CCA vs Depreciation (Amortization): Corporate Books and T2

Why do my corporate books show amortization when the T2 claims CCA?

Amortization (the accounting term for depreciation) and capital cost allowance (CCA) are two separate write-offs of the same asset: one in the books, one on the T2. The statements spread an asset's cost over its useful life as amortization. The Income Tax Act does not allow that expense: paragraph 18(1)(b) bars an allowance for depreciation unless the Act expressly permits it. Paragraph 20(1)(a) permits CCA as allowed by regulation, and the CRA's folio says CCA replaces accounting depreciation for tax.

So a corporation keeps both: amortization in the books, CCA on the T2, and Schedule 1 to bridge them. The two amounts rarely match in any year.

The T2 side carries forward. Schedule 8 starts each class from the previous year's closing undepreciated capital cost (UCC), the balance of the class not yet claimed, apart from transfers and adjustments entered in column 6. A wrong balance generally carries into every later year until it is corrected.

A reconciliation is more likely to be straightforward when the corporation has a few assets bought from unrelated sellers and none sold. It is not simple when:

• these are the corporation's first fixed assets;
• an asset came from a shareholder, a sole proprietorship or another corporation;
• an asset was sold, scrapped or traded in;
• the tax year is shorter than 12 months;
• a grant helped pay for an asset;
• control of the corporation changed, for example its shares were sold;
• a new accountant cannot tie the statements to last year's Schedule 8.

When the statements and Schedule 8 do not tie, that is the point to bring in a professional (corporate tax help), because UCC balances are carried into every later return.

Gather before starting:

• invoices for each asset, with the date it was ready for use;
• last year's Schedule 8, showing each class's closing UCC;
• the fixed-asset list, with accumulated amortization;
• the year-end financial statements.

Which depreciation goes in the books, and do I keep two schedules?

Both. The books carry amortization under the corporation's accounting standards, the tax return carries CCA, and each needs its own record. Schedule 8 works from tax cost and UCC, not from book amortization (Schedule 8 form).

Which accounting standard and amortization method the statements use is a decision for the corporation and its accountant, and this page does not cover it.

Keep the register and the UCC schedule as separate files or tabs, and tie both to the same invoices.

How does Schedule 1 turn book profit into taxable income for amortization and CCA?

Schedule 1 starts from the net income on the statements, adds back the amortization and any book loss on sales, deducts CCA and any book gain on sales, and ends at net income for tax purposes. The CRA's guide says the statement figure will generally not equal the tax figure, and the result goes on T2 line 300.

The lines that matter for fixed assets, from the Schedule 1 form:

Line numbers follow the current edition of Schedule 1; check the form for the year being filed.

A capital outlay charged to an expense account in the books is not deductible as an expense under paragraph 18(1)(b). The cost is added back on line 206 and the asset goes into its class on Schedule 8 instead.

The wider gap between book and tax profit (meals, reserves, penalties) is in Schedule 1 and book profit.

Where does the CCA number come from: Schedule 8, classes and UCC?

The CCA number comes from Schedule 8, which works class by class. A class groups similar assets that share one rate and one UCC balance. Each class has a maximum rate in section 1100 of the Regulations, for example 20% for Class 8. In most cases CCA is calculated on a diminishing balance, as a percentage of the class UCC (CRA folio).

The first-year claim depends on how the asset was acquired. Most property acquired after 2024 and available for use before 2030 qualifies as reaccelerated investment incentive property (RIIP). It skips the half-year rule and generally gets 1.5 times the class rate (Schedule 8 notes), but it generally excludes used property that the corporation or a related person owned before, and property that came through a tax-deferred transfer (Regulation 1104(4.01)). Column 5 holds RIIP, and column 16 replaces the column 17 adjustment.

Other property stays under the half-year rule: CCA is worked out on only half of the year's net additions to a class (CRA folio). For most property acquired on or after September 15, 2026, a full first-year deduction is proposed but not yet law (Department of Finance). Eligibility, class and rate are in the capital cost allowance guide.

