Capital Cost Allowance

To access the CCA calculation workcharts, press F9 (or double-click) when the cursor is positioned in one of the three tables in Area A of Form T776, Statement of Real Estate Rentals (Jump Code: 776), the Statement of Farming Activities (Jump Code: 2042) or the Statement of Business or Professional Activities (Jump Code: 2125).

Setting Up and Deleting Classes

To set up or delete a CCA class when you are in one of the tables in Area A, proceed as follows:

To set up a class: click Add in the appropriate table (depending on whether you want to set up a class 10.1, a class 13 or a class other than 10.1 or 13). A new line will appear. Press F9 (or double-click) to access the related calculation workchart, and select the appropriate class using the search tool. The class is now set up and is part of Area A. Note: In the case of classes 10.1 and 13, the calculation workchart is specific and you do not have to select the class.
To delete a class, there are two possibilities:
- from the calculation workchart of the class, click Delete on the toolbar;
- from either one of the three tables in Area A of Form T776, Form T2042 or Form T2125, select the class (the line) that you want to delete, and click Delete.

Sorting of CCA classes

Two sort functions are offered in the section for the CCA class calculation for each self-employment statement or summary of real estate rental properties. The first sort button allows you to display the CCA classes in ascending order on screen and when printing. The second sort button allows you to prioritize the depreciation of classes other than classes relating to buildings (1, 3 and 6). This sort will ensure that the program will calculate the CCA of all other classes, and if the net income is still positive, the program will then depreciate the classes relating to buildings. When adding classes, you can simply sort the classes again. The sort will be retained when rolling forward the client file.

Entering Information

From one of the tables in Area A, you may enter all relevant information with respect to a class that you have just set up or to an already existing class. To do so, access the calculation workchart of the class in one of the following ways:

place your cursor on the desired class and double-click; or
highlight the desired class and press F9.

Once the calculation workchart of the class is displayed, enter the required information on the appropriate lines. Where dealing with an acquisition or a disposition, follow the procedure below.

Acquisition of Property in the Year

To enter property acquired in the year (as long as the property has become available for use in the year), press F9 when the cursor is positioned on the Additions (half-year) or Additions (normal rate) line, as the case may be. The cursor then moves in the History of Acquisitions and Dispositions table. Afterwards, double-click the highlighted line (or press F9) to access the Acquisitions and Dispositions Workchart, where you can enter the relevant information not forgetting the purchase date.

This method will allow you to keep track of the adjusted cost base of the property from one year to the other as it will be included when permanent data is rolled forward. If you do not wish to follow the above described procedure, you can override the Additions (half-year) or Additions (normal rate) line of the calculation workchart of the class, as the case may be.

For self-employed statements, only the portion of each property used to earn income must be entered.

Disposition of Property in the Year

To enter a disposition of property made in the year, press F9 when the cursor is positioned on the Disposition line.

At this point, if the property that has been disposed of has already been entered in the History of Acquisitions and Dispositions, point your mouse to it and double-click. You will then access the copy of the Acquisitions and Dispositions Workchart regarding this property where you can enter the relevant information regarding the disposition (not forgetting the date).

However, if the property that has been disposed of has not been entered in this history, enter the lesser of the proceeds of disposition and capital cost of the property on the Disposals line in the calculation workchart of the class.

When a property was disposed of and this disposition is partial, indicate the proceeds of disposition and the related minimal cost to calculate the net proceeds of disposition.

Special Rules

The program does not compute any CCA on assets depreciated on a straight-line basis. Therefore, enter the desired amount of CCA with respect to these classes on the CCA claimed line. You must enter an amount for Québec purposes even where this amount does not differ from the federal amount.

Both class 10.1 (Passenger vehicles) and class 13 (Leasehold interests) have a detailed workchart which is different from the usual detailed calculation workchart of a class as a result of the application of special rules.

For instance, a separate class is prescribed for each automobile included in class 10.1. Moreover, upon disposition of such automobile, there can be no recapture or terminal loss, but an amount equivalent to half of the "normal" CCA for the year of disposition can be claimed if the automobile was included in class 10.1 at the end of the previous year.

Note that a separate class is also prescribed for each rental property costing $50,000 or more.

