In computing income from a business, capital cost allowance (CCA), or tax depreciation, is allowed as a deduction. When capital assets are purchased, they are grouped into classes based on the type of capital asset purchased. CCA is claimed annually against each class. The "declining balance" method is used for most classes: the maximum you can claim against each class is a fixed percentage of the undepreciated capital cost (UCC) which is the running balance of undepreciated capital assets in a class. What you claim then reduces the UCC balance for next year's claim.
For most acquisitions, only one-half of the CCA you could otherwise claim for the asset is allowed in the year of acquisition. As a result, acquiring an asset just before your year-end will accelerate the timing of your tax write-off, while acquiring the asset at the beginning of the year will delay your CCA claim .
If you would like more information about the timing of your capital asset purchases, seek the advice of a Chartered Accountant.
Information for Tax Tips is provided as a public service by the Chartered Accountants of British Columbia.