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Canada CCA Guide (Capital Cost Allowance)

the Capital Cost Allowance (CCA) in Canada. The CCA is the tax depreciation on the capital property used in the business or the rental activity. The CCA classes determine the depreciation rate and the method — the Class 1 (4% declining balance) for the buildings (the "brick and mortar" — the "non-residential buildings"), the Class 8 (20%) for the equipment and the furniture, the Class 10 (30%) for the vehicles, the Class 12 (100%) for the software, the tools, and the medical equipment (the "instruments" — the "Class 12 assets" — the full write-off in the year of the acquisition), the Class 50 (55%) for the computer hardware (the "computer equipment" — the "servers, the workstations, the desktops"), the Class 54 (40%) for the zero-emission vehicles (the "ZEV" — the "electric vehicles, the plug-in hybrids"), and the Class 53 (50%) for the manufacturing and the processing equipment (the "M&P" — the "manufacturing machinery and the equipment"). The half-year rule — the CCA in the year of the acquisition is limited to 50% of the CCA that would otherwise be allowed (the "first-year CCA restriction" — the "50% rule" — does NOT apply to the Class 12, the Class 54, or the "immediate expensing" property). The immediate expensing — the CCPC can claim the "accelerated CCA" (the "immediate write-off") on the eligible property up to $1.5 million per year (the 2022 Budget — the "immediate expensing for the CCPC"). The UCC (the "undepreciated capital cost") — the cost of the class minus the CCA claimed in the prior years. The CCA recapture — when the sale price of the property exceeds the UCC, the difference is "recaptured" and is included in the income (the "recapture of the CCA"). The terminal loss — when the UCC exceeds the sale price (and the class has no more property), the difference is the "terminal loss" (deductible from the income).

CCA Classes & Rates

• Class 1 (4%): The buildings (the "brick and mortar" — the "non-residential buildings", the "rental buildings", the "industrial buildings"). The "new" buildings acquired after March 18, 2007, may qualify for the "accelerated CCA" of 6% (the "Class 1 accelerated" — the "6% CCA" for the new buildings).
• Class 8 (20%): The equipment, the furniture, the fixtures, the tools (the "Class 8 assets" — the "tangible personal property" used in the business).
• Class 10 (30%): The passenger vehicles (the "motor vehicles" — the "Class 10 assets" — the "general automotive equipment"). The capital cost limit is $35,000 (for the CCA purposes).
• Class 12 (100%): The "Class 12 assets" — the full write-off in the year of the acquisition (the "100% CCA"). The Class 12 includes the software (the "computer software" — the "off-the-shelf software"), the medical instruments, the dies, the jigs, the patterns, the molds, the "cutting and the shaping" tools, and the "small tools" (the "Class 12 small tools" — the tools costing less than $500).
• Class 50 (55%): The computer hardware (the "computer equipment" — the "electronic data processing equipment" — the servers, the workstations, the desktops, the laptops, the peripherals).
• Class 54 (40%): The zero-emission vehicles (the "ZEV" — the battery electric vehicles, the plug-in hybrid electric vehicles, the hydrogen fuel cell vehicles). The capital cost limit is $55,000 (for the CCA purposes).
• Class 53 (50%): The manufacturing and the processing equipment (the "M&P" — the "manufacturing machinery and the equipment" — the "accelerated CCA" for the M&P).

Half-Year Rule

• First-year restriction: The CCA in the year of the acquisition is limited to 50% of the CCA that would otherwise be allowed (the "half-year rule" — the "first-year CCA restriction"). The rule applies to all the CCA classes (except the Class 12, the Class 54, and the "immediate expensing" property).
• Disposition in the year: The half-year rule does NOT apply to the dispositions (the sales) — the property sold in the year is deemed to have been available for the use until the date of the sale (the "pro-rated CCA" — the CCA on the "net additions" only).

Immediate Expensing (CCPC)

• Eligibility: The CCPC can claim the "accelerated CCA" (the "immediate write-off") on the eligible property up to $1.5 million per year (the "immediate expensing limit"). The eligible property is the "qualifying property" — the Class 8, the Class 10, the Class 50, the Class 53, the Class 54, and the Class 55 (the "eligible CCA classes").
• Full deduction: The CCPC can deduct the full cost of the eligible property (the "immediate deduction" — the "100% deduction" — in the year of the acquisition). The half-year rule does NOT apply to the immediate expensing.

Recapture & Terminal Loss

• CCA recapture: When the sale price of the property exceeds the UCC of the class, the excess is "recaptured" and is included in the income (the "recapture of the CCA"). The recapture is taxed as the ordinary income (not the capital gain).
• Terminal loss: When the UCC of the class exceeds the sale price (and the class has no more property), the excess is the "terminal loss" (deductible from the income). The terminal loss is deducted as the "business expense" (the "terminal loss deduction").

For the rental property CCA and the rental expenses, see our Rental Property Expenses Guide →. For the vehicle expenses and the CCA on the passenger vehicles, see our Vehicle Expenses Guide →.