For Québec purposes only: you may use class 10/12 for property that is included in class 10 (with the half-year rule) for federal purposes and included in class 12 (without the half-year rule) for Québec purposes.

If there is a terminal Loss

If there are no more property in a class, but there is still a remaining UCC balance, enter "Y" (yes) in the appropriate box to indicate a terminal loss. The terminal loss is automatically deducted from income.

Eligible capital property (Class 14.1)

Creation of class 14.1

If the business’s taxation year straddles January 1, 2017, and the answer to the question The taxation year of the business includes January 1, 2017, or ends after that date is “Yes” in T2125/T2042 Cumulative Eligible Capital Deduction form (Jump Code: 2125/2042 CEC), class 14.1 will automatically be created from the information contained in this form. In cases where the taxation year starts on January 1, 2017, the class will be created when the client file is rolled forward.

Data calculated during the transfer from T2125/T2042 Cumulative Eligible Capital Deduction form

Cumulative eligible capital (CEC) balance (positive or negative) in respect of the business on January 1, 2017 (line G)

To calculate the deemed capital cost of property for this class, enter the cumulative eligible capital (CEC) amount on January 1, 2017. Taxprep input amount D (or amount F, when rolling forward) from T2125/T2042 Cumulative Eligible Capital Deduction form.

If the CEC balance is negative, enter the amount that would need to be included in income pursuant to paragraph 14(1)(b) ITA, as that paragraph applied immediately before January1. 2017 (line H)

In cases where the CEC balance is negative at the time of the transfer, an amount to include must be taken into account in the calculation of the deemed capital cost of property in the class. Taxprep calculates this amount to include using amount U in T2125/T2042 Cumulative Eligible Capital Deduction form.

Deductions that reduced CEC in respect of the business for taxation years ending before January 1, 2017 (line I)

This amount is used to calculate the deemed capital cost of the property in the class. It will be calculated only if an amount in shown on line O of T2125/T2042 Cumulative Eligible Capital Deduction form. Otherwise, it will have to be entered manually.

Item D.1 of the CEC definition in paragraph 14(5) ITA, as that paragraph applied immediately before January1. 2017 (line J)

In cases where the CEC balance entered on line G is negative and where the amount to be included on line H is positive, this represents the amount calculated on line Q of T2125/T2042 Cumulative Eligible Capital Deduction form relating to the CEC deductions claimed and the negative balances in the CEC account that were included in income for taxation years beginning before July 1, 1988, in respect of the business.

Data calculated to manage the information relating to property acquired before January 1, 2017

If the election under subparagraph 13(38)(d)(iv) ITA is made for one property in the class, enter the capital gain or the amount to include in income

Where the business makes the election under subparagraph 13(38)(d)(iv) ITA upon acquiring a property in its taxation year straddles January 1, 2017, the capital gain to include in Schedule 6 should be reduced by the lesser of the following amounts: the gain to include itself or the capital cost of the property acquired. If the business also makes the election under 13(38)(d)(iii) ITA, the amount to include in Schedule 1 should then be reduced by the lesser of the following amounts: the amount itself or half of the capital cost of the property acquired.

Taxprep will calculate the capital gain or the amount to include if the answer to the question The business makes the election under subparagraph 13(38)(d)(iv) ITA is “Yes” in one of the T2125/T2042 Additions and dispositions Workchart (Jump Code: 2125/2042 CCA FA) copies corresponding to the class and an amount is entered on line H. In cases where the election under subparagraph 13(38)(d)(iii) ITA is not made, the calculated capital gain should be entered manually in Form T3 Schedule 1.

Deemed total capital cost of property in the class under paragraph 13(38)(a) ITA (line K)

This amount will be calculated based on the formula provided for in paragraph 13(38)(a) ITA, i.e.:

(4/3 x [G + (3/2 x H) + I + J])

where

G is CEC balance (positive or negative) in respect of the business on January 1, 2017

H is the amount that would need to be included in income pursuant to paragraph 14(1)(b) ITA, as that paragraph applied immediately before January1. 2017, when the CEC balance is negative

I is all deductions that reduced CEC in respect of the business for taxation years ending before January 1, 2017

J is item D.1 of the CEC definition set out in paragraph 14(5) ITA, as that paragraph applied immediately before January 1, 2017, when the CEC balance is negative.

