Capital Cost Allowance Overview

Definition

Capital Cost Allowance (CCA) is the deduction the Income Tax Act allows for the wear and tear on depreciable property used to earn business or property income. Accounting amortization is added back on Schedule 1; CCA is deducted instead. Each asset is grouped into a class from Regulations Schedule II, with its own maximum rate and rules. Within a class, the tax cost pool is called the Undepreciated Capital Cost (UCC).

Key rules

• CCA is optional. A taxpayer can claim anywhere from zero up to the maximum allowed by the class rate in any given year, which is useful for protecting non-capital losses or optimising for the Small Business Deduction.
• Most classes use declining balance: UCC × rate. A few (class 13 leasehold, class 14 limited-life intangibles) use straight-line.
• Half-year rule (Regulations 1100(2)): in the year of acquisition, the amount of "net additions" (additions minus dispositions) eligible for CCA is reduced by 50%. See half-year rule.
• AIIP and short-lived enhanced regimes supersede the half-year rule for qualifying property. See AIIP and immediate expensing.
• Disposition reduces the pool by the lesser of proceeds and the asset's original capital cost. A positive UCC at year end with no remaining assets is a terminal loss; a negative UCC is recapture.
• Short tax year: the CCA is pro-rated by days/365 when the fiscal year is shorter than 365 days (Regulations 1100(3)).

Example

A BC corporation with a December 31 year end buys $10,000 of office furniture (class 8) on April 1, 2026. Opening UCC for class 8 is $4,000. No dispositions.

1. Net additions = $10,000.
2. Half-year adjustment = $10,000 × 50% = $5,000 (reduces the base, not the additions).
3. CCA base = $4,000 + $10,000 − $5,000 = $9,000.
4. Maximum CCA = $9,000 × 20% = $1,800.
5. Closing UCC = $4,000 + $10,000 − $1,800 = $12,200.

The $1,800 is reported on Schedule 8 of the T2, which feeds into Schedule 1 as a deduction from accounting income.

Common mistakes

• Mixing asset classes in one pool. Each class has its own UCC schedule.
• Claiming CCA on land. Land is not depreciable property (ITA s.13(21) definition).
• 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 vehicle used 30% for business generates only 30% of the class 10 or 10.1 CCA as a deduction.
• Claiming the maximum when no income supports it. Non-capital losses expire after 20 years; it is often better to defer CCA and keep the loss room intact.

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.