CCA class for goodwill - Notes from a Canadian CPA

When it comes to Canadian tax rules, intangible assets like goodwill and patents are treated differently for depreciation (CCA) purposes. Here’s a quick breakdown:

Class 14 (Straight-Line Method)

Intangible assets with a limited useful life—like patents and franchises—fall into Class 14. These are depreciated evenly over their estimated useful life using the straight-line method.

• Accelerated Investment Incentive (AII): In the year of purchase, an extra 50% CCA can be claimed (and 50% less in the final year).
• Example: If a $200,000 patent has a 5-year useful life:
  • Year 1: $40,000 * 1.5 = $60,000
  • Year 2-4: $40,000 annually
  • Year 5: $40,000 * 50% = $20,000

Class 14.1 (Declining Balance Method)

Intangible assets with an unlimited or unknown useful life—like goodwill or customer lists—are in Class 14.1. These are depreciated using the declining balance method at 5% per year.

• AII Rules Apply: No half-year rule and an additional 50% CCA can be claimed in the first year.
• Example: If $200,000 goodwill is purchased:
  • Year 1: $200,000 * 1.5 * 5% = $15,000
  • Year 2: $185,000 * 5% = $9,250
  • Year 3: $175,750 * 5% = $8,787

Key Takeaway

The choice between Class 14 and Class 14.1 depends on the asset’s useful life:

• Class 14 allows higher deductions in a shorter time.
• Class 14.1 spreads deductions over a longer period, offering a smaller annual write-off.

Knowing how to classify and depreciate your intangibles can make a significant difference in your tax filings. Consult with your CPA to maximize your tax efficiency!

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For a list of all the CCA classes from CRA: Classes of depreciable property - Canada.ca

For more information, consult Canada.ca and if you’re looking for a CPA in Ottawa, please don’t hesitate to reach out.

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This is not legally binding tax advice. This is educational analysis. Say hello if you need help.

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