Example of capital cost allowance (CCA) calculation

During the current tax year, Paul bought a house to use for rental purposes. For CCA purposes, the building is classified as Class 1 with a 4% rate. It is his only rental property. The total cost was was $95,000 (the sum of the $90,000 total purchase price plus $5,000 total expenses connected with the purchase). The details are as follows:

Expenses connected with the purchase

Paul's rental activity is reported on a December 31 year-end basis. Paul's rental income was $6,000 and his rental expenses were $4,900. Therefore, his net rental income before deducting CCA was $1,100 ($6,000 – $4,900). Paul wants to deduct as much CCA as he can.

Before Paul can fill in his CCA table in Area A, he has to calculate the capital cost of the building. Since land is not depreciable property, he has to calculate the part of the expenses connected with the purchase that relates only to the building. To do this, he has to use the following formula.

Building value ÷ Total purchase price × Expenses = Part of the fees Paul can include in the building's cost

$75,000 ÷ $90,000 × $5,000 = $4,166.67

This $4,166.67 represents the part of the $5,000 in legal fees and land transfer taxes that relates to the purchase of the building. The remaining $833.33 relates to the purchase of the land. Therefore, the capital cost of the building is:

Paul enters $79,166.67 in column 3 of Area C and $15,833.33 ($15,000 + $833.33) on line 9923 of Area F as the capital cost of the land.

Paul did not own rental property before the current year. Therefore, he has no undepreciated capital cost (UCC) to enter in column 2 of Area A.

Paul acquired his rental property during the current year. Therefore, he is subject to the half-year rule.

His net rental income before CCA is $1,100. Paul cannot claim CCA for more than $1,100 because he cannot use his CCA to create a rental loss. This is the case even though he would otherwise be entitled to claim $1,583.33 [($79,166.67 × 50%) × 4%].