Farming Income and the AgriStability and AgriInvest Programs Harmonized Guide – Chapter 5 – Capital cost allowance (CCA)

Find out what capital cost allowance is

You might acquire a depreciable property, such as a building, machinery, or equipment, to use in your farming business.

You cannot deduct the cost of the property when you calculate your net farming income for the year.

However, since these properties may wear out or become obsolete over time, you can deduct their cost over a period of several years. The deduction is called capital cost allowance (CCA).

You can usually claim CCA on a property when it becomes available for use.

To calculate your CCA claim, you will need to know the meaning of the following terms.

Accelerated investment incentive property (AIIP) – Property that is eligible for an enhanced first-year allowance that is subject to the CCA rules. The property may be eligible if it is acquired after November 20, 2018, and becomes available for use before 2028. For more information on AIIP, go to Accelerated investment incentive.

Arm's length refers to a relationship or a transaction between unrelated persons who act in their own separate interests. An arm's length transaction is generally a transaction that reflects ordinary commercial dealings between parties acting in their own separate interests.

For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Related persons are not considered to deal with each other at arm's length. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons.

For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Unrelated persons may not be dealing with each other at arm's length at a particular time. Each case will depend upon its own facts. The following criteria will generally be used to determine if the parties to a transaction are not dealing at arm's length:

• whether there is a common mind that directs the bargaining for the parties to a transaction
• whether the parties to a transaction act in concert without separate interests; ("acting in concert" means, for example, that parties act with considerable interdependence on a transaction of common interest)
• whether there is de facto control of one party by the other because of, for example, advantage, authority or influence

For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Available for use – Property other than a building usually becomes available for use on the earlier of:

• the date you first use it to earn income
• the second tax year after the year you acquire the property
• the time just before you dispose of the property
• the time the property is delivered or made available to you and is capable of producing a saleable product or service
• the time the property is delivered and is capable of performing the function for which it was acquired only in respect of property acquired by you in the course of carrying on your farming or fishing business

A building or part of a building usually becomes available for use on the earlier of the following dates:

•   the date you start using 90% or more of the building in your business
•   the second tax year after the year you acquire the building
•   the time just before you dispose of the building

A building or part of a building you are constructing, renovating, or altering usually becomes available for use on the earlier of the following dates:

•   the date you complete the construction, renovation, or alteration
•   the date you start using 90% or more of the building in your business
•   the second tax year after the year you acquire the building
•   the time just before you dispose of the building

Capital cost – generally the taxpayer's full cost of acquiring the property. The capital cost of a property is usually the total of the following:

• the purchase price not including the cost of land, which is not depreciable (see Land)
• the part of your legal, accounting, engineering, installation, and other fees that relate to buying or constructing the property (not including the part that applies to land)
• the cost of any additions or improvements you made to the property after you acquired it, if you did not claim these costs as a current expense (such as modifications to accommodate persons with disabilities)
• for a building, soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating, or altering the building, if these expenses have not been deducted as current expenses

Depreciable property – the property on which you can claim CCA. It is usually capital property from a business or property. The capital cost can be written off as CCA over a number of years. You usually group depreciable properties into classes. Diggers, drills, and tools that cost $500 or more belong in Class 8. You have to base your CCA claim on the rate assigned to each class of property.

For the most common classes of depreciable properties you could use in your farming operation, see Classes of depreciable property, and the Capital cost allowance (CCA) rates.

Fair market value (FMV) – generally, the highest dollar value that you can get for your property in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who are dealing at arm's length with each other.

Non-arm's length generally refers to a relationship or transaction between persons who are related to each other.

However, a non-arm's length relationship might also exist between unrelated individuals, partnerships or corporations, depending on the circumstances. For more information, see the definition of Arm's length.

Proceeds of disposition – the amounts you receive, or that we consider you to have received, when you dispose of your property (usually the selling price of the property). Proceeds of disposition is also defined to include, amongst other things, compensation you received for depreciable property that has been destroyed, expropriated, damaged, or stolen.

Undepreciated capital cost (UCC) – generally, the amount left after you deduct CCA from the capital cost of a depreciable property. Each year, the CCA you claim reduces the UCC of the property.

Zero-emission passenger vehicle (ZEPV) – means an automobile that is owned by the taxpayer and is included in Class 54 (but would otherwise be included in Class 10 or 10.1). The rules that apply to the definition of passenger vehicles apply to zero-emission passenger vehicles. A ZEPV does not include a leased passenger vehicle, but other vehicles that would otherwise qualify as a ZEPV if owned by the taxpayer are subject to the same leasing deduction restrictions as passenger vehicles.

Zero-emission vehicle (ZEV) – is a motor vehicle that is owned by the taxpayer and where all of the following conditions are met:

• is a plug-in hybrid with a battery capacity of at least 7kWh or is either fully:
  • electric
  • powered by hydrogen
• is acquired, and becomes available for use, after March 18, 2019, and before 2028
• has not been used or acquired for use for any purpose before it was acquired by the taxpayer
• is a vehicle in respect of which an amount has not been deducted as CCA and a terminal loss has not been claimed by another person or partnership

• is a vehicle for which:
  • an election has not been made to forgo the Class 54 or 55 treatment
  • assistance has not been provided by the Government of Canada under the new incentive announced on March 19, 2019

How much CCA you can claim

The CCA you can claim depends on the type of property you own and the date you acquired it. Group the depreciable property you own into classes. A specific rate of CCA generally applies to each class.

We explain the most common classes of property in Classes of depreciable property. We list most of the classes and their rates in the Capital cost allowance (CCA) rates.

Base your CCA claim on your fiscal period ending in 2023, and not the calendar year.

Basic information about CCA

To decide whether an amount is a current expense or a capital expense, see the Current or capital expenses.

For the most part, use the declining balance method to calculate your CCA, as it is the most common one. This means that you apply the CCA rate to the capital cost. Over the life of the property, the rate is applied against the remaining balance. The remaining balance declines each year that you claim CCA.

You do not have to claim the maximum amount of CCA in any given year. You can claim any amount you like, from zero to the maximum allowed for the year. If you do not have to pay income tax for the year, you may not want to claim CCA. Claiming CCA reduces the balance of the class by the amount of CCA claimed. As a result, the amount of CCA available for you to claim in future years will be reduced.

