What Capital Cost Allowance (CCA) Classes Are Computers In?

How Much You Can Deduct on Income Tax Depends on the CRA CCA Classes

Computer Equipment
CRA CCA classes for computer equipment and software. Image (c) John Lamb / Getty Images

There are several Capital Cost Allowance (CCA) classes that the Canada Revenue Agency (CRA) uses to apply to computers, computer equipment, software and related office equipment. Use this chart to determine what CRA CCA classes your computer assets belong in when filing your business tax return:

CCA Classes/Rates for Computer Equipment and Software
8Photocopiers and electronic communications equipment, such as fax machines and  telephone equipment. Includes cell phones (although with the power of today's smartphones it could be argued that these are as much computers as phones, and therefore should belong to CCA class 50). The half-year rule (see below) applies.20%
12Computer application software (not systems software) - this includes end-user applications such as word processors, spreadsheets, accounting software, tax preparation software, database programs etc. Examples include Microsoft Office, Adobe Photoshop, etc. The half-year rule (see below) applies.100%

Data network infrastructure equipment that supports advanced telecommunication applications. It includes assets such as switches, multiplexers, routers, hubs, modems and domain name servers that are used to control, transfer, modulate and direct data. The half-year rule (see below) applies.

Does not include office equipment such as desktop telephones, cell phones, fax machines, copiers, or property such as wires, cables or structures.

50General purpose computer equipment and systems software for that equipment. This includes desktop computers, tablets, server computers, storage devices, monitors, disk drives, cables, and printers as well as pre-installed system software that operates these devices. It does not include equipment "used mainly" as:

     1. electronic process control systems (PCS) or monitor equipment;

     2. electronic communications control equipment;

     3. systems software for equipment referred to in 1. or 2.; or

     4. data handling equipment (other than data handling equipment that is ancillary to general-purpose electronic data processing equipment). (Canada Revenue Agency).

Systems software is core software that provides services to end-user software. It typically applies to operating systems software such as Microsoft Windows, Mac OS X, or Linux. The half-year rule applies.


Is It an Expense or a CCA Asset Depreciation?

Nowadays many business users replace inexpensive mobile phones, laptops or tablets every two years or so and record the entire amount as a business expense, rather than depreciating the asset under CCA. There are no hard and fast rules for this, but for small amounts (under $500) the CRA does not seem to quibble with the practice. As always, if you are in doubt check with your accountant.

The Half-Year Rule

The CCA "Half-year" rule states that the maximum you can depreciate assets in the year of purchase is half of the amount of your net additions in a particular class.

So for example, if in the current tax year you purchased some applications software for your business you would be able to claim CCA on half the cost of it.

If You Don't Need the CCA Deduction in a Given Year You Don't Have to Claim It

CCA does not have to be claimed in a given year - it is cumulative.

You can claim part of it, all of it, or none of it. If your business has a low-income year you can save your CCA deductions for a subsequent year in which your income is higher and the deduction will be more worthwhile.

Temporary CCA Incentives for Computer Equipment

To stimulate the economy and encourage businesses to adopt technology the government of Canada introduced a special CCA class (52) with a rate of 100% in 2009 for computer assets that were purchased between Jan. 27, 2009 and February 1, 2011.

After February 2011 the purchases of all such assets reverted to Class 50 (rate 55%). The accelerated rate did not apply to applications software (class 12) or electronic communications control equipment such as phone systems and data networks, data handling equipment and electronic process control or monitoring equipment (class 46).

Need help to figure out your CCA for your income tax? How to Calculate Capital Cost Allowance - A Must Know for Your Canadian Business provides a column by column guide to the T2125 form.

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See also:

How to Claim Motor Vehicle CCA Costs

8 Tax Strategies to Maximize Your Business Income Tax Deductions

The Most Overlooked Tax Deductions for Canadian Small Businesses

5 Common Business Tax Myths