Example
During the year, Paul bought a house to use for rental purposes. The building is classified as Class 1 for CCA purposes with a CCA rate of 4%. It is his only rental property. The total cost was $95,000 ($90,000 total purchase price plus $5,000 total expenses connected with the purchase). The details are as follows:

Paul's rental income was $6,000 and his rental expenses were $4,900. Therefore, his net rental income before deducting CCA was $1,100 ($6,000 - $4,900). Paul wants to deduct as much CCA as he can.

Before Paul can complete Area A of Form T776, Statement of Real Estate Rentals, he has to calculate the capital cost of the building. Since land is not depreciable property, he has to calculate the part of the expenses connected with the purchase that relate only to the building. To do this, he has to use the formula in Column 3: Cost of additions in the year.

This $4,166.67 is the part of the $5,000 in legal fees and land transfer taxes that relates to the purchase of the building, while the remaining $833.33 relates to the purchase of the land. Therefore, the capital cost of the building is:

Paul enters $79,166.67 in column 3 of Area C of Form T776. He includes $15,833.33 ($15,000 + $833.33) on line 9923 of Area F of Form T776 as the capital cost of the land.

Paul never owned rental property before the current year. Therefore, he has no undepreciated capital cost (UCC) to enter in Column 2: Undepreciated capital cost (UCC) at the start of the year of Area A of Form T776.

Since Paul acquired his rental property during the current year, he is subject to the half-year rule explained in Column 6: Adjustment for current-year additions.

His net rental income before CCA is $1,100. Paul cannot claim CCA of more than $1,100 because he cannot use his CCA to create a rental loss. This is the case even though he would otherwise be entitled to claim $1,583.33 [($79,166.67 × 50%) × 4%].