In the year you acquire a depreciable property, you can usually claim CCA only on one-half of your net additions to a class. We explain this half-year rule in Column 15 – Adjustment for current-year additions subject to the half-year rule. The available-for-use rules may also affect the amount of CCA you can claim. For more information, see Available for use.

You cannot claim CCA on most land or on living things such as trees, shrubs, or animals. However, you can claim CCA on timber limits, cutting rights, and wood assets. For more information, see Interpretation Bulletin IT-481, Timber Resource Property and Timber Limits, and IT-501, Capital Cost Allowance – Logging Assets, and its Special Release, Archived IT-501SR.

If you receive income from a quarry, sand, or gravel pit, or a woodlot, you can claim a type of allowance known as a depletion allowance. For more information, see Income Tax Folio S4-F11-C1, Meaning of Farming and Farming Business, and Interpretation Bulletin IT-492, Capital cost allowance – Industrial mineral mines.

If you claim CCA and you later dispose of the property, you may have to add an amount to your income as a recapture of CCA. Alternatively, you may be able to deduct an additional amount from your income as a terminal loss. For more information, see Column 7 – UCC after additions and dispositions.

If you used depreciable property in 2023 that you used in your farming business before January 1, 1972, fill in "Area A – Part XVII properties (acquired before 1972)" on Form T1175, Farming – Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses.

If you are a member of a partnership, you cannot separately claim CCA for depreciable property owned by the partnership. Instead, the partnership can deduct CCA when calculating its net income or loss for the year. The partnership's net income or loss is then allocated to the partners and the partner's share is shown on the partner's T5013 slip, Statement of Partnership Income. If the partnership does not need to file a partnership information return, you will not get a T5013.

You were asking?

Q. How do I calculate my CCA claim if I start a business and my first fiscal period is from June 1, 2023, to December 31, 2023?

A. Since your fiscal period is less than 365 days, you must prorate your CCA claim. Calculate your CCA using the rules we discuss in this chapter. However, base your CCA claim on the number of days in your fiscal period compared to 365 days.

In this case, your fiscal period is 214 days. Suppose you calculate your CCA to be $3,500. The amount of CCA you can claim is $2,052 ($3,500 × 214 ÷ 365).

Immediate expensing incentive

The immediate expensing incentive has the following characteristics:

• An eligible person or partnership (EPOP) (see definition in Guide T4002, Self employed Business, Professional, Commission, Farming, and Fishing Income)  may deduct the full cost of designated immediate expensing properties (DIEPs) up to $1.5 million per tax year, subject to specific limitations
• The deduction applies only to immediate expensing property (see definition in Guide T4002, Self employed Business, Professional, Commission, Farming, and Fishing Income) that you designated as a DIEP on the prescribed form you must file with the minister by the due date
•  The deduction is available only for the year when the property becomes available for use
• The deduction is limited to $1.5 million per tax year:
  • The $1.5 million may be shared among associated members of a group. Each member must file an agreement on the prescribed form assigning a percentage to one or more of them for the year
  • The limit is also prorated for tax years shorter than 365 days
  • If the capital cost of the DIEP is more than $1.5 million and is included in more than one CCA class, the EPOP can decide which CCA class the immediate expensing deduction is attributed to
• The deduction is limited to the amount of income earned (before deducting CCA) from the business or property for which the DIEP is used

EPOPs with less than $1.5 million of eligible capital costs can't carry forward any unused annual immediate expensing limit. 

As a result of this new CCA incentive, columns 4, 6, 8, 9, 10, 11 and 12 have been added to Area A of Form T1175.

For more information on how this could affect your CCA calculations, go to Expansion of the Eligibility for Tax Support for Business Investments.

Form T1175, Farming – Calculation of Capital Cost Allowance (CCA) and Business-use-of-home Expenses

Business-use-of-home expenses

Use this section on Form T1175 to list your expenses and any amount of CCA for the business use of your home. Include these expenses and any amount of CCA for business-use-of-home expenses on Line 9896 – Other (specify) in the "Expenses" section of Form T1273 or Form T1274. You can also report any business-use-of-home expense carry forward from a previous year on the chart. This chart is for information purposes and to help you make an adjustment at line 9934 if you have a loss in the year. For more information on this adjustment, see Line 9934 – Adjustment to business-use-of-home expenses.

Area A – Calculation of CCA claim

Use Area A on Form T1175 to calculate your CCA deduction. Add amounts ii and iii of the charts and enter the result on line 9936 in the "Expenses" section of Form T1273 or Form T1274. If any part of the CCA is for business-use-of-home expenses, enter that part in the Business-use-of-home expenses section.

Column 1 – Class number

Enter in this column the class numbers of your properties. If this is the first year you are claiming CCA, see Column 3 – Cost of additions in the year below before completing column 1. If you claimed CCA last year, you can get the class numbers of your properties from last year's form.

We discuss the more common types of depreciable properties in Classes of depreciable property, and we list most of the classes and their rates in the Capital cost allowance (CCA) rates chart.

Column 2 – Undepreciated capital cost (UCC) at the start of the year

If this is the first year you are claiming CCA, skip this column. Otherwise, enter in this column the UCC for each class at the end of last year. Enter these amounts from column 19 from your 2022 form.

From your UCC at the start of 2023, subtract any investment tax credit (ITC) you claimed or were refunded in 2022. Also, subtract any 2022 ITC you carried back to a year before 2022.

In 2022, you may have received a GST/HST input tax credit for a passenger vehicle you used less than 90% of the time for your business. In this case, subtract the amount of the credit you got from your 2023 opening UCC. For more information, see Grants, subsidies, and rebates.

Column 3 – Cost of additions in the year

If you acquire or make improvements to depreciable property in the year, we consider them to be additions to the class in which the property belongs. You should:

• fill in Area B or Area C on your form, if applicable
• for each class, enter in column 3 of Area A's calculation table the amounts from column 5 for each class in Areas B and C

If a chart asks for the personal part of a property, this refers to the part you use personally, separate from the part you use for business. For example, if you use 25% of the building you live in for your farming business, your personal part is the remaining 75%.

Do not include the value of your labour in the cost of a property you build or improve. Include the cost of surveying or valuing a property you acquire. Remember that a property usually has to be available for use  in the year before you can claim CCA.

