Breaking Down the Canadian Capital Cost Allowance | FBC, Canada's Farm & Small Business Tax Specialist

Breaking Down the Canadian Capital Cost Allowance

Farmers and small business owners in Canada need to be taking steps that allow them to take advantage of the Canadian Capital Cost Allowance (CCA). Unfortunately, many farmers and small business owners don't even know what that allowance is! However, you need to.

By making proper use of this tax law, farmers and small business owners can save big on many different assets and items that depreciate over time. If planned correctly, the very money lost on that depreciation can be made back via tax credits and deductions.

But you need to have a proper plan.

So What Kind Of Holdings Are We Talking About?

According to the Canada Revenue Agency, this applies to all capital assets that your business needs to purchase, and that your business inevitably loses money on over a set period of time.
• Buildings
• Furniture
• Equipment

While you can't deduct the full cost of these assets, you can - across a period of several years - deduct the difference between your expenses and their depreciating market value as they become older or even obsolete.

That yearly deduction is called a capital cost allowance (CCA) - but there's a long process involved in earning it.

What Options Do Farmers And Business Owners Have For Making The Most Of The Allowance?

Obviously, your business needs to demonstrate that the property or asset is necessary for operations, and that it is depreciating in value.

However, there are also many formulas you need to use to calculate how much you can deduct from your taxes for these holdings on a year-by-year basis.

Additionally, you should ensure that any high-value product you invest in is qualified for a capital cost allowance deduction, well before you purchase the item.

Finally, there are plenty of rules that dictate what can and can't be deducted in this regard - such as for when you've sold property, replaced property or received a grant.

The rules are constantly changing, and it's vitally important that you're always in compliance.

And remember to keep documentation for a capital asset for the life of the asset (even if beyond the general 7 year rule for keeping records).

Luckily, there are accounting and tax services firms that can help you determine what qualifies for CCA and how much can be claimed each year.

So if you want to save the money you're losing on depreciating property and equipment, but don't have the hours and days necessary to file the proper paperwork and investigate your many options, then find a team - like the one at FBC - that can help you to do so.

By taking advantage of this deduction, you'll be getting the most for your dollar and paying less tax.

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