Amount deemed allowed as a deduction against the capital cost of property in the class under paragraph 13(38)(c) ITA for taxation years ending before January 1, 2017 (line L)

The deemed CCA allowed is equal to the difference between the deemed total capital cost (line K) and the positive CEC balance (line G) at the time of the transfer.

In cases where le CEC balance entered on line G is negative, the amount calculated on line L will be limited to the amount on line G and will be entered on line UCC Adjustments under subsections13(38) and 13(39) ITA in order to calculate the CCA recapture for the class.

UCC balance in the class on January 1, 2017 (line M)

The UCC balance is equal to the difference between the deemed total capital cost and the deemed CCA allowed. Any positive result obtained will also be the UCC balance (opening) entered on line 1, if this amount is positive. In general, the UCC balance at the time the class is created will be equal to the CEC balance in respect of the business (line G).

CCA claimed with respect to this UCC balance in preceding taxation years (line N)

This is the total amount of the capital cost allowance (CCA) and the additional deduction that has been deducted from the UCC balance in the class on January 1, 2017 (line M), for taxation years ending between January 1, 2017 and December 31, 2026. This amount will be calculated each year when the client file is rolled forward.

The amount updated to this line will vary according to the CCA claimed. When rolling forward a client file, Taxprep will automatically add to the amount entered on the line in the initial client file, the lesser of:

the total of the CCA and the additional deduction calculated for the UCC balance on January 1, 2017, net of the CCA amount claimed with respect to this UCC balance in prior years; and
the CCA amount claimed on line 12 for the class.

When the CCA amount claimed on line 12 of the form is not nil and it is different from the maximum CCA that can be claimed by the business, verify if the amount updated is correct.

Additional deduction

For taxation years ending before 2027, an additional deduction corresponding to 2% of the UCC in the class on January 1, 2017, can be claimed with respect to property of a business that has been acquired before January 1, 2017. This additional deduction is however reduced from any amount that has been deducted in prior taxation years and three times the total of the amounts deducted from the UCC because of the amounts received to which subsection 13(39) ITA applies.

Furthermore, if the total of that additional deduction and the eligible CCA for the year is less than $500, the additional deduction may be increased to allow a total CCA of $500, without exceeding the UCC in the class on January 1, 2017 (net of CCA deductions for prior years that started after January 1, 2017), or to ensure that the CCA in respect of the class for the year to be more than the UCC balance (before the application of such deduction).

Transitional rules – Subsections 13(38) to 13(42) ITA

Subsections 13(38) to (42) ITA provide for the transitional rules that apply as a result of the repealing of the eligible capital property rules and the addition of CCA class 14.1.

Subsection 13(38) ITA provides for the rules that apply where an eligible capital expenditure in respect of a business has been incurred before January 1, 2017.

Subsection 13(39) ITA sets forth the rules that apply where certain property that was eligible capital property before January 1, 2017, is disposed of on or after January 1, 2017.

Subsection 13(40) ITA prevents the use of subsection 13(39) ITA to “step-up” the UCC in the new class by means of a non-arm’s length transfer of property that was eligible capital property before January 1, 2017.

Subsection 13(39) ITA sets forth that the terms cumulative eligible capital, eligible capital expenditure, eligible capital property and exempt gains balance have the meanings that would be assigned to those expressions if the Act read as it did immediately before 201, for the purposes of subsections (38) to (40) and (42), paragraph 20(1)(hh.1), subsections 40(13) to (16) and paragraph 79(4)(b),

Subsection 13(42) of the Act provides rules consequential on the repeal of the eligible capital property rules where a taxpayer owns property included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of a business at the beginning of January 1, 2017, that was an eligible capital property in respect of the business immediately before January 1, 2017.

Classes 54, 55 and 56 (zero-emission equipment and vehicles)

There are three CCA classes for zero-emission equipment that become available for use before 2028:

class 54 (CCA rate of 30%) for zero-emission motor vehicles and passenger vehicles, that would be included in class 10 or class 10.1;
class 55 (CCA rate of 40%) for zero-emission vehicles, that would be included in class 16; and
class 56 (CCA rate of 30%) for zero-emission equipment and vehicles, that are not included in CCA classes 54 and 55.