If you received insurance proceeds to reimburse you for the loss or destruction of depreciable property, enter the amount you spent to replace the property in column 3 of Area A, as well as in Area B or C, whichever applies.

Include the amount of insurance proceeds considered as proceeds of disposition in column 5 of Area A, as well as in column 4 of Area D or E, whichever applies.

If you replaced lost or destroyed property, special rules for replacement property may apply. The replacement property must be acquired within two years of the end of the tax year in which it was lost or destroyed. For more information, see Income Tax Folio S3-F3-C1, Replacement Property.

To find out if any of these special situations apply, see Special situations.

Area B – Equipment additions in the year

List the details of all equipment (including motor vehicles) you acquired or improved in 2023. Group the equipment into the applicable classes, and put each class on a separate line.

Equipment you acquire to use in your business to earn income can include:

• cement mixer, snow blower and lawn mower, machinery, motor vehicles
• material for fishing

Enter on line 9925 the total business part of the cost of the equipment.

Area C – Building additions in the year

List the details of all buildings you acquired or improved in 2023. Group the buildings into the applicable classes and put each class on a separate line.

Enter on line 9927 the total business part of the cost of the buildings. The cost includes the purchase price of the building, and any related expenses you should add to the capital cost of the building, such as legal fees, land transfer taxes, and mortgage fees.

Land

Generally, land is not a depreciable property. Therefore, you cannot claim CCA on its cost. If you acquire a farm property that includes both land and a building, enter in column 3 of Area C only the cost that relates to the building. To calculate the building's capital cost, you have to split any fees that relate to buying the property between the land and the building. Related fees may include legal and accounting fees.

Calculate the part of the related fees you can include in the capital cost of the building as follows:

You do not have to split a fee if it relates only to the land, or only to the building. In this case, you would add the amount of the fee to the cost to which it relates; either the land or the building.

Area F – Land additions and dispositions in the year

Enter on line 9923 the total cost of acquiring land in 2023. The cost includes the purchase price of the land plus any related expenses you should add to the capital cost of the land, such as legal fees, land transfer taxes, and mortgage fees.

You cannot claim CCA on land. Do not enter this amount in column 3 of Area A.

Area H – Quota additions and dispositions in the year

Enter on line 9929 the total cost of acquiring quotas in 2023.

Column 4 – Cost of additions from column 3 that are DIEPs

For each class, enter in column 4 the amount that you designate as immediate expensing property (see definition in Guide T4002, Self employed Business, Professional, Commission, Farming, and Fishing Income) from the total cost included in column 3. The cost of DIEPs is included in column 3 in the total cost of additions in the year and shown separately in column 4. If you are part of an associated group of EPOPs, fill in Area G of your form as explained below.

Remember that property has to be available for use in the year before you can claim CCA.

Area G – Agreement between associated eligible persons or partnerships (EPOPs)

Fill in this area if you are associated in the tax year with one or more EPOPs and you entered into an agreement with them under subsection 1104(3.3) of the Income Tax Regulations. The agreement assigns a percentage to one or more of you in the tax year so you can share the immediate expensing limit. For this agreement, individuals and partnerships are considered to be corporations.

List in the table the names of the associated EPOPs, including your business, their identification number and the percentage the agreement assigned to each of them.

Calculate the immediate expensing limit allocated to you by multiplying $1.5 million by the percentage assigned to your business in column 3. Enter the result at amount iv of Form T1175.

If the total percentage assigned in column 3 exceeds 100%, the immediate expensing limit of the associated group is zero.

Column 5 – Proceeds of dispositions in the year

Enter the details of your 2023 dispositions on your form, as explained below.

If you disposed of depreciable property in the current tax year, you should:

• complete, for each class, Areas D and E, if applicable
• enter in column 5 of the calculation table in Area A the amounts for each class from column 5 of Areas D and E

When completing the tables in Areas D and E, enter in column 3 of the table the lesser of:

• your proceeds of disposition minus any related expenses
• the capital cost of the property

If you received insurance proceeds to reimburse you for the loss or destruction of depreciable property, enter the amount you paid to replace the property in column 3 of Area A, as well as in Area B or C, whichever area applies.

Include the amount of insurance proceeds considered as proceeds of disposition in column 5 of Area A, as well as in column 4 of Area D or E, whichever applies. This could include compensation you receive for property that someone destroys, expropriates, steals, or damages.

If you dispose of a property for proceeds that are more than it cost you to acquire it (or you receive insurance proceeds for a property that was lost or destroyed that exceed the cost of the property), you will have a capital gain and possibly a recapture of CCA. You may be able to postpone or defer recognition of a capital gain or recapture of CCA in computing income if, among other things, the property disposed of is replaced within certain specified time limits. For more information, see Replacement property and Income Tax Folio S3-F3-C1, Replacement Property.

Special rules may apply if you dispose of a building for less than both its UCC and your capital cost. If this is the case, see Special rules for disposing of a building in the year. If you dispose of a depreciable property for more than its cost, you will have a capital gain. For more information on capital gains, see Chapter 7. You cannot have a capital loss when you sell depreciable property. However, you may have a terminal loss. For an explanation of terminal losses, see Terminal loss.

For more information on proceeds of disposition, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Area D – Equipment dispositions in the year

List the details of all equipment (including motor vehicles) you disposed of in your 2023 fiscal period. Group the equipment into the applicable classes and put each class on a separate line. Enter on line 9926 the total business part of the proceeds of disposition of the equipment.

Area E – Building dispositions in the year

List all buildings and leasehold interests you disposed of in the current tax year. Group the buildings and leasehold interests into the applicable classes, and put each class on a separate line. Enter at line 9928 the total amount for the rental portion from the proceeds of disposition of the buildings and leasehold interests.

Area F – Land additions and dispositions in the year

Enter on line 9924 the total of all amounts you received or will receive for disposing of land in the fiscal period.

Area H – Quota additions and dispositions in the year

Enter on line 9930 the total of all amounts you received or will receive for disposing of quotas in the fiscal period.

Column 6 – Proceeds of dispositions of DIEP

Enter in column 6 the total proceeds of disposition from column 5 of any DIEP that was acquired in the year.

Proceeds of dispositions of DIEP are included in column 5 in the total proceeds of dispositions in the year and shown separately in column 6.

