Capital cost allowance under paragraph 20(1)(a) is one of the deductions specifically permitted in respect of certain capital outlays.  Regulation 1100 determines the amount of capital cost allowance which may be claimed based on undepreciated capital cost which is defined in subsection 13(21).

In order to qualify for capital cost allowance:

• the asset must be acquired by the taxpayer (subsection 13(21)),
• the asset must be available for use (subsection 13(26)),
• the property must not otherwise be deductible in computing income (Reg. 1102(1)(a), (a.1)),
• the property must not be described in the taxpayer’s inventory (Reg. 1102(1)(b)),
• the property must be acquired for the purpose of gaining or producing income (Reg. 1102(1)(c)),
• the property must not be specifically excluded by Reg. 1102(1)(d)-(k), and
• the property must be an asset described in Schedule II (Reg. 1100(1)).

One of the key elements of undepreciated capital cost is the capital cost of all property of that class acquired before that time.

There is no definition of “capital cost” in the Act. Accordingly, the term is defined according to commercial usage.  Generally accepted accounting principles would include as cost all amounts expended to put the asset in a position to render service.  The fact that there is no definition in the Act has led to a number of mandatory adjustments in the Act for tax credits (federal and provincial), government grants, and forgivable loans. Subsidies from third parties, for example a contribution by a landlord towards leasehold construction undertaken by a tenant are dealt with in paragraph 12(1)(x).  That provision applies to amounts received after May 22, 1985.  It provides for an income inclusion (if the terms in that paragraph are met) except to the extent the taxpayer elects under subsection 13(7.4) to treat the amount as a reduction of capital cost.

Subparagraph 12(1)(x)(i) will also includes indirect assistance from the payer in income.

Finally, capital cost allowance is a discretionary deduction. Therefore the amount need not be claimed or an amount less than the maximum may be claimed, as computed under Section 1100 of the Income Tax Regulations.