These three CCA classes benefit from a temporary enhanced first-year CCA rate of 100% applicable to eligible zero-emission automotive equipment and vehicles that are acquired after March 18, 2019, (after March 1, 2020, for CCA class 56) and that become available for use before 2023. The enhanced rate is reduced to 75% after 2023 and before 2026 and to 55% after 2025 and before 2028.

A “zero-emission vehicle” is:

a motor vehicle as defined in the Income Tax Act;
a fully electric or a plug-in hybrid vehicle, with a battery capacity of at least 15 kWh or fully powered by hydrogen;
a new vehicle, i.e. it must not have been used, or acquired for use, for any purpose before it is acquired by the taxpayer;
a vehicle in respect of which no assistance has been paid by the Government of Canada under the federal purchase incentive announced on March 19, 2019.

A “zero-emission passenger vehicle” is an automobile (as defined in the ITA) that is included in class 54.

For each zero-emission passenger vehicle included in class 54 that is available for use in the taxation year, a limit for the eligible capital cost (plus the sales taxes applicable on this amount) is applied as follows:

Acquisition Date	Limit (before GST and PST or HST)
Before January 1, 2022:	$55,000
Before January 1, 2023:	$59,000
After December 31, 2022:	$61,000

In addition, where the vehicle is disposed of to a person or partnership with which the taxpayer deals at arm’s length,

if the disposition occurs before July 30, 2019, the actual proceeds of disposition are multiplied by the ratio corresponding to the capital cost of the vehicle divided by the actual cost of the vehicle;
in other cases, the actual proceeds of disposition are multiplied by the ratio corresponding to the capital cost of the vehicle divided by the result of the following formula:

D + (E + F) – (G + H)

where

D is the cost to the taxpayer of the vehicle,

E is the amount determined under paragraph 13(7.1)(d) ITA in respect of the vehicle at the time of disposition,

F is the maximum amount determined for C in the UCC definition set out in subsection 13(21) ITA in respect of the vehicle,

G is the amount determined under paragraph 13(7.1)(f) ITA in respect of the vehicle at the time of disposition, and

H is the maximum amount determined for J in the UCC definition set out in subsection 13(21) ITA in respect of the vehicle.

Property included in classes 54, 55 and 56 are not AIIP and the half-year rule does not apply to them. However, note that, for the purposes of the calculations, the CRA considers property from class 54 or 55 acquired in the taxation year to be AIIP.

Subsection 1103(2j) ITR provides for an election to not include in class 54 or 55 a vehicle that would otherwise be a zero-emission vehicle. This election means that such a vehicle would not be a zero-emission vehicle but would be included in its usual CCA class (class 10, 10.1 or 16). For CCA class 56, such election could also be made to include property in the class for which it would otherwise be eligible.

Property qualified for accelerated depreciation

Accelerated investment incentive property

To qualify, a property must be acquired after November 20, 2018, available for use before 2028 and meet the criteria in subsection 1104(4) of the Regulations.

Subsection 1100(2) ITR includes the half-year rule as well as the rules relating to accelerated investment incentive property (AIIP) and the rules relating to zero-emission vehicles included in Classes 54 to 56 (ZEV). The half-year rule is suspended for AIIP and does not apply to ZEV. The UCC adjustment factors for AIIP and ZEV are:

CCA classes	Eligible property available for use
CCA classes	Before 2024	In 2024 or 2025	In 2026 or 2027
43.1, 54 and 56	7/3	1.5	5/6
43.2 and 53	1	0.5	1/10
55	1.5	7/8	3/8
43 (property acquired after 2025 that would have been included in Class 53)	N/A	N/A	5/6
12 and 15	0	0	0
Other eligible classes	0.5	0	0

In addition, specific rules are provided for CCA classes 13 and 14 in paragraphs 1100(1)(b) and (c) ITR. Therefore, for AIIP in these classes, the CCA is equal to a percentage of the CCA that would normally be calculated when the property becomes available for use in the taxation year:

CCA classes	Eligible property available for use
CCA classes	Before 2024	After 2023 and before 2028
13	150%	100%
14	150%	125%

Property qualified for accelerated depreciation special rules in Québec

The Government of Québec further allows accelerated depreciation for a property acquired after December 3, 2018, and available for use before 2028 that is qualified intellectual property included in CCA class 14, 14,1 or 44 or general-purpose electronic data processing equipment included in CCA class 50.