Column 7 – UCC after additions and dispositions

The UCC amount for column 7 is the initial UCC amount at the start of the year in column 2 plus the cost of additions in column 3 minus the proceeds of dispositions in column 5.

You cannot claim CCA when the amount in column 7 is:

• negative (see Recapture of CCA)
• positive and you do not have any property left in that class at the end of your 2023 fiscal period (see Terminal loss)

In either case, enter "0" in column 19.

Recapture of CCA

If the amount in column 7 is negative, you have a recapture of CCA. Enter your recapture on line 9600 in the "Income" section of Form T1273 or T1274.

A recapture of CCA can happen if the proceeds from the sale of depreciable property are more than the total of the following amounts:

• the UCC of the class at the start of the period
• the capital cost of any new additions during the period

A recapture of CCA can also occur, for example, when you get a government grant or claim an investment tax credit.

In some cases, you may be able to postpone a recapture of CCA. For example, you may sell a property and replace it with a similar one, someone may expropriate your property, or you may transfer property to a corporation, a partnership, or your child.

Terminal loss

If the amount in column 7 is positive and you no longer own any property in that class, you may have a terminal loss. More precisely, you may have a terminal loss when, at the end of a fiscal period, there is no longer any property in the class, but there is still an amount you have not deducted as CCA. You can usually subtract this terminal loss from your gross farming income in the year you disposed of the depreciable property. Enter your terminal loss on line 9896 in the "Expenses" section of Form T1273 or T1274.

For more information on recapture of CCA and terminal loss, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Column 8 – UCC of DIEP

Enter in column 8 the cost of DIEP additions from column 4 minus the proceeds of dispositions of DIEP from column 6. If the result of column  4 minus column 6 exceeds the amount from column 7, enter in column 8 the amount from column 7. If the amount from column 7 is negative, enter "0."

Since immediate expensing is only available for DIEP that becomes available in the year, there can be no UCC of DIEP from the previous year.

Column 9 – Immediate expensing amount for DIEPs

Enter the immediate expensing amount you choose to apply to each class.

The total immediate expensing amount must be equal to or less than the lesser of the following amounts:

• $1.5 million, if you are not associated with any other EPOP in the year
• the UCC of the DIEP before any CCA deductions in the year
• the amount of income, if any, before any CCA deductions, earned from the source of income that is a business or property for which the relevant DIEP is used for the tax year

Column 10 – Cost of remaining additions after immediate expensing

Column 10 represents the cost of additions after applying the immediate expensing deduction to DIEP. The column includes the cost of properties that are not immediate expensing property, are immediate expensing property not designated, or are DIEPs that is more than the immediate expensing deduction for the fiscal period for each class.

To calculate this amount, subtract the immediate expensing amount in column 9 from the total cost of additions in column 3.

Column 11 – Cost of remaining additions from column 10 that are AIIPs or ZEVs

For each class, enter from column 10 the total cost of properties that are accelerated investment incentive properties (AIIPs) or properties included in Classes 54 to 56 that you acquired during the year. They are included in column 10 and shown separately in column 11.

An AIIP generally means a property, other than zero-emission vehicles and automotive equipment included in Classes 54 to 56, acquired after November 20, 2018, and that becomes available for use before 2028.

If you did not acquire any AIIPs, ZEVs or Class 56 properties, enter "0" in this column.

For more details, see Class 54 (30%) and Class 55 (40%) – Zero-emission vehicles, Class 56 (30%) and Accelerated investment incentive property (AIIP).

Column 12 – Remaining UCC after immediate expensing

Column 12 represents the remaining portion of UCC after applying the immediate expensing deduction. The remaining portion of UCC will be used to calculate the regular CCA deduction.

Subtract the amount in column 9 from the amount in column 7 and enter the difference.

Column 13 – Proceeds of dispositions available to reduce additions of AIIPs and ZEVs

This column calculates the adjustments under certain circumstances to the additions for the year where there is also a disposition in the year.

When an AIIP and a non-AIIP of the same class are purchased during the year and a disposition occurs, the disposition first reduces the UCC of the non-AIIP before reducing the UCC of the AIIP.

To determine which part of your proceeds of dispositions, if any, will reduce the cost of your AIIP, ZEV or Class 56 additions, take the proceeds of disposition in column 5 minus the cost of remaining additions in the year in column 10 plus the cost of remaining additions of AIIPs, ZEVs or Class 56 properties in column 11. If the result is negative, enter "0."

If you did not acquire any AIIPs, ZEVs or Class 56 properties, you do not need to use this column.

Column 14 – UCC adjustment for current-year additions of AIIPs and ZEVs

This column calculates the enhanced UCC amount used to determine the additional CCA for AIIPs, ZEVs or Class 56 properties.

For this column, reduce the cost of AIIP, ZEV or Class 56 additions in column 11 by the proceeds of disposition available to reduce the AIIP, ZEV or Class 56 additions as calculated in column 13. Multiply the result by the following factor:

• 1 for Classes 43.2 and 53
• 1 ½ for Class 55
• 2 ⅓ for Classes 43.1, 54 and 56
• 0 for property in Classes 12, 13, 14, and 15, as well as properties that are Canadian vessels included in paragraph 1100(1)(v) of the Income Tax Regulations
• ½ for the remaining AIIPs

These factors will change for properties that become available for use after 2023 and the incentive is completely phased out for properties that become available for use after 2027.

If you did not acquire any AIIPs, ZEVs or Class 56 properties, enter "0" in this column.

Column 15 – Adjustment for current-year additions subject to the half-year rule

Generally, in the year you acquire or make additions to a property, you can usually claim CCA on half of your net additions. We call this the half-year rule. You calculate your CCA only on the net adjusted amount. For example, if before November 20, 2018, you acquired a property for $30,000, you would base your CCA claim on $15,000 ($30,000 × 50%) in the year you acquired the property. However, the half-year rule does not apply to AIIPs, ZEVs or Class 56 properties.

Calculate the net first-year additions that are subject to the half-year rule by taking the cost of remaining additions in column 10 minus AIIP, ZEV and Class 56 additions in column 11 minus proceeds of dispositions in column 5. Enter 50% of the result in column 15. If the result is negative, enter "0."

There are circumstances where the half-year rule does not apply. For example, in a non-arm's length transaction you may buy depreciable property that the seller continuously owned from the day that is at least 364 days before the end of your 2023 fiscal period to the day the property was acquired. However, if you transfer personal property, such as a car or a personal computer, into your business, the half-year rule applies to the particular property transferred.

