It cost me $5,000 to buy some furniture for my rental property. How should I claim the cost?
Furniture is depreciable capital asset and should be put in class 8. The capital cost allowance rate for class 8 is 20%. Under the Accelerated Investment Incentive measure, it is eligible for an enhanced first-year allowance.
Each year, you may claim the CCA as rental expenses
The first year’s CCA = (5000 + 5000×0.5) x 20% = 1,500
The second year’s = 3500×20% = 700
| Year | CCA Rate | CCA claimed | Ending UCC |
| 1st year | 20% | 1,500 | 3,500 |
| 2nd year | 20% | 700 | 2,800 |
| 3rd year | 20% | 560 | 2,240 |
| 4th year | 20% | 448 | 1,792 |
| 5th year | 20% | 358.4 | 1,433.6 |
I have rental loss already. Can I still claim CCA to have more loss?
No, you can’t claim CCA if you already have rental loss. You can only claim the CCA up to the amount that makes your net rental income zero.
Should I depreciate my rental property to reduce my rental net income to pay less taxes?
It depends. You will save on taxes if you claim the capital cost allowance (CCA). But all the CCA you claimed may be added as your income and you’ll have to pay taxes on it. This is called recapture.
A recapture of CCA can occur when the proceeds from the sale of depreciable rental property are more than the total of both:
- the undepreciated capital cost (UCC) of the class at the beginning of the year
- the capital cost of any additions during the year
For example, your salary income is $100k and net rental income is $10k. For this $10k rental income, you must pay about $4,300 in tax. Assuming your rental building has a final UCC of 200k, you can claim CCA = 200k x 4% (4% is the CCA rate of building) = 8k. After deducting the building’s CCA, your rental net income is only 2k, so you save about 8k x 43% = $3,440. However, when you sell the rental house, the $3,440 will be added to your income as recapture and you’ll have to pay taxes on it.
There is another disadvantage of claiming CCA on your rental property. When you change your rental property to a principal residence, you can elect to postpone reporting the disposition of your property until you actually sell it. However, you cannot make this election if you have deducted CCA on the property. It means you must calculate and pay the capital gain before the house is sold.
I am renting one room of my house. Should I claim the building’s CCA to reduce my rental income?
No, don’t claim CCA on your home. If you claim your home’s CCA, your home will qualify as a principal residence. It means you must pay capital gains when you sell your home.
