Capital Cost Allowance.... What exactly it is ???
- Thread starter jlprato
- Start date
- Joined
- Aug 30, 2007
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- 13,881
It is the right to depreciate a capital asset, namely up to 4% a year of any improvements (i.e. house, buildings, new balconies, new roof..).
To do that estimate the land value and deduct it from your purchase price. You can then use up to 4% of that annually to reduce your taxable income, frequently to zero.
Do not use CCA in years where there is a loss already, say in a start-up year or a weak year with many vacancies.
The CCA has to be repaid later, so it is really a tax deferral strategy. So, as an example, if over 5 years you deducted $20,000 in CCA you will have to add this $20,000 to taxable income in the year of disposition.
To do that estimate the land value and deduct it from your purchase price. You can then use up to 4% of that annually to reduce your taxable income, frequently to zero.
Do not use CCA in years where there is a loss already, say in a start-up year or a weak year with many vacancies.
The CCA has to be repaid later, so it is really a tax deferral strategy. So, as an example, if over 5 years you deducted $20,000 in CCA you will have to add this $20,000 to taxable income in the year of disposition.
- Joined
- Oct 22, 2007
- Messages
- 2,803
Depending on when you plan to sell the property, you may decide not to deduct CCA at all since it must be repaid on sale (unless you sell the property for an equivalent loss).
We have been investing for 7 years and have yet to deduct CCA because we know that our income will be much higher in future years. We decided that if we ever claim it, it would be when we really needed an extra deduction to bring us back down in to a lower tax bracket.
It is totally up to you whether or not you use this deduction. Also, if you own the property in co-ownership with a spouse or JV, each co-owner is able to choose independently whether he will deduct CCA or not.
We have been investing for 7 years and have yet to deduct CCA because we know that our income will be much higher in future years. We decided that if we ever claim it, it would be when we really needed an extra deduction to bring us back down in to a lower tax bracket.
It is totally up to you whether or not you use this deduction. Also, if you own the property in co-ownership with a spouse or JV, each co-owner is able to choose independently whether he will deduct CCA or not.