Capital Cost Allowance Overview

When a corporation or a sole proprietor buys equipment, furniture, a computer or a vehicle, a capital cost is generally deducted through Capital Cost Allowance (CCA). Some eligible assets can be deducted in full in the first year; others are written off over several years at rates the Income Tax Regulations set for each class of property. For most purchases made from 2025 to 2029 the first-year claim is larger than the older explainers show, because the accelerated investment incentive is back in the Regulations.

See Accelerated Investment Incentive Property (AIIP) for the separate September 2026 proposal and enacted-rule distinction.

What CCA replaces on your statements

CCA is the deduction the Income Tax Act allows for the wear and tear on depreciable property used to earn business or property income (s.20(1)(a)). It replaces the depreciation, or amortization, on the financial statements. A corporation adds its book amortization back on line 104 of Schedule 1. Net Income for Tax and deducts CCA on line 403, computed class by class on Schedule 8. Capital Cost Allowance. A sole proprietor calculates CCA in Area A of Form T2125 and claims it on line 9936.

Each asset goes into a class from Schedule II of the Regulations, with its own maximum rate. Subject to separate-class rules, the remaining tax cost within a class is one pool, the undepreciated capital cost (UCC).

CCA is optional. You can claim anything from zero up to the maximum for the year. Claiming less leaves more UCC for later years, which helps in a loss year or when income is already low: non-capital losses expire after 20 years, so a CCA claim that only enlarges a loss can be worth more if it is deferred.

How the yearly claim is worked out

• Declining balance: for most classes the claim is the UCC at year end, adjusted for the year's additions, times the class rate. The pool shrinks each year, so the claim does too.
• Straight-line exceptions: Class 13 leasehold interests follow a formula based on the lease and statutory limits, and Class 14 patents, franchises and licences for a limited period over their life.
• Available for use: CCA starts only once the asset is available for use, which is generally when it is first used to earn income. Readiness and statutory deemed-availability rules can also determine the start date; actual operation is not the only test.
• Short fiscal year: the claim is prorated by the days in the year over 365 (Regulation 1100(3)). A first year of 214 days allows 214/365 of the normal claim.
• Land never qualifies: the classes exclude the land a building sits on (Regulation 1102(2)), so the purchase price of a property is split between land and building.
• Business use only: property not acquired to earn income is outside the classes, and a sole proprietor's vehicle used 70% for business supports only 70% of its CCA as a deduction.
• Disposals: a sale takes the lesser of the proceeds (minus selling costs) and the asset's original cost out of the class. See Selling, scrapping or giving up an asset below.

Net additions        = Additions in the year − Disposals in the year
First-year adjustment:
  accelerated property (most 2025 to 2029 purchases)  + 50% of net additions
  property under the half-year rule                   − 50% of net additions
CCA base             = Opening UCC + Net additions + First-year adjustment
CCA for the year     = CCA base × class rate
Short year           = CCA for the year × days in the fiscal year / 365
Closing UCC          = Opening UCC + Net additions − CCA claimed

The first-year adjustment only sets the base for the claim. It never goes into the closing UCC.

Which class an asset goes in

These are the classes a small corporation or sole proprietor meets most often. Rates are declining balance unless the row says otherwise.

The class entries go further: Class 8, Class 10, Class 12 and Class 50.

What you can claim in the first year

The long-standing default is the half-year rule in Regulation 1100(2): in the year an asset becomes available for use, CCA is claimed on only half of the net additions to its class. It exists so that an asset bought on the last day of the year does not earn a full year's CCA for a few days of ownership.

For most purchases today the rule runs the other way. Property acquired after 2024 that becomes available for use before 2030 is reaccelerated investment incentive property (Regulation 1104(4.01)), and the class adds 50% of its net additions instead of subtracting 50%. The first-year claim becomes 1.5 × cost × rate, three times what the half-year rule gives. This restores the incentive announced in the 2024 Fall Economic Statement, and it is written into Regulation 1100(2).

Property qualifies if either:

• no one has claimed CCA or a terminal loss on it before the corporation acquired it (new property, or used property that was only ever personal-use), or
• it was not previously owned by the corporation or by a person it does not deal with at arm's length, and it was not acquired on a tax-deferred rollover.

Used equipment bought from an unrelated seller therefore usually qualifies. Property that had CCA claimed on it and comes from the owner or a related company usually does not, and Regulation 1100(2.2) then decides whether the half-year rule applies to it.

• Disposals in the same class and year reduce the uplift, because it works on net additions.
• The accelerated rate front-loads CCA. It does not raise the total that can be claimed over an asset's life.
• The $1.5 million immediate expensing measure covered property that became available for use before 2024 for CCPCs, and before 2025 for individuals and partnerships of individuals (Regulation 1104(3.1)). It does not apply to a 2026 purchase.

See AIIP for the history of the incentive.