A tax year shorter than 12 months generally prorates the maximum claim by the days in the year over 365 (section 1100(3)).

Do I have to claim the maximum CCA, and does that change my books?

No. A corporation may claim any amount of CCA up to the maximum for the year, including nothing (CRA folio; T2 guide). The amount not claimed is not carried over as a deduction. It stays in the class UCC, so later years' maximum claims are worked out on the higher balance.

Rental property and leased equipment have extra CCA limits, with exceptions for a corporation whose principal business is renting or leasing (section 1100(11) to (16)).

The books do not change. Amortization is still recorded, line 104 still adds it back, and only the line 403 deduction moves with the claim.

Schedule 8 is also used to account for acquisitions and disposals of depreciable property, so a year with a purchase or sale is a year to complete it, even if no CCA is claimed (Schedule 8 form).

Whether to claim less than the maximum affects every later year's balance, so settle it with the preparer before the return is filed. Once the year is assessed, a changed claim is generally accepted only within the time to object, 90 days after the notice of assessment for a corporation (section 165(1); CRA: IC84-1). Claiming CCA that was skipped in an earlier year is covered in the capital cost allowance guide.

What happens on a sale: a gain in the books, recapture or a terminal loss on the T2?

A sale produces two different results: a book gain or loss, and on the T2 either recapture (CCA claimed earlier is taken back into income because the proceeds exceed the class balance) or a terminal loss (the last asset in the class is gone and a balance is left over, so it is deducted). Neither depends on the other.

• Books. The gain or loss is the proceeds less the asset's net book value, reported at GIFI 8210, Realized gains/losses on disposal of assets (RC4088).
• Schedule 8. The proceeds, less selling costs and not above the asset's cost, reduce the class UCC in column 9. If column 10 is then negative, the corporation has recapture: subsection 13(1) includes the excess in income, and it goes on Schedule 1 line 107. If no property is left in the class and column 10 is still positive, the corporation has a terminal loss: subsection 20(16) deducts it, and it goes on line 404 (Schedule 8 notes).
• Schedule 1. Remove the book gain on line 401, or add back the book loss on line 111, then add recapture on line 107 or deduct the terminal loss on line 404.

Selling one asset does not close its class. A terminal loss arises only when no property remains in the class; with property left, a positive balance continues. Schedule 8 opens by asking about the election under Regulation 1101(5q): a letter with the return for the year of purchase puts Class 8 software, photocopiers and office electronic communications equipment costing at least $1,000 each into a separate class, which allows a terminal loss when that class is emptied. Proceeds above the asset's cost, passenger vehicles in Class 10.1 and scrapping, trading in or giving away an asset follow other rules; see selling a business asset.

Which GIFI codes carry amortization?

Amortization of tangible assets is GIFI 8670, and the accumulated amortization sits on the balance sheet against each asset account. The codes below come from the CRA's GIFI list.

CCA is a tax claim, not a book expense, so it has no expense account of its own; it is worked out on Schedule 8 and deducted on Schedule 1. The CRA excludes land from CCA (folio). For mapping the rest of the accounts, see chart of accounts for GIFI.

What do I record when I buy an asset: cost, class and date available for use?

Record four things on the day of purchase: the full cost, the class, the date the asset was ready for use and who sold it. Those drive both the amortization schedule and the Schedule 8 entry.

A cost that is a capital outlay belongs in an asset account. If it was charged to an expense account in the books, it is added back on line 206.

A laptop, phone or small tool may be an expense or an asset; see expense or CCA for laptops, phones and tools. A vehicle bought with a loan is in recording a vehicle purchase and loan.

Example

These examples are illustrative, use Canadian dollars and cover the federal T2 only.

Equipment bought in year one, traced for three years

An Ontario corporation with a 12-month tax year buys C$12,000 of Class 8 equipment (20%) from an unrelated seller before September 15, 2026. It is new and ready for use that year, so it is RIIP. The books amortize it straight-line over five years: C$2,400 a year.

