Tools and Equipment Tax Deductions
How to deduct tools and equipment: small tools, CCA classes and the 2026 first-year rules.
The short version
- Small tools costing less than $500 each can generally be written off in full in the year you buy them (CCA class 12).
- Bigger tools and equipment are capital property: you deduct the cost over several years through capital cost allowance (CCA). Most equipment is class 8 at 20% a year; computers are class 50 at 55%.
- Equipment bought in 2025 or later and in use before 2030 gets three times the normal first-year deduction under the reaccelerated investment incentive.
- Selling or trading equipment later can bring back some of the CCA as income (recapture), or give a final deduction (terminal loss).
- The federal government announced a broader “Productivity Mega Deduction” on October 1, 2026 for immediate expensing. Details were still to come when we checked.
Tools and Equipment Tax Deductions Canada
In the trades, tools are the business. A cordless drill is a current expense. A $9,000 mini-excavator isn't; it's an asset that wears out over years, and the tax system makes you deduct it the same way. Here's how CCA works without the accounting jargon. (The full mechanics, for every class, are on capital cost allowance explained.)
Small Tools: Write Them Off Now
Tools that cost less than $500 each (before tax) go in CCA class 12 at 100%, and the half-year rule doesn't apply, so the whole cost is deducted in the year. That covers most hand tools, drill bits, saw blades and small power tools. Keep the receipts showing the price of each item; one invoice for a $1,400 tool chest full of $40 wrenches still counts item by item.
Bigger Equipment: Capital Cost Allowance
| CCA class | Rate (declining balance) | Typical items |
|---|---|---|
| 8 | 20% | Machinery, larger tools and equipment, furniture, trailers (many), most general equipment |
| 10 | 30% | Vehicles, trucks, general-purpose equipment like some heavy vehicles |
| 10.1 | 30% | Passenger vehicles costing over $39,000 (2026 ceiling; see vehicle expenses) |
| 12 | 100% | Small tools under $500, software (application), some uniforms |
| 50 | 55% | Computers and computer hardware |
| 54 | 30% | Zero-emission passenger vehicles (to the $61,000 ceiling) |
Normally only half the regular CCA is allowed in the year you buy (the half-year rule). For property acquired in 2025 or later and available for use before 2030, the reaccelerated investment incentive suspends that rule and generally triples the normal first-year claim; see capital cost allowance explained. Tax software applies this automatically when you enter the purchase.
Example
A contractor buys a $9,000 trailer-mounted compressor (class 8) in 2026. Normally the first-year CCA would be 20% x $9,000 x 1/2 = $900. With the reaccelerated first-year allowance (1.5 times the 20% rate), it's $2,700. The rest is deducted at 20% a year on the declining balance. You don't have to claim the full CCA in any year; in a low-income year, claiming less saves it for later, when your marginal rate is higher.
Expense it or depreciate it?
Describe what you bought, the cost and when. The assistant tells you the CCA class, the first-year deduction for 2026, and whether to claim it all now or save some for later.
Selling or Trading In
When you sell equipment, the proceeds come off the class. If the class goes negative, the difference is recapture, added to income. If you sell everything in the class for less than its remaining balance, the shortfall is a terminal loss, fully deductible. Trading in a truck works the same way: the trade-in value is the proceeds.
The New Productivity Mega Deduction
On October 1, 2026, the federal government announced the Productivity Mega Deduction, which it says will allow immediate expensing of a much broader range of business investments, including computer equipment and vehicles. When we checked, the details (who qualifies, from what date, and how it interacts with the existing rules) hadn't been fully published. Until they are, use the current CCA rules above, and watch our tax changes page.
Employees and Tools
Employed tradespeople have a separate, smaller deduction for tools; see employment expenses.
Get your GST/HST set up right the first time
The GST/HST SmartFile runs both $30,000 tests on your sales, compares the quick method with the regular method, and fills in form GST74 if the quick method wins.
Equipment purchases go in the capital section of the T2125, and the CCA lands on line 9936. The other expense lines are on business expense deductions. Return Check flags capital purchases claimed as one-year expenses, a common CRA adjustment.
Tools and Equipment Questions
Can I write off tools in one year in Canada?
Small tools costing less than $500 each generally can be, in CCA class 12 at 100% without the half-year rule. More expensive tools are capital property deducted over several years.
What CCA class are tools and equipment?
Most general equipment and larger tools are class 8 at 20%. Computers are class 50 at 55%, and vehicles are generally class 10 or 10.1 at 30%.
What is the half-year rule?
In the year you buy most capital property, you can claim only half the normal CCA. For property acquired in 2025 or later and available for use before 2030, the reaccelerated investment incentive suspends the half-year rule and generally triples the first-year amount.
Do I have to claim the full CCA every year?
No. CCA is optional; you can claim any amount up to the maximum and save the rest for later years.
What is the Productivity Mega Deduction?
A measure announced on October 1, 2026 to allow immediate expensing of a broader range of business investments. Its details and start date should be confirmed before relying on it.
Sources: CRA, Guide T4002, Chapter 4 Capital cost allowance; Accelerated investment incentive; Finance Canada, Productivity Mega Deduction (October 2026). Checked October 2026. CCA class descriptions are simplified; some items fall in other classes.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.