Also, some properties are not subject to the half-year rule. Some examples are those in Classes 13, 14, 23, 24, 27, 34, and 52, as well as most of those in Class 12, such as small tools. The half-year rule does not apply when the available for use rules denies a CCA claim until the second tax year after you acquire the property.

For more information on the special rules that apply to Class 13, see Interpretation Bulletin IT-464, Capital Cost Allowance – Leasehold Interests. For more information on the half-year rule, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Column 16 – Base amount for CCA

The base amount for CCA is the remaining UCC amount after additions, dispositions and the current-year adjustments. This is the amount in column 12 plus the amount in column 14 minus the amount in column 15. The CCA rate is applied to this amount.

For a Class 10.1 vehicle you disposed of in your 2023 fiscal period, you may be able to claim 50% of the CCA that would be allowed if you still owned the vehicle at the end of your 2023 fiscal period. This is known as the half-year rule on sale.

You can use the half-year rule on sale if, at the end of your 2022 fiscal period, you owned the Class 10.1 vehicle you disposed of in 2023. If this applies to you, enter 50% of the amount from column 2 (for Class 10.1 vehicles) in column 16.

Column 17 – CCA rate (%)

Enter the prescribed CCA rate (percentage) for each property class you have listed in column 1.

For information on certain kinds of property, see Classes of depreciable property. For a list of rates, see Capital cost allowance (CCA) rates. 

Column 18 – CCA for the year

In column 18, enter the CCA you want to deduct for 2023. You can claim the CCA for the year up to the maximum amount allowed. In Area A, you calculate the maximum amount for column 18 by multiplying the amount in column 16 by the amount in column 17, then adding the amount in column 9.

In your first year of business, you may have to prorate your CCA claim. See You were asking?

Add the amounts in column 18 and enter the total on amount ii. For Part XVII assets, add the amounts in column 6 and enter the total on amount iii. Enter the total of amounts ii and iii, minus any CCA for business-use-of-home expenses, on line 9936 of the "Expenses" section of Form T1273 or T1274. If you are a co-owner, enter only your share of the CCA. To find out how to calculate your CCA claim if you are using the property for both business and personal use, see Personal use of property. Enter any CCA for business-use-of-home expenses on page 1 of Form T1175. For more information, see Business-use-of-home expenses.

Column 19 – UCC at the end of the year

The final result in column 19 is the UCC at the end of the year. This is the result of the UCC after additions and dispositions in column 7, minus the amount for CCA claimed for the year in column 18. The amount in column 19 is the starting UCC balance you will use when you calculate your CCA claim next year. Next year, enter this amount in column 2. If you have a terminal loss or a recapture of CCA, enter "0" in column 19.

The example at the end of this chapter sums up CCA.

Classes of depreciable property

In this part, we discuss the more common classes of depreciable farm property and the rates that apply to each class.

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
• escalators

For more information, see Interpretation Bulletin IT-79, Capital Cost Allowance – Buildings or Other Structures.

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 class after 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 a 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 with a CCA rate of 5% if one of the following applies:

• you acquired the building under the terms of a written agreement entered into before June 18, 1987
• 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
• 25% of the building's capital cost (including the cost of additions or alterations to the building included in Class 3, Class 6, or Class 20 before 1988)

Any amount that exceeds the lesser amount above is included in Class 1.

Class 6 (10%)

Include a building in Class 6 with a CCA rate of 10% if it is made of frame, log, stucco on frame, galvanized iron, or corrugated metal. In addition, one of the following conditions has to apply:

• you acquired the building before 1979
• the building is used to gain or produce income from farming
• the building has no footings or other base supports below ground level

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
• 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 the footings or other base supports of the building were started before 1979

Also include in Class 6 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
  • 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

For more information, see Interpretation Bulletin IT-79, Capital Cost Allowance – Buildings or Other Structures.

Class 8 (20%)

Class 8 with a CCA rate of 20% includes certain property that is not included in another class. Examples are furniture, appliances, and tools costing $500 or more per tool, some fixtures, machinery, outdoor advertising signs, refrigeration equipment, and other equipment you use in the business.

Photocopiers and electronic communications equipment, such as fax machines and electronic telephone equipment, are also included in Class 8.

Include data network infrastructure equipment and systems software for that equipment acquired before March 23, 2004, in Class 8. If acquired after March 22, 2004, include it in Class 46. See Class 46 (30%).

Include buildings you use to store fresh fruit or vegetables at a controlled temperature, by or for the persons by whom they were grown, in Class 8 instead of Class 1, Class 3, or Class 6. Also include in Class 8 any buildings you use to store silage.

Class 10 (30%)

Class 10 with a CCA rate of 30% includes general purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data processing equipment, if you acquired them either:

• before March 23, 2004
• after March 22, 2004, and before 2005, and you made an election

Class 10 also includes motor vehicles, as well as some passenger vehicles.

Include your passenger vehicle in Class 10 unless it meets a Class 10.1 condition. List each Class 10.1 vehicle separately.

Eligible zero-emission vehicles are included in Class 54.

Class 10.1 (30%)

Your passenger vehicle can belong in either Class 10 or Class 10.1.

To determine the class your passenger vehicle belongs in, you have to use the cost of the vehicle before you add the GST/HST or the PST.

Include your passenger vehicle in Class 10.1 if you bought it in 2023 and it cost more than $36,000 before tax. List each Class 10.1 vehicle separately.

The capital cost limits for a Class 10.1 passenger vehicle are as follows: $30,000 for vehicles acquired before 2022, $34,000 for vehicles acquired in 2022 and $36,000 for vehicles acquired in 2023, plus the GST/HST or PST.

Under the immediate expensing rules, if you dispose of a passenger vehicle acquired after April 18, 2021 to a person or partnership with whom you deal at arm's length, and its cost exceeds the prescribed amount ($30,000 for vehicles acquired after 2000 and before January 1, 2022; $34,000 for vehicles acquired after December 31, 2021, and before January 1, 2023; or $36,000 for vehicles acquired after December 31, 2022), the proceeds of disposition will be adjusted based on a factor equal to the prescribed amount as a proportion of the actual cost of the vehicle.

Eligible zero-emission vehicles are included in Class 54.

