 18, 1987; or
  • the building was under construction by you or for you on June 18, 1987.
Include in Class 3 the cost of any additions or alterations made after 1987 to a Class 3 building that does not exceed the lesser of the following two amounts:
  • $500,000; and
  • 25% of the building's capital cost (including the cost of additions or alterations to the building included in classes 3, 6,or 20 before 1988).
Any amount that exceeds the lesser amount above is included in Class 1.

Class 6 (10%)

Include in Class 6 with a CCA rate of 10% a building if it is made of frame, log, stucco on frame, galvanized iron, or corrugated metal (corrugated iron before 1988). In addition, one of the following conditions has to apply:
  • you acquired the building before 1979;
  • the building has no footings or other base supports below ground level; or
  • the building is used to gain income from farming or fishing.
If any of the above conditions apply, you also add the full cost of all additions and alterations to the building to Class 6.
If none of the above conditions apply, include the building in Class 6 if one of the following conditions applies:
  • you entered into a written agreement before 1979 to acquire the building, and the footings or other base supports of the building were started before 1979; or
  • you started construction of the building before 1979 (or it was started under the terms of a written agreement you entered into before 1979), and footings or other base supports of the building were started before 1979.
Also included in Class 6 are certain greenhouses and fences.
For additions or alterations to such a building:
  • Add to Class 6:
    • the first $100,000 of additions or alterations made after 1978.
  • Add to Class 3:
    • the part of the cost of all additions or alterations over $100,000 made after 1978 and before 1988; and
    • the part of the cost of additions or alterations over $100,000 made after 1987, but only up to $500,000 or 25% of the cost of the building, whichever is less.
  • Add to Class 1 any additions or alterations over these limits.

Class 31 (5%) and Class 32 (10%)

Class 31 and Class 32 include multiple unit residential buildings (MURB) certified by the Canada Mortgage and Housing Corporation (CMHC) to which all the following conditions apply:
  • they are located in Canada;
  • they contain two or more units; and
  • they provide their occupants with a relatively permanent residence.
If the whole building qualifies as a Class 31 or Class 32 rental property (a MURB), then each unit within the building is a Class 31 or Class 32 rental property.
To be included in Class 31 with a CCA rate of 5%, the building must have been acquired after 1979 and before June 18, 1987. To be included in Class 32 with a CCA rate of 10%, the building must have been acquired before 1980.

Note

For 1994 and following years, you can no longer create or increase a rental loss by claiming CCA on a Class 31 or Class 32 property.
When a MURB no longer qualifies as a Class 31 or Class 32 rental property, you have to transfer it to the correct class.
For more information about the 1994 change in the CCA limit on MURBs, see Interpretation Bulletin IT-195, Rental Property - Capital Cost Allowance Restrictions.