Question

Sally Frampton has two Class 1 rental properties. Property 1 has a UCC at the beginning of the year of $550,000 and has net rental income before the deduction of CCA of $43,000. Property 2 has a UCC of $985,000 at the beginning of the year, but has incurred a net rental loss before CCA of $26,000. What is the maximum amount of CCA that Sally can claim this year?

Do you separate and why?

How much CCA would be calculated if deductible?

What would be the maximum to deduct?

Answer 1

Capital cost allowance (CCA) is the depreciation on various properties allowed under Canadian taxation. CCA is calculated as a percentage of UCC which is Undepreciated Capital Cost of the asset at the beginning of the year. UCC keeps decreasing each year by the amount of CCA claimed in that year.

Now, in the case in question, the properties are Class 1 properties. Class 1 properties are allowed to deduct CCA at 4% of UCC at the beginning of the year. Further, one of the properties has a net rental income while the other has a net rental loss before CCA, as per table below:

	Property 1	Property 2
Undepreciated Capital Cost (UCC)	$550,000	$985,000
Rental Income (Loss) before CCA	$43,000	($26,000)
Capital Cost Allowance (CCA) on Class 1 properties (4% of UCC)	$22,000	$39,400

Now, we can claim CCA of $22,000 on Property 1 individually and Nil on Property 2 individually (since net rental loss can be deducted from other sources of income but CCA cannot be used to increase or produce a rental loss).

If we club the net rental gain on both the properties, net rental gain = $43,000 - $26,000 = $17,000. In case of clubbing, maximum CCA that can be claimed will be limited to $17,000 only, since the CCA cannot be used to increase or produce a rental loss.

This is why it is advisable to separate the two properties for the purpose of claiming CCA, since we can claim higher CCA of $22,000.

The maximum CCA deductible will be $22,000.