Year-End Equipment Purchase in Canada: CCA and Half-Year Rule

Does buying equipment before year-end lower this year's tax?

Buying equipment lets you write it off only through capital cost allowance (CCA), and only if the equipment is acquired and available for use by the end of your tax year. The deduction is the first-year CCA, not the price. Its effect on this year's tax depends on the rate on the income it reduces, and a larger claim now leaves less for later years.

The half-year rule gives half the class rate in the first year. For most new property, the reaccelerated incentive (dates below) replaces it with a larger claim, and a proposed immediate-expensing rule would raise it further. Property that fails the incentive tests generally follows the ordinary first-year rules. Certain related-party transfers are also exempt from the half-year rule, so prior ownership alone does not decide the deduction. For a Class 8 purchase (rate 20%), the first-year maximum is 30% of the cost under the incentive, or half the class rate under the half-year rule. A self-employed person and a corporation follow the same first-year rules, except that the proposal below treats individuals differently. These are the federal rules; provincial rules, including Quebec's, are not covered here.

A case is not simple if the purchase is large and delivery falls close to year-end, your year-end is not December 31, your first tax year is short, the asset is a vehicle or is also used personally, you or a related person owned the equipment before, or the deduction could push the year into a loss. If you are weighing a large purchase mainly to soften this year's tax bill, three things decide the result: whether the equipment will be available for use by your year-end, which first-year rule applies to its purchase date, and whether the deduction helps this year or only moves tax to later years. Gather the invoice, the delivery date, the date you first used it, the CCA class, your year-end date, the expected profit for the year and last year's CCA schedule.

What counts as bought: paid, delivered, installed or available for use?

Paying for equipment does not start CCA. The equipment must be acquired and available for use, and the Income Tax Act sets the available-for-use test in subsections 13(26) and 13(27).

The CRA treats equipment as acquired at the earlier of the date title passes to you and the date you have all the incidents of ownership, such as possession, use and risk. Where the parties' intention is not evidenced, it is acquired when an unconditional contract for a specific item in a deliverable state is made, even if payment or delivery comes later; if the seller must still do something to the item, not until that is done and you are notified (CRA folio S3-F4-C1). Acquired is not enough: CCA starts only when the property is also available for use.

Subsection 13(27) takes the earliest of its listed times. Pollution-control equipment, property of public corporations, and farming and fishing property have their own times in 13(27)(e), (f) and (g).

How much CCA do I get in the first year under the half-year rule?

Under the half-year rule, first-year CCA is worked out on only half of the net addition to the class (the cost of property added to the class in the year, less the proceeds of property of the class that you disposed of in the same year, capped at each item's original cost), so the maximum first-year claim on that addition is half of the class rate. A Class 8 asset has a rate of 20%, so its half-year maximum is half of that rate applied to the cost (CRA: basic information; Income Tax Regulations, section 1100(2)).

If the class already holds equipment, the class rate applies in full to that opening balance and at half to the addition. The rule defers the rest rather than removing it: the next year's claim is on the remaining class balance at the full rate.

Some property is not subject to the half-year rule, such as leasehold improvements (Class 13) and most small tools (Class 12); CRA: Guide T4002 lists the rest. For how classes and rates work, see capital cost allowance on equipment, vehicles and buildings.

Which incentives change the first-year amount?

Most new property acquired after 2024 qualifies for the reaccelerated investment incentive, which replaces the half-year rule with a larger first-year claim. Computers and small tools have their own rules, and so do some other classes, such as manufacturing machinery (Class 53, or Class 43 for property acquired after 2025 that would have been Class 53), clean energy equipment (Class 43.1) and zero-emission vehicles (Classes 54 to 56): their first-year factors are in section 1100(2), and the reaccelerated multiple does not apply to them. Check each row against the asset's class, acquisition date and available-for-use date.

Guide T4002 describes the reaccelerated incentive as a proposed change, and the CRA's classes page still describes the Class 50 claim as proposed. The Budget 2025 Implementation Act, No. 1 amended the Income Tax Regulations to include both, and the consolidated Regulations now show them. Where the CRA pages and the Regulations differ, the Regulations govern.

Class 50 keeps the 100% first-year claim only for computers available for use before 2027; after that, qualifying computers get the class rate of 55% in the first year, without the half-year reduction (section 1100(2)). The cutoff is a calendar date, not a year-end, and a tax year that straddles it is blended (section 1100(2.011)). For the Class 50 mechanics, see writing off GPU servers; for small tools and laptops, see expense or CCA for laptops, phones and tools.

