Capital cost allowance (rental properties)

The Canada Revenue Agency says...

Rental Income Guide (T4036)

You might acquire a depreciable property, such as a building, furniture, or equipment, to use in your business or professional activities. You cannot deduct the cost of the property when you calculate your net business or professional 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. The deduction for this is called capital cost allowance (CCA).

You usually group depreciable properties into classes. You have to base your CCA claim on a rate assigned to each class of property.

How much CCA can you claim?

How much CCA can you claim?

The amount of CCA you can claim depends on the type of rental property you own and the date you acquired it. You group the depreciable property you own into classes. A different rate of CCA generally applies to each class. We explain the most common classes of depreciable rental property and the rates that apply to each class in "Classes of depreciable property."

For the most part, use the declining balance method to calculate your CCA. This means that you claim CCA on the capital cost of the property minus the CCA, if any, you claimed in previous years. The remaining balance declines over the years as you claim CCA.

Example

Example

Last year, Sue bought a rental building for $60,000. On her income tax return for last year, she claimed CCA of $1,200 on the building. This year, Sue bases her CCA claim on her remaining balance of $58,800 ($60,000 - $1,200).

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. For example, if you do not have to pay income tax for the year, you may not want to claim CCA. Claiming CCA reduces the balance ot the class by the amount of CCA claimed. As a result, the CCA available for future years will be reduced.

Note: If you are a partner of a partnership, the amount of CCA you can claim has already been determined by the partnership. If you receive a T5013 slip, Statement of Partnership Income, or a T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses, your CCA amount is already included in box 26. If you are a partner of a partnership that does not need to issue this slip, the total partnership CCA will be shown on the financial statements you receive.

Limits on CCA

Limits on CCA

In the year you acquire rental property, you can usually claim CCA only on one-half of your net additions to a class. This is the half-year rule (also known as the 50% rule). The available-for-use rules may also affect the amount of CCA you can claim.

In the year you dispose of rental property, you may have to add an amount to your income as a recapture of CCA. Conversely, you may be able to deduct an amount from your income as a terminal loss.

If you own more than one rental property, you have to calculate your overall net income or loss for the year from all your rental properties before you can claim CCA. Include the net rental income or loss from your T5013 or T5013A slip in the calculation if you are a partner. Combine the rental incomes and losses from all your properties, even if they belong to different classes. This also applies to furniture, fixtures, and appliances that you use in your rental building. You can claim CCA for these properties, the building, or both.

You cannot use CCA to create or increase a rental loss.

For more information about loss restrictions on rental and leasing properties, see Interpretation Bulletin IT-195, Rental Property - Capital Cost Allowance Restrictions, and Interpretation Bulletin IT-443, Leasing Property - Capital Cost Allowance Restrictions, and its Special Release.

Classes of depreciable properties and rates

For more information, see Classes of depreciable property.