Capital Cost Allowance Explained
How CCA classes, the half-year rule and the 2024 to 2027 accelerated incentive work, with a worked example.
The short version
- Capital cost allowance (CCA) is how a Canadian business deducts the cost of things that last more than a year: equipment, vehicles, computers, furniture, buildings. You deduct a percentage of the remaining balance each year instead of the full cost up front.
- Each type of property goes in a CCA class with its own rate: class 8 (20%) for most equipment, class 10 and 10.1 (30%) for vehicles, class 50 (55%) for computers, class 12 (100%) for small tools under $500, class 1 (4%) for most buildings.
- The half-year rule normally halves the claim in the year you buy. For property acquired in 2025 or later and available for use before 2030, the reaccelerated investment incentive (Bill C-15) generally triples the normal first-year claim.
- CCA is optional. You can claim anything from zero to the maximum, and whatever you don't claim stays in the class for later years.
- Land is never depreciable. Selling an asset can bring CCA back into income (recapture) or give you a final deduction (terminal loss).
Capital Cost Allowance Explained
Accountants call it depreciation. CRA calls it capital cost allowance. Everyone else calls it "why can't I just write off the truck?" The answer is that the truck will still be working next year, and the tax system wants the deduction spread over the years it earns money for you. Annoying, but it has a few features that work in your favour, once you know where they are.
This page covers the mechanics for sole proprietors, partnerships and corporations. If you're a tradesperson looking for which tools go where, the practical version is on tools and equipment tax deductions.
How CCA Works in Four Steps
- Put the asset in its class. The class is set by the Income Tax Regulations, not by how long you think the thing will last.
- Add the cost to the class. Cost includes delivery, installation, and legal or other fees to buy it. If you're a GST/HST registrant, use the cost after the input tax credit.
- Apply the rate to the balance. Most classes use the declining-balance method: the rate applies to what's left (the undepreciated capital cost, or UCC), not the original price.
- Carry the balance forward. Next year starts from the reduced balance, plus new purchases, minus anything sold.
The CCA Classes Small Businesses Use Most
| Class | Rate | What goes in it |
|---|---|---|
| 1 | 4% (6% or 10% for some non-residential buildings) | Most buildings acquired after 1987 |
| 8 | 20% | Machinery, equipment, furniture, most tools over $500, appliances, some trailers |
| 10 | 30% | Vehicles, vans and trucks used mostly for business; passenger vehicles at or under the ceiling |
| 10.1 | 30% | Passenger vehicles costing more than $39,000 (2026 ceiling); each car in its own class |
| 12 | 100% | Tools, kitchen utensils and medical instruments under $500 each; application software |
| 14.1 | 5% | Goodwill and other intangibles bought with a business |
| 43 | 30% | Manufacturing and processing machinery |
| 50 | 55% | Computers and systems software |
| 54 | 30% | Zero-emission passenger vehicles (to the $61,000 ceiling) |
Leasehold improvements (class 13) are deducted over the lease term, and a few classes use straight-line instead of declining balance. If something you bought doesn't fit neatly in the table, check the class list in Guide T4002 before you guess; a wrong class is one of the easier things for CRA to fix in its favour.
Which CCA class is this, and what can I claim?
Describe the asset, the price, the date it was ready to use and your business. The assistant tells you the class, the 2026 maximum, and whether claiming less this year makes sense.
The Half-Year Rule and the Accelerated Investment Incentive
Normally, in the year you buy depreciable property, you can claim CCA on only half of the net addition to the class. The theory is that you didn't own it for the whole year. The practice is that buying a $20,000 machine on December 30 still got you half a year's deduction.
The Accelerated Investment Incentive (AII) has been changing the first year since November 2018. It was being phased down (to two times the normal first-year CCA for property available for use from 2024 to 2027), until the federal government restored it at full strength. Under Bill C-15, which passed third reading in February 2026, property acquired on or after January 1, 2025 that becomes available for use before 2030 is "reaccelerated investment incentive property": the half-year rule is suspended and you can claim 1.5 times the normal rate on the net addition, which is three times the normal first-year CCA. The enhancement phases out for property available for use from 2030 to 2033. Nothing to apply for: you claim it on the CCA schedule and the software does the math.
| $20,000 class 8 machine, bought and available for use in 2026 | Normal rule | With the reaccelerated incentive |
|---|---|---|
| First-year CCA | $20,000 x 20% x 1/2 = $2,000 | $20,000 x 20% x 1.5 = $6,000 |
| Balance carried to 2027 | $18,000 | $14,000 |
| 2027 CCA (20% of balance) | $3,600 | $2,800 |
The AII doesn't create extra deductions overall; it moves them earlier. Over the life of the asset you still deduct the same cost.