What is the proposed immediate expensing (Productivity Mega Deduction), and has it passed?

The Department of Finance proposes a Productivity Mega Deduction that would let taxpayers write off the full cost of most depreciable property in the year it becomes available for use, for property acquired on or after September 15, 2026. It is a proposal, not law (Finance release).

Finance has published draft legislative text. At the date the figures on this page were checked, the Income Tax Regulations did not contain it, so it is not available today, and whether it becomes law before you file this year's return is not settled. If it becomes law as drafted, the deduction still needs the property to become available for use in the year (draft section 1100(0.1)).

What the release and the draft say about its limits:

• Excluded property: buildings in Classes 1 and 3, property in Classes 14, 14.1 and 51, passenger vehicles and some other motor vehicles in Classes 10 and 10.1 that were used before you acquired them or were assembled outside Canada, and property depreciated under Schedules V and VI to the Regulations.
• Used property: eligible only if neither you nor a person you do not deal with at arm's length owned it before, and it did not come to you on a tax-deferred rollover.
• Individuals: individuals and partnerships with individual members could not use it to create or increase a loss. The draft limits the deduction to the income from the business or property where the asset is used.
• Other property: property that does not qualify would keep the existing accelerated incentive.

The older small-business immediate expensing election does not help a purchase now: it covered only property that became available for use before 2025 for individuals and partnerships of individuals, and before 2024 for other eligible taxpayers such as Canadian-controlled private corporations (Income Tax Regulations, section 1104(3.1)). The claims the Regulations provide today are the half-year and reaccelerated ones. Keep the invoice, because the proposal turns on the acquisition date.

Does it matter if I buy in December or January, or my year-end is not December 31?

Yes. First-year CCA falls in the tax year in which the property becomes available for use, so a delivery date one day either side of year-end moves the whole first-year claim by a full year. The Regulations do not prorate by how long you owned the asset: equipment available on the last day of the year gets the same first-year claim as equipment available on the first day, unless the tax year is shorter than 12 months (section 1100(3)).

A corporation's own year-end sets the cutoff. If it is not December 31, the equipment must be available for use by the corporation's year-end, and incentive dates are calendar dates, so check which side of them the purchase falls. For how to choose or change a year-end, see choosing or changing a year-end.

A tax year shorter than 12 months, such as a first period, reduces the maximum CCA in proportion to its days over 365, with exceptions for some classes (section 1100(3); CRA: basic information; T2 guide). A purchase made in a short first year buys less deduction than the same purchase in a full year. A corporation's tax year also ends early when control of it is acquired or when it stops or starts being a Canadian-controlled private corporation, which shortens the year the same way (Income Tax Act, section 249).

Do I have to claim the full CCA, and what if my income is low?

No. You may claim any amount from zero to the maximum for each class, entered on Schedule 8 for a corporation or in Area A of Form T2125 for a self-employed person (CRA: basic information). The part you skip is not lost and not carried forward as a separate deduction: it stays in the class's undepreciated capital cost (UCC, the class balance) and is available in later years (CRA folio S3-F4-C1).

If income is low, a smaller claim keeps the deduction for a year when income is higher. If the claim would create or increase a business loss, the loss rules apply; see business losses.

Is a year-end purchase a real saving or only timing?

Mostly timing. CCA never deducts more than the cost: what you do not deduct this year stays in the class and is deducted later, and selling for more than the remaining class balance can add recapture to income (CRA folio S3-F4-C1). For recapture, see selling a business asset.

Spending a dollar to save tax saves less than a dollar. A purchase made mainly to cut this year's tax costs the full price in cash for a deduction that is only a part of the price in year one. Whether accelerating helps depends on the tax rate this year compared with later years and on whether the business needs the cash.

Can I claim the GST/HST on the purchase now?

A GST/HST registrant claims an input tax credit (ITC) on the return for the reporting period in which the tax becomes payable or is paid. The credit does not wait for the equipment to be available for use (Excise Tax Act, section 169).

For ordinary equipment kept as capital property, use primarily in commercial activities (more than 50%) generally supports a full credit, and use at or below that supports none (Excise Tax Act, section 199). Financial institutions, and passenger vehicles of individuals and partnerships, follow different rules. You need sufficient documentary evidence before you claim (CRA: input tax credits). The usual claim window is four years; listed financial institutions and larger businesses have two years (Excise Tax Act, section 225). A person who is not a registrant cannot claim an ITC.

