Capital Cost Allowance (CCA) in Canada: Complete Guide

When you buy a long-term asset for your business — a vehicle, computer, equipment, or building — you can't deduct the full cost in the year of purchase. Instead, you claim depreciation over time through the Capital Cost Allowance (CCA) system. CCA is the Canadian tax equivalent of depreciation, and it's calculated using prescribed rates that vary by asset type.

Understanding CCA helps you plan major purchases, minimize current-year tax, and avoid leaving deductions on the table.

How CCA Works

The CCA system assigns each type of asset to a CCA class with a specific annual depreciation rate. Most classes use the declining balance method: you apply the rate to the remaining undepreciated capital cost (UCC) of the asset each year. A few classes use the straight-line method.

CCA is optional — you can claim less than the maximum in any year (including $0), and the unclaimed amount carries forward indefinitely. This lets you defer deductions to higher-income years when they reduce more tax.

The Half-Year Rule

In the year you acquire most depreciable property, the half-year rule (also called the 50% rule) limits your CCA to half the normal amount. This applies to most CCA classes. The remaining half becomes available starting the following year.

Example: You buy a $10,000 computer (Class 50, 55% rate). Normal year CCA = $5,500. First year CCA (with half-year rule) = $2,750. Second year CCA = ($10,000 − $2,750) × 55% = $3,986. And so on.

Accelerated Investment Incentive (AII)

For property acquired after November 20, 2018, the federal government introduced the Accelerated Investment Incentive — which suspends the half-year rule and allows full first-year CCA. For most eligible property acquired after 2021, this means you can deduct 100% of the cost in the first year (Immediate Expensing for CCPCs, up to $1.5 million per year).

Confirm with your CPA which assets and years qualify for AII or Immediate Expensing, as the phase-out schedule varies by property type and year of acquisition.

Key CCA Classes and Rates

Class	Assets	Rate	Method
1	Buildings (commercial, industrial)	4%	Declining balance
8	Equipment, furniture, tools >$500, machinery, trailers	20%	Declining balance
10	Vehicles (most automobiles, trucks <3 tonnes)	30%	Declining balance
10.1	Passenger vehicles > cost limit ($37,000 in 2025)	30%	Declining balance
12	Small tools <$500, uniforms, medical instruments	100%	Declining balance
14	Patents, franchises, licences with a fixed term	Straight-line over useful life	Straight-line
14.1	Goodwill, customer lists, perpetual franchises	5%	Declining balance
50	Computers, computer systems, electronic equipment	55%	Declining balance
53	Manufacturing/processing machinery (certain)	50%	Declining balance

Separate Classes for Passenger Vehicles

The CRA treats passenger vehicles differently depending on their cost:

• Class 10: Vehicles that cost $37,000 or less (2025 limit). Full 30% CCA applies to the actual cost.
• Class 10.1: Vehicles costing more than $37,000. Only $37,000 (the prescribed limit) is used as the capital cost for CCA — even if you paid $80,000. This prevents excessive deductions on luxury vehicles.

Each Class 10.1 vehicle must be in its own separate class (you can't pool them). This matters because the terminal loss rules are different for Class 10.1 (you can't claim a terminal loss when you sell the vehicle).

Recapture and Terminal Loss

When you sell a depreciable asset:

• Recapture: If the sale proceeds exceed the UCC of the class, the difference is income (recapture of CCA) — added back to income in the year of sale. Common when selling a building after years of CCA.
• Terminal loss: If the class has a positive UCC balance after selling all assets in the class, you can deduct the remaining balance as a terminal loss — a final depreciation deduction.
• Capital gain: If the sale proceeds exceed the original cost, a capital gain arises (separate from recapture).

CCA on Rental Properties

Rental property owners can claim CCA on Class 1 (4%) buildings — but with an important restriction: CCA on rental property cannot create or increase a rental loss. It can only reduce rental income to zero. Any unclaimed CCA carries forward.

Many real estate investors choose not to claim CCA because the recapture on eventual sale (taxed as income at full marginal rates) can be more expensive than the original CCA savings. This is a case-by-case decision that requires modelling with a tax advisor.