First it is important to determine the relationship between entities if one exists. Related, not-related, associcated, (eg. connected) or controlled.


This makes a difference since is important to determine who actually owns the property and what percentage is allowable as a deduction.


A business can not buy property and simply write it off as a deduction. The write off must be eligible.


There are different types of property. Some do not change in value between reporting dates. If the value does not change, it is non-depreciable. Examples follow......

  • Land
  • Receivables
  • Investments
  • Personal Use Property


Property that is tangible and some that is intangible (eg. Patents) is depreciated and apart of that property value is allowable as an expense on the income statement. The property is not already deducted from income when determing net income and the property was purchased for the purpose of gaining or producing income. Depreciable property is called capital property. There is a limited duration for which the property is depreciable, and the local tax law generally determines which class & duration.


Eligible capital property refers to intangible property. This type of intangible  has a duration that is more difficult to measure, such as goodwill, licenses, unlimited franchises, and incorporation costs. There are also rules to determine which percentage is allowable in a cumulated amount and at what rate it is annually reduced.


The rationale behind this method of depreciation (uniform system) is that similar tax benefits are entitled to the same treatment. Since the government determines the amount or rate deductible, they can influence the activities within an industry or the marketplace. eg. Manufacturing equipment that has a rate of 20% which is increased to 30% will stimulate the econonmy in such a way as to promote industry.


Determination of the Capital Cost of the property is essential since it forms the basis of what amount of property is to be depreciated. This is the total cost of the acquisition. These costs extend the useful life of the property and include costs of:

  • Aquisition
  • Transportation
  • Installation
  • Non-reimbursable Sales Tax
  • Material, Labour and Overhead (net of Profit)
  • Property donated with is taken at Fair Market Value
  • Improvements but not repair or maintenance
  • Additions

Capital Cost Reductions are those that reduce the amount of eligible capital property. Some examples are as follows:


  • Grant
  • Subsidy
  • Loan
  • Investment Tax
  • Inducement Payment (only when the asset is in use and not to exceed the value of the asset)
  • Borrowing Costs (check with the local or enacted Tax Act)

Soft costs (interest relating to construction, rennovation, alteration, mortage, legal or accounting fees need to be checked with the local or enacted Tax Act)


UCC year0 + acquisitions – dispositions – CCA claimed = UCC year1

Recapture of CCA is reported if disposition of a property results in there still being a balance that could be depreciable. This happens when the compensation price is higher than the value of the CCA. Even after deducting for the half-year rule (if there is one), the business has experienced a form of income. Dates are important since the timing affects the amount of depreciation, therefore, note if there is a court order or important event that would necessitate an earlier date than when cash is actually transferred. In the case of fire, it probably depends on the court date of rule.


It may be that for this reason, rental properties and auto vehicles are itemized and kept separate instead of being pulled all into one class. This allows for better record keeping.