Immediate Expensing and the New Productivity Mega Deduction
Canadian-controlled private corporations had immediate expensing of up to $1.5 million a year for eligible property available for use before 2024 (individuals and partnerships had it for a shorter window). That temporary measure has wound down, apart from some specific classes such as certain clean-energy and manufacturing property.
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. When we checked, the details (who qualifies, from what date, and how it fits with the current classes) weren't fully published, and new tax rules need legislation before they're law. Until then, plan with the current CCA rules, and keep an eye on Canadian tax changes.
CCA Can Create a Loss (Usually)
For a business, CCA can create or increase a loss, and that business loss can reduce your other income or be carried to other years. Two exceptions catch people: CCA on rental property can't create or increase a rental loss (see rental property tax), and the business-use-of-home deduction can't create a loss either (see home office expenses).
When Not to Claim the Maximum
Because CCA is optional, the smart claim is sometimes smaller than the maximum:
- Low-income years. If your income is already below the basic personal amount, extra CCA saves nothing. Leave it in the class for a year when your marginal tax rate is higher.
- First years of a business. A loss carried forward expires after 20 years; undeducted CCA never expires. Some owners prefer to keep the balance than to manufacture a loss.
- Benefits and credits. Lower net income can raise income-tested benefits, so in some years a bigger claim pays twice. Run both versions before you decide.
Short Years, Personal Use and Who Gets to Claim
If your business started part way through the year, CCA is prorated for the short fiscal period (days in the period divided by 365). If an asset is used partly for personal purposes, as most vehicles are, you claim only the business-use share. And you can claim CCA only once the property is "available for use": a machine sitting in its crate in the warehouse in December doesn't count yet.
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.
Selling Assets: Recapture and Terminal Loss
When you sell, you subtract the lower of the sale price and the original cost from the class. Three things can happen:
| Result after the sale | Tax effect |
|---|---|
| Balance still positive, other assets remain in the class | Keep claiming CCA on the reduced balance |
| Balance goes negative | Recapture: the negative amount is added to income, fully taxable |
| Balance positive but no assets left in the class | Terminal loss: the remaining balance is fully deductible |
If you sell for more than the original cost, the excess is a capital gain, half taxable at current rules, on top of any recapture. This is exactly what happens when people sell a rental building they've claimed CCA on for years; see capital gains on rental property.
Where CCA Goes on the Return
Sole proprietors and partners use Area A of form T2125, with the total CCA on line 9936, plus Areas B to F for additions and dispositions. Rental owners use form T776. Corporations use Schedule 8 of the T2. Keep a fixed-asset list with purchase dates, costs and sale proceeds; you'll need it every year and CRA will ask for it in a review. See how long to keep tax records.
More on running a business through a sole proprietorship or a corporation is on small business taxes; for corporations specifically, see buying equipment through a corporation. Before you file, Return Check flags capital purchases claimed as one-year expenses and CCA claimed in the wrong class, two of the most common business adjustments.
CCA Questions
What is capital cost allowance in Canada?
Capital cost allowance (CCA) is the tax deduction for the cost of depreciable property such as equipment, vehicles, computers and buildings. The cost is deducted over several years at rates set for each CCA class.
Is CCA the same as depreciation?
It works like depreciation, but the rates are set by tax law rather than by accounting estimates. Your financial statements may show different depreciation from the CCA on your tax return.
Does the half-year rule apply in 2026?
Not for most property acquired in 2025 or later. Under the reaccelerated investment incentive, the half-year rule is suspended and the first-year claim is generally three times the normal amount for property available for use before 2030.
Do I have to claim CCA every year?
No. CCA is optional. You can claim any amount up to the maximum, and unclaimed amounts stay in the class for future years.
Can I claim CCA on land?
No. Land is not depreciable property. When you buy a building, split the price between land and building and claim CCA only on the building.
What is recapture of CCA?
If you sell assets for more than the remaining balance of their class, the excess CCA you claimed over the years is added back to your income as recapture.
Sources: CRA, Guide T4002, Chapter 4 Capital cost allowance; Accelerated investment incentive; Guide T4036 (reaccelerated investment incentive property); Finance Canada, Productivity Mega Deduction (October 2026). Checked October 2026. The reaccelerated incentive is from Bill C-15, which passed third reading in February 2026; CRA's guides were still describing it as proposed when we checked. Class descriptions are simplified; some assets fall in other classes. The Productivity Mega Deduction was announced but its details were not final when we checked; we are not sure how it will interact with the existing classes.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.