A new client has three buildings, all were added to a single Class 1 by the previous tax preparer. The total opening UCC for all three buildings is $1.5 million, and no CCA was claimed in the past. My question is whether we can separate each building into individual classes using the “Adjustments and Transfers” option on Schedule 8 on current year T2, or what would be the best way to handle this situation? Client mentioned he is selling one building in this year. TIA
Why would you want to separate each building into a separate class? Expecting a loss on the one being sold, and want to claim a terminal loss?
Thank you for your reply. I apologize for the mistake in my original post! The client did claim CCA on one building in the past and is planning to sell the same building this year. While I was assessing this scenario with a hypothetical proceed amount in the tax cycle, I noticed that the tax cycle was not recapturing the CCA as expected. However, when I separated the buildings into individual classes, the recapture function worked correctly.
You’ll want to keep them separate for accounting purposes, but leave them in the same CCA class for tax purposes. In the case of a substantial proceeds on disposition, you will spread the tax bite over several years in lower CCA rather than an immediately taxable CCA recapture and capital gain. I always claim the maximum CCA, even in loss years now that the carry-forward period for losses increased several years ago.
If they’re rental properties and cost more than $50k each, they are required to be in separate classes. That seems like a likely reason.
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If these are rental properties, they are required to be in separate classes. In my experience, CRA does not really track UCC of asset classes, so you may just be able to change the opening balances to split them into the requisite number of classes. I’ve done that before and had no issue on filing.
Also bear in mind that if they are not rental properties, then you cannot split them into seperate classes. They go in the same pool in that case.
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Also, if the buildings were in the same class, you can’t really say they claimed CCA on one of the buildings. You claim CCA on the class pool, not on individual assets within the pool.
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Huh. I wasn’t aware of that. Or, maybe I learned that years ago and forgot, since I never had to deal with that situation. Most of my clients that own rental properties don’t want to claim CCA at all.
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Just did some research on this, and you do NOT have to put each rental property in a separate class unless you want to use the accelerated CCA rates (10% and 6%). If you use the standard Class 1 rate, you can keep all properties in a single pool:
Here is the specific section:
"Class 1 includes most buildings acquired after 1987, unless they specifically belong to another class. Class 1 also includes the cost of certain additions or alterations you made to a Class 1 building or certain buildings of another class after 1987.
The CCA rate for eligible non-residential buildings acquired by a taxpayer after March 18, 2007, and used in Canada to manufacture or process goods for sale or lease includes an additional allowance of 6% for a total rate of 10%. The CCA rate for other eligible non-residential buildings includes an additional allowance of 2% for a total rate of 6%.
To be eligible for one of the additional allowances, you must elect to put a building in a separate class. To make the election, attach a letter to your return for the tax year in which you acquired the building. If you do not file an election to put it in a separate class, the 4% rate will apply.
The additional allowance applies to buildings acquired after March 18, 2007, (including a new building, if any part of it is acquired after March 18, 2007, when the building was under construction on March 19, 2007) that have not been used or acquired for use before March 19, 2007.
To be eligible for the additional 6% allowance, you must use at least 90% of the building (measured by square footage) in Canada for the designated purpose at the end of the tax year. Manufacturing and processing buildings that do not meet the 90% used test are eligible for the additional 2% allowance. Eligibility applies if at least 90% of the building is used in Canada for non-residential purposes at the end of the tax year."
That section isn’t relevant. It doesn’t address rental properties at all. See Reg.1101(1ac) for details.
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Keeps rolling. Stop at “separate classes”. Post-1971 purchases of rental properties with a capital cost of $50,000 or more have to be put in a separate class. No choice.
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Here is the text:
Generally, if you own several properties in the same CCA class, combine the capital cost of all these properties into one class. Then enter the total of the combined properties that are represented under one class in Area A’s calculation table. If you acquired a rental property after 1971 and it had a capital cost of $50,000 or more, you have to put it in a separate class. Calculate your CCA separately for each rental property that is in a separate class. Do this by listing the rental property on a separate line in Area A’s calculation table. For CCA purposes, the capital cost is the part of the price that relates to the building only.
When you dispose of a rental property that you have set up in a separate class in Area A’s calculation table, you base any CCA recapture or terminal loss only on the disposition of that rental property. When calculating these amounts, do not consider any other rental property you own that has the same class number as the rental property you disposed of. For more information on recapture of CCA and terminal losses, see Column 7 – UCC after additions and dispositions.
For more information about CCA for rental properties with a capital cost of over $50,000, see Interpretation Bulletin IT-274, Rental Properties – Capital Cost of $50,000 or More.
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@jhd.hemeon @iain.fyffe @Rein
Ok, I stand corrected. Thanks for setting me straight. Seems like something I should have known. Maybe I should think about retiring…or going back to school.
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Nobody knows everything 
That’s why I like this blog.
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@Rein @Nezzer @jhd.hemeon @iain.fyffe
Just wanted to say a big thank you! You’re all amazing, and I’m really enjoying learning from each of you 
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