Worked examples

One purchase in April 2026

A corporation with a full calendar tax year buys new office furniture with $10,000 tax capital cost (Class 8) on April 1, 2026. Opening UCC for Class 8 is $4,000. No dispositions.

1. Net additions = $10,000. The furniture is new and was acquired after 2024, so it is reaccelerated investment incentive property.
2. First-year adjustment = $10,000 × 50% = $5,000, added to the base, not to the pool.
3. CCA base = $4,000 + $10,000 + $5,000 = $19,000.
4. Maximum CCA = $19,000 × 20% = $3,800.
5. Closing UCC = $4,000 + $10,000 − $3,800 = $10,200.

The $3,800 is reported on Schedule 8 of the T2, which feeds into Schedule 1 as a deduction from accounting income. Under the half-year rule the same purchase would give a base of $9,000 ($4,000 + $10,000 − $5,000), CCA of $1,800 and a closing UCC of $12,200.

Three purchases in one year

A BC corporation with a full calendar tax year buys three assets in July 2026, all meeting the RAIIP conditions, used only for the business and available for use that month. The listed amounts are tax capital costs, after sales-tax adjustments, and there are no opening balances or dispositions:

That is $15,350 of deductions in the first year. For a corporation whose income is taxed at BC's combined small business rate of 11% (9% federal plus 2% BC), it cuts the 2026 tax bill by about $1,688.50, assuming sufficient income at that rate and no other limiting factors.

How the first-year rule plays out over three years

A $3,000 desk in Class 8 at 20%, with no other assets in the class:

From year 2 onward both are ordinary declining balance on what is left in the pool.

Selling, scrapping or giving up an asset

A disposal takes the lesser of the proceeds minus selling costs and the asset's original capital cost out of the class (s.13(21)). Anything above cost is a capital gain, not CCA. At year end, two results are possible:

• Negative UCC: the excess is recapture, included in income, even if other assets remain in the class.
• Positive UCC with nothing left in the class: the balance is a terminal loss, deducted in full.

Class 10.1 is different. Each vehicle is its own class. The ordinary rules exclude recapture and terminal loss, but section 13(2) permits recapture where a vehicle was designated immediate expensing property. Check that designation history before applying the ordinary result. If the vehicle was owned at the start of the year, half of a year's CCA is allowed in the year of sale (Regulation 1100(2.5)), and whatever UCC is left simply disappears.

Moving an asset from business to personal use is a deemed disposition at fair market value, with the same consequences as a sale.

Vehicles: the 2026 limits

A passenger vehicle that costs more than the ceiling does not split between classes. The whole vehicle goes into its own Class 10.1, with its capital cost limited to the ceiling plus the GST/HST and PST on that amount. The excess price is not added to the depreciable capital cost. A zero-emission passenger vehicle goes into Class 54 with the $61,000 ceiling instead.

A sole proprietor claims CCA on a vehicle only for the business-use share, supported by a kilometre log. When a corporation supplies an automobile for personal use, determine whether the benefit is received as an employee or shareholder and apply the appropriate automobile-benefit rules. Other motor vehicles and shareholder-only arrangements can require a different benefit and deductibility analysis. Interest and lease costs are capped separately (s.67.2 and s.67.3). See vehicle expense and leasing cost limits.

Common mistakes

• Mixing asset classes in one pool. Each class has its own UCC schedule.
• Claiming CCA on land. The classes exclude the land under a building (Regulation 1102(2)).
• Forgetting to split land and building on a purchase and then trying to depreciate the entire price in class 1.
• Claiming CCA on personal-use property. A sole proprietor's vehicle used 30% for business generates only 30% of the class 10 or 10.1 CCA as a deduction.
• Assuming the maximum claim is always best. Deferring CCA can preserve UCC, but claiming it may generate a useful loss carryback. Compare the actual income, loss and carry-period position.
• Applying the half-year rule to a 2026 purchase that qualifies for the accelerated rate. The claim comes out at one third of what is allowed.
• Putting only the excess over the ceiling into Class 10.1. The whole vehicle goes into Class 10.1 at the capped cost.
• Claiming CCA on an asset that was ordered but not yet available for use at year end.
• Booking a capital purchase as a repair or office supply expense. See repairs vs capital.

Keeping the records

For each asset keep the invoice, the date it became available for use, its class, who it was bought from, and its business-use share. Those facts decide the class, the first-year rule and the deduction. In Ledg, a purchase recorded under the Capital Asset category stays on the balance sheet with its receipt attached instead of landing in expenses, so your accountant can build Schedule 8 from it without hunting for invoices.

Official sources

CRA CCA folio, Regulation 1100, Regulation 1104, and Finance’s 2026 vehicle limits.

Related concepts

CCA rules hinge on class selection. See Class 8, Class 10, Class 12, and Class 50. Timing is altered by the half-year rule and the enhanced AIIP. Exits are governed by recapture and terminal loss, reported on Schedule 8. Capital Cost Allowance.