A qualified intellectual property means property acquired after December 3, 2018, that is a patent or a right to use patented information, a licence, a permit, know-how, a commercial secret or other similar property constituting knowledge. The property must be acquired by the taxpayer in the course of a technology transfer or be developed by or on behalf of the taxpayer with a view to enabling the implementation of an innovation or invention with regards to its business. The expression “technology transfer” refers to the transmission, to a taxpayer, of knowledge in the form of know-how, techniques, processes or formulas. The process of implementing an innovation or invention as well as the implementation efforts of that innovation or invention must be made only in Québec.

The UCC adjustment factors are:

CCA classes	Qualified property available for use
CCA classes	Before 2024	In 2024 or 2025	In 2026 or 2027
14.1 (QIP)	19	9	0
44 (QIP)	3	1	0
50	9/11	0	0

Additional capital cost allowance of 30%

To encourage continued investment in manufacturing and processing equipment, clean energy generation equipment, general-purpose electronic data processing equipment and certain intellectual property, an additional capital cost allowance of 30% has been introduced for eligible property acquired after December 3, 2018 and before January 1, 2024. This additional capital cost allowance allows a taxpayer who acquires targeted property to deduct in computing income from a business for a taxation year, an amount corresponding to 30% of the amount deducted in computing such income, for the previous taxation year, on account of the capital cost allowance for the targeted property.

Property acquired before January 1, 2024, that meets all other eligibility criteria qualify for the additional deduction for the period during which the taxpayer claims CCA on the property.

Targeted property

Targeted property must be acquired after December 3, 2018, and before January 1, 2024. It can be property that is new at the time of its acquisition and not property acquired from a person or partnership with which the taxpayer is not dealing at arm’s length. It must start being used within a reasonable period of time after being acquired and for at least 730 consecutive days. In addition, it must be used primarily in Québec and must not be property with regards to which the taxpayer was entitled to or could have been entitled to claim the additional capital cost allowance of 60%. The property must be:

machinery or equipment used in manufacturing or processing (class 53);
clean energy generation equipment (classes 43.1 or 43.2); or
general-purpose electronic data processing equipment and related operating system software (class 50).

A targeted property can be a qualified intellectual property (certain property in classes 14, 14.1 and 44).

Separate class

A separate class will be provided for a taxpayer’s properties of a same class eligible for the additional capital cost allowance of 30%.

Creation of a separate class in Québec

Here is an example explaining the creation of a separate class in Québec:

The taxpayer is a trust whose taxation year starts on August 1, 2023, and ends on July 31, 2024.
A class 53 had been created in a previous taxation year.
On November 25, 2023, the trust acquired a class 53 property at a cost of $10,000. This property is eligible for the additional capital cost allowance of 30%.
On January 12, 2024, the trust acquired a class 53 property at a cost of $15,000. This property is not eligible for the additional capital cost allowance of 30%.

The treatment will be as follows:

Federally, the total of the acquisitions of $25,000 must be presented in the existing class 53.
In Québec, the property acquired on January 12, 2024 must be presented in the existing class 53. The property acquired on November 25, 2023, must be presented in a separate class.

To present this information in the program, proceed as follows:

In the existing class 53, enter $25,000, which represents the total of the acquisitions in class 53, on the line Acquisitions – accelerated investment incentive property (AIIA) or zero-emission vehicle (ZEV) in the Federal column.
On the corresponding line in the Québec column, override the acquisition cost to $15,000, which represent the cost of the property not eligible for the additional capital cost allowance of 30%.
Create a new class 53 for property eligible for the additional capital cost allowance of 30%.
In this new class, enter $10,000, which represent the cost of the property eligible for the additional cost allowance of 30%, on the line Acquisitions – accelerated investment incentive property (AIIP) or zero-emission vehicle (ZEV) in the Québec column, using an override. In section Classes 14, 14.1, 43.1, 43.2, 44, 50 and 53 only, answer Yes to the question Eligible for the additional CCA of 30% in Québec?.