Weekly Tax Tips
Purchase Assets Eligible for CCA before Year-End
Date: 5 Nov 2010
Employment Income
Employees are entitled to claim tax depreciation called Capital Cost Allowance (CCA) on only three types of assets — automobiles, aircraft and musical instruments — if conditions are met. If you’re entitled to deduct CCA and you’re considering purchasing a new asset, you should do so prior to the end of the year. This will accelerate CCA claims by one year. The asset must actually be available for your use to qualify for a CCA claim. In addition, tradespersons can qualify for a tax deduction of up to $500 for eligible tools they purchase, and a deduction for tools purchased by qualified apprentices is also available. There are conditions that must be met for both deductions.
Business Income
If you’re planning to purchase capital assets in the near future, consider doing so before the end of your fiscal year. If the assets are acquired and in use before year-end, you can claim one-half the usual CCA rate. Even if you’re in a loss position this year, purchasing the asset now will allow a full year’s CCA claim next year. Bear in mind that title to the asset must be acquired and it must be available for use in order to claim CCA.
Also, under a change introduced in the 2009 federal budget, a temporary increase in the CCA rate, from 55% to 100%, is available for eligible computers and software acquired after January 27, 2009 and before February 2011. This 100% CCA rate will not be subject to the half-year rule. As a result of this measure, a business will be able to fully deduct the cost of an eligible computer (including the systems software for that computer) in the first year that CCA deductions are available.
For this purpose, eligible computers and systems software acquired by a taxpayer will have to be new computer equipment and software described in Class 50 for use in and for the purpose of earning income in Canada. The 100% CCA rate will also apply to eligible property that may otherwise be included in CCA Class 29 provided that it meets specific conditions. To qualify for this incentive, make sure you purchase the computer equipment before the end of January 2011.
This tax tip is a publication of BDO Canada LLP on developments in the area of taxation. This material is general in nature and should not be relied upon to replace the requirement for specific professional advice. The information in this tax tip is current as of 5 Nov 2010.
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