Class 12 (100%)

Class 12 includes property such as tools, medical or dental instruments, and kitchen utensils that cost less than $500 and were acquired on or after May 2, 2006.

Class 12 includes china, cutlery, linen, and uniforms. It also includes video cassettes, video laser discs, and digital video disks that you rent and do not expect to rent to any one person for more than 7 days in a 30-day period.

Most small tools in Class 12 are not subject to the half-year rule. They are fully deductible in the year of purchase. If the tool costs $500 or more, include it in Class 8 with a CCA rate of 20%.

Class 12 tools that are subject to the half-year rule include dies, jigs, patterns, moulds or lasts, and the cutting or shaping part of a machine. For more information, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

Include in Class 12 with a CCA rate of 100% computer software that is not systems software. Software in Class 12 is subject to the half-year rule.

Class 12 specifically excludes electronic communication devices and electronic data processing equipment.

Class 14 (5%)

Class 14 includes patents, franchises, concessions, or licences for a limited period. Your CCA is whichever of the following amounts is less:

• the total of the capital cost of each property spread out over the life of the property
• the undepreciated capital cost to the taxpayer as of the end of the tax year of property of that class

Class 14.1 (5%)

Starting January 1, 2017, include in Class 14.1 property that:

• is goodwill
• was eligible capital property immediately before January 1, 2017, and is owned at the beginning of that day
• is acquired after 2016, other than:
  
  • property that is tangible or corporeal property
  • property that is not acquired for the purpose of gaining or producing income from business
  • property in respect of which any amount is deductible (other than as a result of being included in Class 14.1) in computing the income from the business
  • an interest in a trust
  • an interest in a partnership
  • a share, bond, debenture, mortgage, hypothecary claim, note, bill or other similar property
  • property that is an interest in, or for civil law a right in, or a right to acquire, a property described in any of the above sub-bullets

Examples for farming are milk and egg quotas.

For tax years that end prior to 2027, properties included in Class 14.1 that were acquired before January 1, 2017, will be depreciable at a CCA rate of 7% instead of 5%. Transitional rules will apply.

Properties that are included in Class 14.1 and acquired after 2016 will be included in this class at a 100% inclusion rate with a 5% CCA rate on a declining-balance basis and the existing CCA rules will normally apply.

For more information about the new Class 14.1 and the transitional rules, see Explanatory Notes – Eligible Capital Property.

Class 43.1 (30%) and Class 43.2 (50%) – Clean energy equipment

To support investment in clean technologies, the CCA Classes 43.1 and 43.2 are expanded by:

• including new types of property (for example, pumped hydroelectric storage equipment)
• broadening the eligibility for certain existing property types (for example, ground source heat pump systems)

This applies to property that is acquired and that becomes available for use after April 18, 2021, where it has not been used or acquired for use for any purpose before April 19, 2021.

Also, for property that becomes available for use after 2024, access to Classes 43.1 and 43.2 for certain fossil fuelled and low efficiency waste fuelled electrical generation equipment is restricted by:

• removing some property that are currently included in these classes (for example, fossil fuelled cogeneration systems)
• narrowing the eligibility by imposing heat rate thresholds for others (for example, producer gas generating equipment)

Classes 43.1 and 43.2 include air source heat pumps primarily used   for space and water heating. This applies to property you acquired after April 6, 2022, and that has not been used or acquired for use before April 7, 2022.

These properties may benefit from the enhanced first year CCA that currently provides full expensing of the property in the year of acquisition, subject to a gradual phase out for property that becomes available for use after 2023 and before 2028.

For more information, go to Income Tax Folio S3 F8 C2, Tax Incentives for Clean Energy Equipment

For more information on the enhanced first year CCA, go to Accelerated investment incentive.

Class 45 (45%)

Include general-purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including associated data processing equipment, in Class 45 with a CCA rate of 45% if you acquired them after March 22, 2004, and before March 19, 2007.

Class 46 (30%)

Include in Class 46 with a CCA rate of 30% data network infrastructure equipment and systems software for that equipment if they were acquired after March 22, 2004. If they were acquired before March 23, 2004, include them in Class 8. See Class 8 (20%).

Class 50 (55%)

Include in Class 50 with a CCA rate of 55% property acquired after March 18, 2007, that is general purpose electronic data processing equipment and systems software for that equipment, including ancillary data processing equipment.

Do not include property that is included in Class 52 or that is mainly or is used mainly as:

a) electronic process control or monitor equipment

b) electronic communications control equipment

c) systems software for equipment referred to in a) or b)

d) data handling equipment (other than data handling equipment that is ancillary to general-purpose electronic data processing equipment)

Class 52 (100%)

Include in Class 52 with a CCA rate of 100% (with no half-year rule) general purpose electronic data processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data processing equipment if acquired after January 27, 2009, and before February 1, 2011.

Do not include property that is mainly or is used mainly as:

a) electronic process control or monitor equipment

b) electronic communications control equipment

c) systems software for equipment referred to in a) or b)

d) data handling equipment (other than equipment that is ancillary to general-purpose electronic data processing equipment)

To qualify for this rate the asset must also meet the following conditions:

• be located in Canada
• not have been used, or acquired for use, for any purpose before it was acquired by the taxpayer
• be acquired by the taxpayer either:
  • for use in a business carried on by the taxpayer in Canada or to earn income from property located in Canada
  • for lease by the taxpayer to a lessee for the lessee to use in a business the lessee carried on in Canada or to earn income from property located in Canada

Class 54 (30%) and Class 55 (40%) – Zero-emission vehicles

There are two CCA classes for zero-emission vehicles acquired after March 18, 2019. Class 54 was created for zero-emission vehicles that would otherwise be included in Class 10 or 10.1, with the same CCA rate of 30%. Class 55 was created for zero-emission vehicles otherwise included in Class 16, with the same CCA rate of 40%. The CCA still applies on a declining-balance basis.

