Capital cost allowance (CCA)
A tax deduction for business-related capital property that provides for the depreciation of these assets. Businesses can deduct up to a fixed percentage of the depreciated cost each year. CCA may differ from depreciation used for financial statement purposes. For example, in certain cases, the CCA rates at which assets can be written off against income may be faster than the rates used in companies’ financial accounts.
Under the Income Tax Act, a person carrying on a business may deduct from the income of the business capital cost allowance (CCA) in relation to depreciable property. Notionally, this deduction reflects the decline in the remaining useful life of certain kinds of property used in the business, like equipment, which has occurred over the year. It is similar, in this respect, to the accounting concept of depreciation. In practice, the Income Tax Act sets specific percentages of the acquisition or capital cost of property that may be deducted for a number of broad classes of property. These annual percentage deductions may or may not reflect the decline in the remaining useful life of property over a year. As well, the government may increase (often referred to as “accelerate”) permitted CCA deductions for certain kinds of property to encourage investment in targeted industries that use these kinds of property.