Corporate and personal tax
A guide to capital cost allowance (CCA)
Last reviewed: August 2026
How capital cost allowance works in Canada, the common CCA classes and rates, the half-year rule, and what happens when you sell a depreciated asset.
Buy a $60,000 machine and you cannot deduct $60,000 this year. You deduct it over time through capital cost allowance, which is the tax system's version of depreciation. The accounting depreciation in your financial statements has no effect on tax. CCA replaces it on the return.
How the mechanics work
Every depreciable asset goes into a class. Each class has its own rate and its own pool, called the undepreciated capital cost. You add the cost of new assets to the pool, subtract proceeds when you dispose of something, and claim the class rate against the balance that remains.
Almost all classes are declining balance. A Class 8 asset at 20% gives you 20% of the pool this year, then 20% of the smaller balance next year, and the deduction tapers off without ever quite reaching zero.
Two features of CCA are worth knowing before anything else.
It is discretionary. You can claim anything from zero up to the maximum in a given year. Nothing is lost by claiming less, because the unclaimed amount stays in the pool. In a loss year, or a year where personal credits would otherwise go unused, claiming no CCA and saving the pool for a profitable year is often the better answer.
The trigger is availability, not purchase. An asset generates no CCA until it is available for use. Equipment sitting in a crate on December 30 does nothing for that year's return.
Common classes and rates
| Class | Rate | Typical contents |
|---|---|---|
| 1 | 4% | Buildings acquired after 1987 |
| 8 | 20% | Furniture, fixtures, tools and equipment not in another class |
| 10 | 30% | Motor vehicles and passenger vehicles under the cost ceiling |
| 10.1 | 30% | Passenger vehicles above the cost ceiling, one per class |
| 12 | 100% | Small tools under a set dollar amount, some software, uniforms |
| 13 | Straight line | Leasehold improvements |
| 38 | 30% | Power-operated movable equipment for excavating and construction |
| 50 | 55% | Computer hardware and systems software |
Class 13 is the odd one. Leasehold improvements are written off on a straight line over the term of the lease plus the first renewal period, subject to a minimum of five years and a maximum of forty. Spend $90,000 fitting out a space on a six-year lease with a five-year renewal option and the write-off runs over eleven years, not the six most people assume.
Class 12 covers tools costing less than a specified amount at 100%. That dollar figure has been changed before, so confirm the current threshold rather than relying on the number you used last time.
Buildings and manufacturing equipment have additional classes and enhanced rates that depend on when the asset was acquired and how it is used. Those are worth checking asset by asset rather than assuming.
The half-year rule and where it now stands
The general rule is that a net addition to a class in the year gets only half the normal rate. Add $20,000 of Class 8 and the first-year claim is 10% rather than 20%.
This is the part people still get wrong, because the half-year rule has been suspended for most property under the accelerated investment incentive. For eligible property, the half-year rule does not apply and the first-year base is increased by an uplift, so the first-year deduction is substantially larger than the normal rate rather than half of it. The uplift was set at a higher level in the early years of the incentive and steps down for property available for use later, and it is scheduled to disappear. Which factor applies to a given asset depends on the year it became available for use.
The practical consequence is that first-year CCA cannot be calculated from a rate table alone. You need the acquisition date, the availability date and the current version of the incentive. We cover the mechanism in more detail in our post on the accelerated investment incentive.
Disposals, recapture and terminal loss
When you sell an asset, you remove the lesser of the proceeds and the original cost from the pool. Two things can happen next.
If the pool goes negative, you have recapture. The negative balance is added straight to income in that year, which is a nasty surprise for a business that sold well-maintained equipment for more than its written-down value.
If the last asset in a class is gone and a positive balance remains, that balance is a terminal loss and is deducted in full. Terminal losses get missed constantly, usually because nobody told the accountant that the old equipment was scrapped. A one-line note about what left the building is worth real money.
Selling for more than the original cost adds a capital gain on top of the recapture.
Where claims come apart
- Personal-use portions left in the pool. A vehicle used 40% personally belongs in the pool at full cost, with the claim reduced by the personal share. Getting this backwards is common.
- Repairs capitalised, or capital improvements expensed. A repair that restores an asset is deductible now. Work that materially improves it or extends its life goes into a class.
- Short fiscal periods. In a stub year, CCA is prorated by days. First-year corporations get caught by this regularly.
- Disposals nobody recorded, which leaves phantom assets depreciating in a pool for years.
An asset schedule that ties to the pool balances, updated as things are bought and retired, removes most of this. For contractors running equipment across job sites it is the single piece of record-keeping with the clearest payback, and it feeds directly into the corporate return at year end.
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General information only, current at August 2026. Tax rules change and GST/HST status is fact-specific. Confirm your own position before relying on anything here.