An enhanced first-year CCA deduction with the following phase-out period is available:

• 100% after March 18, 2019, and before 2024
• 75% after 2023 and before 2026
• 55% after 2025 and before 2028

For the enhanced first-year allowance, the following step should be taken before calculating the CCA:

• increase the net capital cost addition to the new class for property that became available for use before 2028 as follows:
  • For Class 54, increase the capital cost addition by an amount equal to:
    • 2 ⅓ times the net addition to the class for property that became available for use before 2024
    • 1 ½ times the net addition to the class for property that became available for use in 2024 or 2025
    • ⁵⁄₆ times the net addition to the class for property that became available for use after 2025 and before 2028
  • For Class 55, increase the capital cost addition by an amount equal to:
    • 1 ½ times the net addition to the class for property that became available for use before 2024
    • ⁷⁄₈ times the net addition to the class for property that became available for use in 2024 or 2025
    • ³⁄₈ times the net addition to the class for property that became available for use after 2025 and before 2028
• suspend the existing CCA half-year rule

Multiply the result by the prescribed CCA rate of 30% for Class 54 and 40% for Class 55.

The CCA will be applicable on any remaining balance in these classes using the specific rate for the class.

A taxpayer may elect to not include in Class 54 or 55 a vehicle that would otherwise be a zero-emission vehicle or a zero-emission passenger vehicle. When such an election is filed, the vehicle will no longer be considered to be a zero-emission vehicle or a zero-emission passenger vehicle. As a result, the vehicle will be included in its usual CCA Class 10, 10.1 or 16 as the case may be. Such vehicles will not qualify for the enhanced first-year CCA under the ZEV rules. However, those vehicles that will be included in Class 10, 10.1 or 16, may be eligible for the immediate expensing incentive or enhanced CCA under the AIIP rules.

The election must be filed with the minister of national revenue in your income tax and benefit return for the tax year in which the vehicle is acquired. There is no provision for late-filing or amended elections.

Class 54 (30%)

Include in Class 54 zero-emission vehicles that are not included in Class 16 or 55 and would normally be included in Class 10 or 10.1.

There is a limit of $61,000 (plus federal and provincial sales taxes) on the capital cost for each zero-emission passenger vehicle in Class 54. Class 54 may include both zero-emission vehicles that do and do not exceed the prescribed threshold. However, unlike Class 10.1, Class 54 does not establish a separate class for each vehicle whose cost exceeds the threshold.

If a zero-emission vehicle is disposed of to a person or partnership with whom you deal at arm's length, and its cost exceeds the prescribed amount ($55,000 for vehicles acquired after March 18, 2019, and before January 1, 2022; $59,000 for vehicles acquired after December 31, 2021, and before January 1, 2023; or $61,000 for vehicles acquired after December 31, 2022), the proceeds of disposition will be adjusted based on a factor equal to the prescribed amount as a proportion of the actual cost of the vehicle. For dispositions made after July 29, 2019, the actual cost of the vehicle will also be adjusted for the payment or repayment of government assistance.

Class 55 (40%)

Include in Class 55 zero-emission vehicles that would normally be included in Class 16.

Class 56 (30%)

Include in Class 56 (CCA rate of 30%) zero-emission automotive equipment and vehicles (other than motor vehicles) that do not currently benefit from the accelerated rate provided by Classes 54 and 55. To be included in this class, such property needs to be acquired after March 1, 2020, and become available for use before 2028.

The enhanced first-year CCA deduction for this class applies only for the tax year in which the equipment or vehicle first becomes available for use. The deduction is subject to the following phase-out period:

• 100% on or after March 2, 2020, and before 2024
• 75% after 2023 and before 2026
• 55% after 2025 and before 2028

To be eligible for the enhanced first-year allowance, a vehicle or equipment must be automotive (that is, self-propelled) and fully electric or powered by hydrogen. Vehicles or equipment that are powered partially by electricity or hydrogen (which includes hybrid vehicles and vehicles that require human or animal power for propulsion) are not eligible.

Class 56 captures automotive equipment that is not designed for use on highways or streets such as zero-emission aircraft, watercraft, trolley buses and railway locomotives. Additions or alterations may qualify if they convert automotive equipment (other than a motor vehicle) into a zero-emission property.

The CCA is deductible on any remaining balance in the class on a declining-balance basis at the CCA rate of 30%.

You may elect to not include the vehicle or equipment in Class 56. As a result, the property is then included in the class for which it would otherwise be eligible.

Class 56 excludes property in respect of which CCA or a terminal loss has previously been claimed by another person or partnership where the equipment was acquired by the taxpayer on a tax-deferred "rollover" basis or it was previously owned or acquired by the taxpayer or a non-arm's length person or partnership.

Special situations

Personal use of property

If you buy property for business and personal use, you can show the business part of the property in Area B or C in one of two ways:

• If your business use stays the same from year to year, enter the total cost of the property in column 3, the personal part in column 4, and the business part in column 5. To calculate the CCA you can claim, enter the amount from column 5 in column 3 of Area A.
• If your business use changes from year to year, enter the total cost of the property in column 3 and column 5, and enter "0" in column 4.

Enter in column 3 of Area A the amount from column 5 of Area B or Area C and calculate the CCA amount (business and personal) in column 18. The amount in column 19 (UCC at the end of the year) of Area A is equal to the amount in column 7 minus the amount in column 18.

When you claim CCA, you will have to calculate the allowable part you can claim for business use.

Changing from personal to business use

If you bought a property for personal use and started using it in your farming business in your current tax year, there is a change in use. You need to determine the capital cost for business purposes at the moment of this change in use.

If the fair market value (FMV) of a depreciable property (such as equipment or a building) is less than its original cost when you change its use, the amount you enter in column 3 of Area B or C is the FMV of the property (excluding the land value if the property is land and a building). If the FMV is more than the original cost of the property (excluding the land value if the property is land and a building) when you change its use, use the following chart to determine the amount to enter in column 3 of Area B or Area C.

Enter the FMV of the property in column 3 of Area B or C, whichever applies, if, at the time of change in use, the FMV of the depreciable property is less than its original cost.

When you start using your property for your farming business use, you are considered to have disposed of it. If the FMV of the property is more than its cost, you may have a capital gain unless you file an election. For more information on capital gains, see Chapter 7. Use the following chart to determine the amount to enter in column 3 when the FMV is more than its original cost.

Grants, subsidies, and rebates

You should subtract from the applicable expense any rebate, grant, or assistance you received. Enter the net expense on the appropriate line of your form.

When you receive a grant, subsidy, or rebate from a government or a government agency to buy depreciable property, subtract the amount of the grant, subsidy, or rebate from the property's capital cost. Do this before you enter the capital cost in column 3 of Area B or C. 

