Half-Year Rule

Definition

The half-year rule is the mechanism in Regulation 1100(2) that reduces the CCA base for net additions to a class by 50% in the year those additions first become available for use. The intent is to approximate the fact that purchases are made throughout the year: on average, a new asset is available for roughly half the tax year, so the first-year deduction is halved.

Key rules

• The adjustment applies to net additions, meaning additions to the class in the year less the amount by which dispositions from the class during the year reduce UCC. The half-year reduction is capped at net additions and cannot turn positive into negative.
• The half-year rule does not apply to accelerated investment incentive property (acquired after November 20, 2018 and before 2025, available for use before 2028, Regulation 1104(4)) or to reaccelerated investment incentive property (acquired after 2024, available for use before 2034, Regulation 1104(4.01)). For most classes, qualifying property acquired after 2024 that becomes available for use before 2030 adds 50% of its net additions to the base instead of subtracting 50%, so the first-year claim is 1.5 × cost × rate. Property that has had CCA claimed on it and comes from the owner or a related person usually does not qualify. See AIIP.
• Regulation 1100(2.2) switches the half-year rule off for property acquired from a non-arm's-length person when that person owned it as depreciable property continuously from a day at least 364 days before the end of the buyer's taxation year until the sale. The provision also covers specified reorganizations and property previously exempt under these rules; consult the full conditions rather than treating every related-party purchase the same way.
• "Available for use" is defined in ITA s.13(26) to (32). Purchased property generally cannot attract CCA before it is available for use. The statutory tests include first use, readiness and deemed dates such as the two-year rolling-start rule; actual operation is not the only possible trigger.
• Class 10.1 passenger vehicles follow the same first-year rule as other property, applied to the capped cost (Regulation 7307(1) sets the cap). In the year of sale, a vehicle owned at the end of the previous year gets half a year's CCA (Regulation 1100(2.5)).
• Class 12 is split by paragraph (element F of Regulation 1100(2)). Paragraphs (a) to (c), (e) to (i), (k), (l) and (p) to (s) are exempt, including tools, kitchen utensils and medical or dental instruments costing less than $500, tableware, linen and uniforms. Dies, jigs, patterns, moulds and lasts (d), the cutting or shaping part of a machine (j), television commercials (m), certified productions (n) and application software (o) are subject to the half-year rule unless they qualify for the accelerated incentive. Class 12 gets no 1.5× uplift, so qualifying software bought in 2026 is written off in full in the first year.

Example

A BC corporation with a calendar year end has class 8 UCC of $6,000 on January 1, 2026. During 2026 it buys $12,000 of desks from a company controlled by its shareholder, which bought them new in February 2026 and claimed CCA on them for its taxation year ended June 30, 2026. Assume $12,000 is the buyer’s tax capital cost after the related-party cost rules and all desks become available for business use in 2026. It also sells old desks for $2,000 (original cost $3,500). A related company has claimed CCA on the desks, so they are not accelerated property, and Regulation 1100(2.2) does not switch the half-year rule off because the seller did not own them from the start of the buyer's year.

1. Additions = $12,000. Dispositions reduce UCC by the lesser of proceeds and original cost: $2,000.
2. Net additions = $12,000 − $2,000 = $10,000.
3. Half-year adjustment = 50% × $10,000 = $5,000.
4. CCA base = $6,000 + $12,000 − $2,000 − $5,000 = $11,000.
5. CCA for 2026 = $11,000 × 20% = $2,200.
6. Closing UCC = $6,000 + $12,000 − $2,000 − $2,200 = $13,800.

In year 2 and beyond, the half-year adjustment is no longer applied to the same asset, so the full UCC attracts the class rate.

Had the desks been bought new from a dealer, as most 2026 purchases are, they would be reaccelerated investment incentive property: the class would add 50% of the $10,000 of net additions instead of subtracting it, for a CCA base of $21,000, CCA of $4,200 and a closing UCC of $11,800.

Common mistakes

• Reducing additions by 50% on the books instead of reducing only the CCA base. The closing UCC must still reflect the full cost minus actual CCA taken.
• Applying the half-year rule to AIIP, resulting in an artificially low first-year deduction.
• Forgetting that dispositions first reduce the half-year adjustment base. Net additions can be zero or negative.
• Taking CCA on an asset that was ordered but not yet available for use. The correct treatment is to defer recognition until the "available-for-use" date.
• Missing the asymmetric rule in Reg 1100(2.2) for non-arm's-length transfers.

Official sources

CRA class descriptions, enacted first-year factors, and eligibility definitions.

Related concepts

The half-year rule is the default; it is replaced by the accelerated incentive (AIIP) for qualifying property, and was replaced by immediate expensing for designated property that became available for use before 2024 (before 2025 for individuals and partnerships of individuals). It is a component of every CCA calculation, interacting with class specifics like Class 8, Class 10, and Class 50.