In year one, Schedule 8 column 16 adds half of C$12,000, or C$6,000, to the base, so CCA is 20% of (C$12,000 plus C$6,000): C$3,600. After that the class is a plain diminishing balance.

The book value and the UCC stay different for the life of the asset. After year five the books record no more amortization, so nothing is added back on line 104, but the class still has UCC and CCA continues. If it did not qualify for the incentive, the half-year rule would give year-one CCA of C$1,200 and closing UCC of C$10,800. If it were bought on or after September 15, 2026, the proposed full first-year deduction, if enacted, could allow the whole C$12,000. The add-back is the same in each case.

An asset sold above its tax balance

An Alberta corporation sells a machine to an unrelated buyer for C$5,000. It cost C$5,000, its net book value is C$3,000, and it is the only asset in its class, with UCC of C$1,000. The books show a C$2,000 gain.

On Schedule 8, column 10 is C$1,000 less C$5,000, which is negative C$4,000, so recapture of C$4,000 goes on line 107. On Schedule 1, the corporation deducts the C$2,000 book gain on line 401 and adds the C$4,000 recapture. Taxable income from the sale is C$4,000 against a C$2,000 book gain. The C$2,000 difference is the CCA claimed beyond the amortization recorded over the asset's life (C$4,000 against C$2,000).

A loss year with no CCA claimed

A BC corporation has a book net loss of C$10,000 after C$2,400 of amortization. It claims no CCA. Schedule 1 adds back the C$2,400, so, with no other adjustments, the net loss for tax purposes is C$7,600, and line 403 is nil.

Its Class 8 opening UCC is C$9,600, with no additions or sales in the year, and it carries forward unreduced. The maximum claim would have been C$1,920 (20%). Claiming it would raise the tax loss to C$9,520, which can generally be carried back 3 years or forward 20 (section 111(1)(a)). Skipping it leaves the C$1,920 in UCC for later years. Which is better depends on past and later income, so the choice belongs with the preparer.

Different for you?

• You have fixed assets for the first time, or a new accountant cannot tie your statements to last year's Schedule 8: the opening UCC by class, the Schedule 1 add-back and deduction and the year's CCA claim need settling before the T2 is filed. Bring the invoices, last year's Schedule 8 and the fixed-asset list to corporate tax help.
• The UCC you inherited may be wrong, or last year's statements had an error: see correcting last year's financial statements, and get corporate tax help before carrying the balance forward.
• Your books are months behind, or no one keeps the fixed-asset register and UCC schedule: both records come from the books and need updating with every purchase and sale; see catching up on overdue books and bookkeeping help.
• Assets came from a shareholder, a sole proprietorship or another corporation: Schedule 8 has transfer and adjustment columns for these, so have the transfer documents reviewed through corporate tax help.
• Your corporation holds rental property or leases equipment out: CCA may be capped; see books for a rental holding corporation and corporate tax help.
• You sold, scrapped or traded in an asset: use selling a business asset.
• Your tax year is shorter than 12 months: CCA is prorated; see corporate tax help.
• Control of your corporation changed, for example its shares were sold: the tax year ends early and any class's UCC above its property's value is deducted in that short year (section 249(4); section 111(5.1)), so last year's Schedule 8 does not simply roll forward; see deemed year-end on acquisition of control and corporate tax help.
• You have a permanent establishment in Quebec or Alberta: the CRA does not administer those provinces' corporation tax (CRA), so ask whether a separate provincial return applies. Alberta lets a corporation claim a different CCA amount (AT1 Schedule 13), so its Alberta UCC can differ from Schedule 8 and needs its own record (Alberta); have both checked through corporate tax help. This page covers the federal T2 only.
• You are self-employed rather than incorporated: a sole proprietor claims CCA on Form T2125 (CRA), not on a T2 Schedule 1; start with the capital cost allowance guide.