If the rebate is more than the remaining undepreciated capital cost in the particular class, add the excess to income on line 9574 or 9575.

You may have paid GST or HST on some of the depreciable property you acquired for your business. If so, you may have also received an input tax credit from us. Subtract the input tax credit from the property's capital cost. Do this before you enter the capital cost in column 3 of Area B or C, whichever applies. If you get an input tax credit for a passenger vehicle you use in your business, use one of these methods:

• For a passenger vehicle you used 90% or more of the time for your business, subtract the amount of the credit from the vehicle's cost before you enter its capital cost in column 3 of Area B.
• For a passenger vehicle you used less than 90% of the time for your business, do not make an adjustment in 2023. Instead, subtract the amount of the credit from your beginning UCC in 2024.

For information on claiming input tax credits for the GST/HST you paid to buy a passenger vehicle, see GST/HST Memorandum  8.2, General Restrictions and Limitations.

Input tax credits are considered government assistance. Include the amount you claimed on line 108 of your GST/HST return on line 9574 or 9575 only if you cannot apply the rebate, grant, or assistance you received to reduce a particular expense or an asset's capital cost.

You may get an incentive from a non-government agency to buy depreciable property. For example, you may receive a tax credit that you can use to reduce your income tax payable.

For more information about government assistance, see Interpretation Bulletin IT-273, Government Assistance – General Comments.

Non-arm's length transactions

When you acquire depreciable property in a non-arm's length transaction, there are special rules for determining the property's cost. These special rules do not apply if you acquire the property because of someone's death.

You can acquire depreciable property in a non-arm's length transaction from:

• an individual resident in Canada
• a partnership with at least one partner who is an individual resident in Canada
• a partnership with at least one partner who is another partnership

If you pay more for the property than the seller paid for it, calculate the capital cost as follows:

We consider that you acquire the land for an amount equal to its FMV when you change its use. Include this amount on line 9923 in Area F.

You can also acquire depreciable property in a non-arm's length transaction from:

• a corporation
• an individual who is not a resident of Canada
• a partnership with no partners who are individuals resident in Canada or with no partners that are other partnerships

If you pay more for the property than the seller paid for it, calculate the capital cost as follows:

If you acquire depreciable property in a non-arm's length transaction and pay less for it than the seller paid, your capital cost is the same amount as the seller paid. The difference between what you paid and what the seller paid is considered to be deducted as CCA. Enter the amount you paid in column 3 of Area A. Enter the same amount in Area B or C, whichever applies.

There is a limit on the cost of a passenger vehicle you buy in a non-arm's length transaction. The cost is the lesser of:

• the FMV when you buy it
• $36,000 plus any GST/HST or PST you would pay on $36,000 if you bought it in your 2023 fiscal period
• the seller's cost amount of the vehicle when you buy it

The cost amount can vary depending on what the seller used the vehicle for before you bought it. If the seller used the vehicle to earn income, the cost amount would be the UCC of the vehicle when you buy it. If the seller did not use the vehicle to earn income, the cost amount will usually be the original cost of the vehicle.

For more information on non-arm's length transactions, see the Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Special rules for disposing of a building in the year

If you disposed of a building in the current tax year, special rules may apply, making the proceeds of disposition an amount other than the actual proceeds of disposition. This happens when you meet both of the following conditions:

• you disposed of the building for an amount less than both its cost amount, as calculated below, and its capital cost to you
• you, or a person with whom you do not deal at arm's length, owned the land that the building is on, or the land next to it, that was necessary for the building's use

To calculate the cost amount:

• if the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before you disposed of the building
• if more than one property is in the same class, you have to calculate the cost amount of each building as follows:

For more information on proceeds of disposition, see Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.

If you disposed of a building under these conditions and you or a person with whom you do not deal at arm's length disposed of the land in the same year, calculate your deemed proceeds of disposition as shown in Calculation A.

If you, or a person with whom you do not deal at arm's length, did not dispose of the land in the same year as the building, calculate your deemed proceeds of disposition as shown in Calculation B.

Usually, you can deduct 100% of a terminal loss, but only 50% of a capital loss. Calculation B makes sure you use the same percentage to calculate both a terminal loss on a building and a capital loss on land. As a result of this calculation, you add 50% of the amount on line 5 to the actual proceeds of disposition from the building. For more information, see Terminal loss.

Replacement property

In some cases, you can postpone or defer including a capital gain or recapture of CCA in calculating income. You might sell a business property and replace it with a similar one, or your property might be stolen, destroyed, or expropriated, and you replace it with a similar one. To defer reporting the gain or recapture of CCA, you (or a person related to you) must acquire the replacement property within the specified time limits and use the new property for the same or similar purpose.

For more information, see Income Tax Folio S3-F3-C1, Replacement Property.

You can also defer a capital gain or recapture of CCA when you transfer property to a corporation, a partnership, or your child. For more information on transferring farm property to your child, see Transfer of farm or fishing property to a child.

For more information on transfers to a corporation or a partnership, see:

• Information Circular IC76-19, Transfer of Property to a Corporation Under Section 85
• Interpretation Bulletin IT-291, Transfer of Property to a Corporation Under Subsection 85(1)
• Interpretation Bulletin IT-378, Winding-up of a Partnership
• Interpretation Bulletin IT-413, Election by Members of a Partnership Under Subsection 97(2)

Details of equity

Line 9931 – Total business liabilities

A liability is a debt or an obligation of a business. Total business liabilities are the total of all amounts your business owes at the end of its fiscal period.

Total business liabilities include:

• accounts payable
• notes payable
• income taxes and taxes payable
• unpaid salaries, wages, and benefits
• interest payable
• deferred or unearned revenues
• loans payable
• mortgages payable
• any other outstanding balance related to the business

Line 9932 – Drawings in 2023

A drawing is any withdrawal of cash (including salaries) or other assets, or services of a business by the proprietor or partners. This includes transactions by the proprietor or partners (or family members) like withdrawing cash for non-business use and using business assets and services for personal use. Include the cost or value of the personal use of business assets or services in your drawings for the year.

Line 9933 – Capital contributions in 2023

A capital contribution is cash or other assets you added to the farming business during its fiscal period. This includes personal funds you added to the business account, business debts you paid with personal funds, and personal assets you transferred to the farming business.

The following example summarizes this chapter on CCA.