The ITC also changes the CCA: if you received an ITC, subtract it from the property's capital cost before entering the cost for CCA (CRA: Guide T4002). Passenger vehicles follow different adjustment rules based on business use; see buying a car through your business. For how to file the return and support the credit, see filing GST/HST and input tax credits.

Do used equipment or purchases from a related person qualify for the incentives?

Property qualifies for the accelerated and reaccelerated incentives if no one has claimed CCA on it before you acquired it. Used property also qualifies if neither you nor a person you do not deal with at arm's length (such as a close relative or a corporation you control; Income Tax Act, section 251) owned it before and it did not come to you on a tax-deferred rollover (Income Tax Regulations, section 1104(4.01); CRA: accelerated investment incentive).

The proposed immediate expensing uses a similar ownership test. The tests turn on prior CCA and prior ownership, not on the relationship alone, but buying equipment from your own corporation or another related person needs review before you assume an incentive applies. Property acquired from such a person that they already had available for use is treated as available for use by you when you acquire it (Income Tax Act, subsection 13(30)), which can move the first-year claim. Separately, the half-year reduction does not apply to property bought from a non-arm's-length person who owned it as depreciable property continuously from at least 364 days before the end of your tax year, even when the incentive is unavailable (Income Tax Regulations, section 1100(2.2)). Equipment you already owned personally and move into the business has its own starting-cost rule; see expense or CCA for laptops, phones and tools.

Example

These examples are illustrative. Figures are in Canadian dollars; the tax rate in the last example is an assumption. Each assumes new property from an unrelated seller, available for use before 2030, a 12-month tax year, no other additions or disposals in the class, and amounts before GST/HST.

Ontario sole proprietor, calendar year

A sole proprietor buys C$10,000 of new Class 8 equipment from an unrelated seller. It is delivered and running on December 28. The Class 8 rate is 20%. As reaccelerated incentive property, the first-year base is C$15,000, so the maximum claim is C$3,000. If neither the incentive nor an exception to the half-year rule applied, the base would be half the cost, C$5,000, so the maximum claim would be C$1,000. Delivered and used on January 3 instead, the claim this year is C$0, and the first-year claim moves to next year.

The incentive moves deduction earlier. It does not add to the total.

Corporation with a January 31 year-end

A corporation buys C$4,000 of Class 8 equipment. If it is delivered and ready on January 29, it is available for use in the tax year ending January 31. If it arrives on February 2, the first deduction belongs to the next tax year, a full year later. With the reaccelerated incentive, the maximum first-year claim on C$4,000 is C$1,200. If the purchase is computers in Class 50, the cutoff date for the full first-year claim also matters, because it is a calendar date.

Contractor corporation considering C$60,000 of machinery

A BC contractor corporation earning C$150,000 considers C$60,000 of Class 8 machinery. As reaccelerated incentive property, the first-year claim is C$18,000 (C$6,000 under the half-year rule). At an assumed combined tax rate of 11%, close to the small-business rate for a BC private corporation, a C$18,000 deduction reduces tax by C$1,980, against C$60,000 spent. The remaining C$42,000 of class balance is deducted gradually in later years. A purchase made mainly for the deduction costs far more than it saves in the year; the incentives change the number, not the logic.

Different for you?

• The purchase is large, delivery is close to year-end, and you cannot yet say whether it will be available for use in time, which first-year rule applies, or whether the deduction helps this year or only moves tax later: a date on the wrong side of a line moves the first-year claim by a year or changes the rule. Record the invoice, delivery and first-use dates, class and year-end in your books before year-end, with bookkeeping help if that record needs setting up for the return.
• The purchase is a vehicle: passenger-vehicle cost limits, zero-emission rules and personal use change the deduction. See writing off an electric vehicle and buying a car through your business.
• The item is a laptop, phone or tool: the cost may be an expense rather than CCA. See expense or CCA for laptops, phones and tools.
• You plan to sell or replace the equipment: a sale can add recapture to income or give a loss. See selling a business asset.
• The deduction could create a loss, or income is very low: see business losses.
• Your year-end is not December 31 or this is a short first year: see choosing or changing a year-end.
• You paid personally, buy from a related person or your own corporation, buy used equipment, or move equipment you owned into the business: who owned the equipment, and when, decides who can claim CCA and which incentive applies. See business expenses paid personally and corporate tax help.
• The equipment is for a rental property: CCA on a rental has its own consequences. See should you claim CCA on a rental.
• Your books are behind or an earlier asset was never recorded: a missing class balance changes every later CCA claim. Get bookkeeping help to rebuild it before the return is prepared.