Maximize Your Savings with CCA
If you’re planning to purchase significant equipment—like CNC machines, milling equipment, or other heavy-duty machinery—there are opportunities to reduce your tax liability using Capital Cost Allowance (CCA). This Canadian tax strategy allows businesses to write off part of the cost of certain assets over time. However, recent changes to tax laws could affect how much you can deduct in the first year. Now is a great time to consider your options.
This article will provide valuable talking points for your next discussion with a tax consultant. Here are a few key considerations to bring up during your conversation:
- CCA Classes and Their Depreciation Rates
- What has changed in 2024
- Why You Should Act Now
- Key Takeaways for 2024 and Beyond
What is Capital Cost Allowance (CCA)?
CCA allows Canadian businesses to claim depreciation on eligible assets like machinery and equipment. By deducting a portion of an asset’s cost annually, you may be able to reduce your taxable income. The amount you can claim depends on the class your asset falls under and its associated depreciation rate.
For example, most machinery typically falls under Class 43, which has a standard depreciation rate of 30%. However, the classification of a specific asset may depend on its use and when it was acquired. The 30% rate in Class 43 uses the declining balance method, meaning businesses can deduct 30% of the remaining balance each year, starting from the second year, after accounting for the first year's depreciation.
CCA Classes and Their Depreciation Rates
Assets are grouped into CCA classes, each with its own rate for depreciation. Some common examples include:
- Class 8 (20%) – General Equipment: Includes items such as furniture, appliances, and office equipment not classified elsewhere.
- Example: Office desks, chairs, filing cabinets, and photocopiers.
- Class 10 (30%) – Motor Vehicles: Covers motor vehicles and some passenger vehicles that do not fall into Class 10.1.
- Example: A delivery van used for business purposes.
- Class 12 (100%) – Small Tools and Software: For tools costing under $500 and certain software with a limited useful life.
- Example: Hand tools for a repair shop or off-the-shelf software.
- Class 16 (40%) – Taxis and Rental Cars: Includes taxis, rental cars, and heavy vehicles like trucks.
- Example: A taxi purchased for use in a ride-hailing service.
- Class 43 (30%) – Manufacturing and Processing Equipment: Includes eligible machinery used in Canada primarily to manufacture or process goods for sale or lease that are not included in Class 29 or Class 53.
- Example: A taxi purchased for use in a ride-hailing service.
- Class 43.1 (30%) – Clean Energy Generation Equipment: Equipment used to generate energy from renewable sources like wind, solar, and geothermal.
- Example: Solar panels installed to generate electricity for a business.
- Class 53 (50%) – Manufacturing and Processing Equipment: Machinery and equipment used in manufacturing or processing, acquired after 2015.
- Example: Industrial machinery used in a factory to produce goods.
Machinery often falls under Class 43 (30%) or Class 53 (50%), depending on its use. Consulting with a tax professional can help confirm your asset’s classification and rate.
What Has Changed in 2024? The Phase-Out of Accelerated CCA
The accelerated Capital Cost Allowance (CCA), which allowed businesses to claim up to 100% depreciation in the first year for eligible assets, ended on December 31, 2023. However, new opportunities for enhanced first-year deductions are still available in 2024, albeit at reduced rates.
- Class 53 (50% rate): For equipment acquired in 2024, businesses may be eligible for a 75% first-year deduction under Class 53. This enhanced deduction will decline to 55% in 2026.
- Class 43 (30% rate): Starting in 2026, certain assets in Class 43 may qualify for a 55% first-year deduction. However, there are no enhanced first-year deductions available for Class 43 assets in 2024 and 2025. For those years, the standard depreciation rules will apply.
These changes make 2024 a transitional year—a good time to evaluate your purchase strategy while higher first-year rates are still available for some classes.
Example Depreciation Chart
| Year Property Is Put into Service | Standard First-Year Allowance (Half-Year Rule) | Enhanced First-Year Allowance for Class 53 | Enhanced First-Year Allowance for Class 43* |
|---|---|---|---|
| 2018-2023 | 25% | 100% | N/A |
| 2024 | 25% | 75% | N/A |
| 2025 | 25% | 75% | N/A |
| 2026 | 15% | 55% | 55% |
| 2027 | 15% | 55% | 55% |
| 2028 | 15% | N/A | N/A |
Full expensing applies only to Class 43 assets acquired after 2025; assets acquired in 2025 will be categorized under Class 53 instead.
Why You Should Act Now
If you’re considering a major purchase, 2024 is still a good time to buy—but timing matters. While the accelerated write-offs have been scaled back, there are still ways to maximize your deductions, especially if you purchase equipment before the next phase-out period. By acting now and consulting with your tax advisor, you may be able benefit from a higher first-year deduction than you’ll get in future years.
To make the most of the remaining accelerated depreciation benefits, consider these tips:
- Consult a Tax Professional: Tax laws are complex, and you want to ensure you're claiming the maximum deductions possible while staying compliant with the rules.
- Take Advantage of Higher First-Year Allowances: The enhanced rates for certain classes may still provide significant savings.
- Plan Purchases Strategically: Timing matters—buying sooner could help you benefit from higher deduction rates before further reductions occur.
- Understand CCA Classifications: Not all equipment qualifies for the same depreciation rate. Make sure you know which class your equipment falls into so you can plan your depreciation strategy effectively.
Key Takeaways for 2024 and Beyond
- End of 100% Write-Offs: The accelerated write-off provisions, such as the 100% first-year deductions that were available until 2023, have been phased out.
- New Deduction Rules: Starting in 2024, businesses can deduct 75% of the cost in the first year for Class 53 assets. However, Class 43 assets will only be eligible for enhanced deductions starting in 2026.
- Half-Year Rule Still Applies: The normal half-year depreciation rule remains in effect unless a specific enhanced allowance applies.
- Opportunities for Enhanced Rates: Businesses can still access enhanced deduction rates for certain asset classes, available through 2027.
- Consult a Tax Professional: To navigate these changes and make the most of potential savings, it’s important to consult with a tax expert to optimize your purchases and tax strategy.
The Bottom Line
Don’t let these changes catch you off guard. By understanding the new rules, planning purchases wisely, and consulting with a tax expert, you could still make significant tax savings on your next major equipment investment.
Now may be the time to act—start the conversation with your tax consultant today!
For more detailed information, we recommend visiting the CRA website. A great place to start is this page: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance.html
And for more details on the accelerated investment incentives, check out the CRA website here: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/accelerated-investment-incentive.html