Capital cost allowance on equipment, vehicles and buildings

Why can't I deduct the full cost when I buy an asset?

Equipment, vehicles and buildings used to earn income are usually capital assets. Capital cost allowance (CCA) spreads their tax deduction across years as they wear out or become obsolete; you generally start when the asset is available for use, not merely when you order or pay for it (CRA: rental CCA).

CCA is calculated by class. The undepreciated capital cost (UCC) is the class's remaining tax balance after additions, sales and prior CCA. Most classes use a declining balance: apply the class rate to the eligible UCC, then subtract the CCA claimed. Accounting depreciation in financial statements does not set the tax deduction (CRA: CCA folio). For ordinary running costs, see how self-employed income is taxed.

Which CCA class and rate apply?

The asset's type and sometimes its acquisition date decide the CCA class. These common classes are starting points; use the CRA class descriptions for an asset that does not clearly fit.

The higher 10% rate is for a qualifying new Canadian rental building or part with at least four units, including four with private kitchen, bath and living space, or at least 10 residential units. Almost all units must be offered for rentals of at least 28 consecutive days. Construction or a qualifying commercial conversion must have begun after April 15, 2024 and before 2031; the property must be available for use before 2036 and placed in a separate class (Income Tax Regulations, sections 1100, 1101 and 1104). Older buildings, leasehold improvements, specialized machinery and some vehicles have different classes. Land has no CCA class because it is not depreciable (CRA: classes).

A Class 1 non-residential building acquired and first used after March 18, 2007 can have a total rate of 6% when at least 90% of its floor space is in non-residential use in Canada at year end, or 10% when that share is used for manufacturing or processing. It needs an election to put it in a separate class, by a letter attached to your return for the year you acquired it; otherwise 4% applies (CRA: classes; Income Tax Regulations, section 1101(5b.1)).

How much CCA can I claim in the first year?

First-year CCA depends on when the property became available for use and which incentive it qualifies for. The ordinary half-year rule calculates CCA on only half of a net class addition; qualifying reaccelerated investment incentive property (RIIP) instead generally adds another half of its net addition to the first-year base, producing one and a half times the usual class rate on that addition (Income Tax Regulations, section 1100(2); CRA: T2 guide).

RIIP has restrictions for property previously owned by you or a related person, or acquired through certain tax-deferred transfers. Its enhancement also differs for specified classes, including clean-energy equipment and zero-emission vehicles. Confirm the asset's class, acquisition date, available-for-use date and transfer history before applying an incentive (CRA: T2 guide; Income Tax Regulations, section 1100(2)).

If you start using a personal asset to earn income, its capital cost is generally the lower of its fair market value at that time and its cost plus half of any increase in value (Income Tax Act, section 13(7); CRA: T4002).

For a tax year or business fiscal period shorter than 12 months, such as a new business's first period, most CCA maxima are reduced in proportion to its days out of 365. Immediate expensing and some classes have exceptions (Income Tax Regulations, section 1100(3); CRA: T4002). An acquisition of control of a corporation ends its tax year early and forces a CCA deduction of any remaining UCC above the class's fair market value (Income Tax Act, sections 249(4) and 111(5.1)).

The Department of Finance's proposed immediate-expensing measure is not yet in the cited regulations. Check its enactment before claiming it.

How do I claim CCA on a car or truck?

First determine whether the vehicle is a passenger vehicle, a motor vehicle outside that definition, or an eligible zero-emission vehicle. A passenger vehicle outside Class 54 acquired in this tax year enters Class 10.1 when its price before sales taxes exceeds $39,000; the CCA capital cost is capped at that amount plus applicable sales taxes and adjusted for any GST/HST input tax credit or rebate. For some mixed-use passenger vehicles, the credit reduces the following year's opening UCC instead. The ceiling is tied to the year acquired, so keep the earlier year's limit for an older vehicle (Department of Finance: automobile limits; CRA: GST/HST credit adjustment).

Class 10 vehicles are pooled; each Class 10.1 vehicle is listed separately. An eligible zero-emission passenger vehicle generally enters Class 54, with a capital cost ceiling of $61,000 plus sales taxes for a vehicle acquired this tax year. An election on your return for the year you acquire the vehicle puts it in its usual Class 10 or 10.1 instead; late or amended elections are not allowed (CRA: vehicle classes). Most cars and some pickups are passenger vehicles. A pickup or van may be outside the passenger-vehicle ceiling if its seating and business transport use meet the CRA vehicle-definition chart for its acquisition year.

If you own the vehicle personally and also drive it personally, claim only the business-use share. Personal use of a corporation-owned vehicle by an employee or shareholder may create a taxable benefit (CRA: employer-provided automobile; CRA: shareholder benefits). Keep the purchase invoice and a record of business and total kilometres. For credit eligibility, see filing GST/HST and input tax credits.

Should I claim CCA on a rental property?

Rental CCA is optional. For most owners, it cannot create or increase an overall rental loss: calculate net income across all rental properties before CCA. A life insurer, a corporation whose principal business throughout the year is leasing, renting, developing or selling its own real property, or a qualifying partnership of such corporations may be exempt; a specified leaseback remains restricted (Income Tax Regulations, sections 1100(11)–(13)). CCA attributable to days when a short-term rental was prohibited or failed applicable registration, licence or permit rules is also denied (CRA: Rental Income).

