# Classes of depreciable properties

#### The Canada Revenue Agency says...

Rental Income Guide (T4036)

This section explains the most common classes of depreciable rental property and the rates that apply to each class.

Land is not depreciable property. Therefore, when you acquire rental property, only include in Area C and Area A of Form T776 the cost of the building.

Buildings

## Buildings

A building may belong to Class 1, 3, 6, 31, or 32, depending on what the building is made of and the date you acquire it. You also include in these classes the parts that make up the building, such as:

- electric wiring
- lighting fixtures
- plumbing
- sprinkler systems
- heating equipment
- air-conditioning equipment (other than window units)
- elevators
- escalators

Note: Land is not depreciable property.

Leasehold interest in real property that is a rental property

## Leasehold interest in real property that is a rental property

A leasehold interest is the interest of a tenant in any leased tangible property.

If you are a taxpayer or partnership and own a leasehold interest in a real property that is a rental property, include the leasehold interest in Class 1, 3, 6, or 13 (or Class 3, 6, or 13 for tax years before 1988).

It may be necessary in some situations to divide the capital cost of a leasehold interest into more than one prescribed class. For example, where you expend an amount to obtain a leasehold interest in land and construct a building that falls into Class 3, the capital cost of acquiring the lease will be included in Class 13 and the capital cost of the building will be included in Class 3.

Class 1 (4%)

## Class 1 (4%)

Class 1 includes most buildings acquired after 1987, unless they specifically belong in another class. Class 1 also includes the cost of certain additions or alterations you made after 1987 to a class 3 building. For more information, see "Class 3 (5%)."

The CCA rate for eligible non-residential buildings acquired by a taxpayer after March 18, 2007, used for the manufacturing or processing in Canada of goods for sale or lease is 10%. The CCA rate for other non-residential buildings is 6%. To be eligible for one of the additional allowances, a building has to be placed into a separate class. Otherwise, the rate of 4% will apply.

This applies to buildings acquired after March 18, 2007, (including a new building, if any portion of it was acquired after March 18, 2007, where 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, at least 90% of the building (measured by square footage) must be used for the designated purpose at the end of the tax year. Manufacturing and processing buildings that do not meet the 90% use test are eligible for the additional 2% allowance if at least 90% of the building is used for non-residential purposes at the end of the tax year.

For more information visit the CRA's Web site at www.cra.gc.ca

Class 3 (5%)

## Class 3 (5%)

Most buildings acquired before 1988 are now included in Class 3 or Class 6. If you acquired a building before 1990 that does not fall into Class 6, you can include it in Class 3 if one of the following situations applies:

- you acquired the building under the terms of a written agreement entered into before June 18, 1987; or
- the building was under construction by you or for you on June 18, 1987.

Do not transfer rental property you previously included in Class 3 to Class 1. Include in Class 1 the cost of any additions or alterations made after 1987 to a Class 3 building if the total cost is more than whichever amount is less:

- $500,000; or
- 25% of the building's capital cost (including the cost of additions or alterations to the building included in Class 3, 6, or 20 after 1988).

Class 6 (10%)

## Class 6 (10%)

Subject to the conditions explained below, include a building in Class 6 if it is made of frame, log, stucco on frame, galvanized iron, or corrugated iron. If you acquired the building after 1987, also include it in Class 6 if it is made of any other kind of corrugated metal.

A building acquired after 1978 is only included in Class 6 if one of the following conditions applies:

- the building must have no footings or other base supports below ground level; or
- the building must be used for producing income from farming or fishing. Farming and fishing income is not rental income.

If either of the above conditions applies, you also add to Class 6 the full cost of all additions and alterations to the building.

If neither of the above conditions applies, include the building in Class 6 if one of the following situations applies:

- you acquired the building before 1979;
- you entered into a written agreement before 1979 to acquire the building, and footings or other base supports of the building were started before 1979; or
- you started construction of the building before 1979 (or it was started under the terms of a written agreement you entered into before 1979), and footings or other base supports of the building were started before 1979.

For additions or alterations to such a building:

- add to Class 6 the first $100,000 of additions or alterations made after 1978;
- add to Class 3:
  - the additions or alterations of more than $100,000 that were made after 1978 and before 1988; and
  - the additions or alterations of more than $100,000 that were made after 1987, but only up to $500,000 or 25% of the building's capital cost, whichever is less;
- add to Class 1 any additions or alterations that are more than these limits.

For more information on this topic, see Interpretation Bulletin IT-79, Capital Cost Allowance - Buildings or Other Structures.

Class 13

## Class 13

The capital cost of a leasehold interest of Class 13 property includes:

- an amount that a tenant expends in respect of improvements or alterations to a leased property that are capital in nature, other than improvements or alterations that are included as a building or structure; and
- an amount that a tenant expends to obtain or extend a lease or sublease or pays to the landlord to permit the sublease of the property.

The maximum CCA rate depends on the type of leasehold interest and the terms of the lease.

Certain amounts are not included in the capital cost of a leasehold interest. These include:

- an amount paid by a tenant to cancel a lease; and
- an amount paid by a tenant in lieu of rent or as a prepayment of rent.

See Interpretation Bulletin IT-464, Capital Cost Allowance - Leasehold Interests, for more information on leasehold interests.

Class 31 (5%) and Class 32 (10%)

## Class 31 (5%) and Class 32 (10%)

Class 31 and Class 32 include multiple-unit residential buildings (MURBs) certified by the Canada Mortgage and Housing Corporation (CMHC) to which all the following conditions apply:

- they are located in Canada;
- they contain two or more units; and
- they provide their occupants with a relatively permanent residence.

To be included in Class 32, the building must have been acquired before 1980. To be included in Class 31, the building must have been acquired after 1979 and before June 18, 1987.

Note: For 1994 and following years, you can no longer create or increase a rental loss by claiming CCA on a Class 31 or Class 32 property.

When a MURB no longer qualifies as a Class 31 or Class 32 rental property, you have to transfer it to the correct class.

For more information about the 1994 change in the CCA limit on MURBs, see Interpretation Bulletin IT-195, .

Condominiums - A condominium unit in a building belongs to the same class as the building. For example, if you own a condominium in a Class 3 building, the unit in the building is Class 3 rental property. If the whole building qualifies as a Class 31 or Class 32 rental property (a MURB), then each unit within the building is a Class 31 or Class 32 rental property.

For more information on capital cost allowance and condominiums, see Interpretation Bulletin IT-304, Condominiums.

Class 8 (20%) - Other property

## Class 8 (20%) - Other property

Class 8 includes rental property that is not included in any other class. For example, furniture, household appliances, some fixtures, machinery, and equipment you use in your rental operation are all in this class.

Class 45 (45%)

## Class 45 (45%)

Include in Class 45 computer equipment and systems software acquired after March 22, 2004.

Note: Under proposed changes to the Income Tax Regulations, the CCA rate for computer equipment and systems software currently described in Class 45, and acquired after March 18, 2007 will increase from 45% to 55%.