Example of capital cost allowance (CCA) calculation

Example

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 to purchase the land and building was $95,000 ($90,000 total purchase price plus $5,000 total expenses connected with the purchase).

The breakdown of the total purchase price is as follows:

Building value (Class 1)

$75,000
 

Plus: land value

$15,000

 

Total purchase price

$90,000

 

Expenses connected with the purchase:

Legal fees
$3,000
 

Plus: land transfer taxes

$2,000
 

Total fees

$5,000

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 schedule 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 ($75,000) ÷ total purchase price ($90,000) × total expenses ($5,000) = part of the expenses that can be added to the cost of the building ($4,166.67). The remaining $833.33 of the total expenses relates to the purchase of the land.

Therefore, the capital cost of the building is:

Building value (Class 1)

$75,000

Plus: total expenses connected with the purchase of the building

$4,166.67

Equals: capital cost of the building

$79,166.67

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) 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%].

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