A deduction now lowers UCC and can become taxable recapture when the building is sold. Compare the current deduction with a possible sale and your future income before claiming. A rental building acquired after 1971 with building capital cost of at least $50,000 goes in its own class; a sale can therefore trigger recapture or a terminal loss without being offset by another building in the same numbered class (CRA: Rental Income). The tax result on a sale is covered in selling a rental property.

How do I split a property's price between land and building?

Use the land's and building's relative values at purchase to make a reasonable split of the price; check any separate prices in the agreement against that evidence. Only the building portion enters a CCA class. Split shared closing costs in the same proportions, while costs relating solely to one part follow that part (CRA: Rental Income; CRA: CCA folio).

Keep the purchase agreement, closing statement and support for the split, such as an appraisal or assessed values. Enter land in Area F of Form T776 or T2125, not in the Area A CCA calculation (CRA: Rental Income). For a home converted to a rental, the starting tax cost needs a separate change-of-use analysis; see turning a home into a rental.

Can I claim CCA on the part of my home used for business or rent?

If your home is or may become your principal residence, check the change-of-use rules before claiming building CCA. A home-to-rental election under subsection 45(2), made by a signed letter with your return and available since March 19, 2019 for a change in use of part of a home, bars CCA; earlier CCA may prevent the reverse election when a rental becomes your home. Even without an election, the CRA usually avoids a partial deemed disposition only when the income use is relatively small, there are no structural changes and no CCA is claimed (CRA: Rental Income). See turning a home into a rental and the principal residence exemption.

For a self-employed home workspace, CCA may be available if it is your principal place of business, or used only for business and regularly to meet clients. Allocate costs by a reasonable area share, adjusted for time if the space also has personal use. Business-use-of-home expenses, including CCA, cannot create or increase a business loss; report them in Part 7 of Form T2125 (CRA: business-use-of-home expenses). For rented space, use only the rental portion and respect the rental-loss limit (CRA: Rental Income).

Do I have to claim the maximum CCA each year?

No. You may claim anything from zero to the permitted maximum for each class. The amount you do claim reduces UCC, leaving less to deduct later; a skipped amount stays in the class's UCC (CRA: Rental Income).

Still record acquisitions and disposals in the CCA schedule even if you choose no deduction. Keep the prior-year UCC schedule so the next return starts with the correct balance (CRA: Rental Income).

Can I go back and claim CCA I skipped?

Usually, use the unclaimed UCC in a later year rather than assuming you can amend an older return. The CRA's revision policy generally accepts an increased claim for a taxable year only while the time to object to that year's assessment remains open: 90 days after the notice of assessment or, for an individual, one year after the filing due date if later (Income Tax Act, section 165(1)). There are specific exceptions such as an upward reassessment or an offsetting adjustment. Different rules apply to a year assessed with no tax payable (CRA: IC84-1).

If an old return omitted an asset entirely or put it in the wrong class, reconcile the purchase records and all later UCC schedules before requesting a revision. The CRA treats classification errors separately in the same circular.

What happens when I sell or scrap equipment or a vehicle?

Subtract the relevant disposal proceeds from the class UCC, generally up to the asset's original capital cost. A negative class balance is recapture included in income. If no assets remain in a class and UCC is still positive, a terminal loss may be deductible. The result depends on the whole class, not just the asset sold (CRA: T4002).

Class 10.1 passenger vehicles are an exception: the usual recapture and terminal-loss rules do not apply on disposal unless the vehicle was designated for immediate expensing; a limited CCA claim may be available in the sale year (CRA: T4002). An eligible Class 54 zero-emission passenger vehicle follows different disposal rules (CRA: CCA folio). Keep the sale invoice or scrap record and the prior UCC schedule.

Where do I report CCA?

Use the federal CCA schedule for the activity that owns the asset. Joint ownership alone does not make a rental a partnership: co-owners, including spouses, generally report their shares on their own T776. A partnership determines CCA for its assets, and partners do not choose separate amounts (CRA: T4002; CRA: Rental Income).

A Quebec individual also calculates provincial CCA: on Form TP-128-V for a rental, or in Part 5 of Form TP-80-V for a business. Use rental-income reporting for the rest of Form T776 and filing a corporate return for the T2 process. Financial-statement depreciation is addressed in year-end financial statements for a corporation.

Example

Illustrative amounts in Canadian dollars. A sole proprietor with a full calendar-year fiscal period buys a $10,000 piece of Class 8 equipment from an unrelated seller before September 15, 2026, the start date of the proposed immediate-expensing measure. It becomes available for business use during the tax year, qualifies as RIIP, and has no personal use or other additions or sales in its class. The Class 8 rate is 20%. The first-year CCA base is $15,000: the $10,000 addition plus a $5,000 RIIP adjustment. The maximum first-year claim is $3,000. If the owner claims $2,000 instead, the closing UCC is $8,000; the temporary $5,000 adjustment does not become part of closing UCC. Without RIIP, the ordinary half-year base would be $5,000 and the maximum claim $1,000 (Income Tax Regulations, section 1100(2)).

Different for you?

• You may sell a rental soon: review recapture and any capital gain in selling a rental property.
• You claim CCA on a home: review the principal residence exemption first; a home newly turned into a rental also needs the change-of-use rules.
• You are a non-resident landlord: see non-resident landlord filing.
• Your vehicle, corporate asset or rental building has a large first-year claim or planned sale: gather invoices, available-for-use dates, prior CCA schedules, closing statements and vehicle kilometres, then get tax-preparation help.