Calculation of CCA when partners exist

[Szoke]

HI

I own a rental property with my wife. Each of us owns 50%. UFile is nice and generates the documents for her too, so I don't need to fill in data twice.

You can see in the first red square ( line 5) 

The problem is with the capital cost allowance claim because that is the full amount . In my opinion it should be half of that amount . 

I should be claiming half and my wife the other half based on the same logic that is applied for the income ( line 5).

 

The asses is setup like this so the allocation should be done prorated based on the partner level ( at least this is what I understand).

 

 

[TheTaxSmith]

Hi Szoke. I looked at the choices for "To whom the CCA should be allocated" and you might try and switch the drop down selection to the first item "Business at 100%". This should allocate the CCA to both co-owners at 50%. You will need to do that for all the assets on the CCA schedule for rental income.

[Szoke]

Thank you. I will try that. 

It is a little confusing. What will be the explanation for the current setting ? For me it looks more suitable for this situation. 

Thank You

 

[TheTaxSmith]

Hi Szoke. Rental statements with respect to CCA are not the same as Business statements. For a business (active income) the CCA is deducted first to arrive at net income which is then allocated to the partners/co-owners. With respect to Rental income (passive to an extent) CCA can be taken after the net income split and allocated to the partners/co-owners in any amount they want. For instance in your case you and your spouse can have different amounts of CCA taken on your proportionate ownership of the asset. Why would you do this? Let's say one partner has no other income while the other has significant income. The no income spouse can choose to not deduct CCA keeping the rental income for them higher but still low enough so as to not incur any tax. Down the road upon disposition that owner will have none or little recapture of CCA which could elevate their income and actually end up paying tax when it could have been avoided. That is a simple explanation. There are other factors that come into play in terms of planning and basically predicting the future tax situation. Another consideration which is not well known is that rental income is earned income for purposes of the RRSP eligibility. The higher the rental income the more eligibility for RRSP is earned. Reducing rental income using CCA should be considered in light of that.

[Szoke]

ok, Thank you for the detail explanation. Really appreciated .

I applied the change and it looks good now.

 

Thank you

 

[Wendy2022]

Hi theTaxSmith,

I am using this year's UFile.  I think I observed something different from Szoke. My spouse and I each own 50% of a rental property.  When I select "business level", "Total capital cost allowance claim for the year" is 13512.36, which is much less than my income (19526.04), resulting in a net income of 6013.68 as shown below.

 

 

However, when I select "Partner level", Total capital cost allowance claim for the year is 19983.44 which is similar to my income (19526.04), resulting in a net loss of 457.4 as shown below.

Could you explain why? How is "Total capital cost allowance claim for the year" calculated? 

 

Many thanks,

Wendy

 

 

[TheTaxSmith]

You should only indicate that the rental is a co-ownership, enter 50% as your share, then enter all the income and expenses. At the end indicate that it is a co-ownership with spouse and request (via drop down box) to transfer the schedule to your spouse's return and enter 50% for their share. Don't use the partner level (pro-rated). One point to explain is that CCA can not reduce rental income below zero unless there is more than one property and the extra CCA can be used against the other property because it has a positive income.