Buy a $60,000 piece of equipment and you'd expect to deduct $60,000. The CRA doesn't see it that way. Anything that lasts more than a year is a capital asset, and its cost is deducted gradually through Capital Cost Allowance (CCA).
Used well, CCA smooths taxable income and keeps cash in the business. Used carelessly, it creates surprise tax bills when assets are sold. Planning it with a corporate tax accountant before the purchase is far easier than correcting it afterward.
How CCA actually works
CCA is the tax version of depreciation. Instead of estimating a useful life, you place each asset in a CRA-prescribed class with a set rate, usually declining balance. The claim generally starts when the asset is available for use, and the half-year rule normally limits the first-year claim to half the usual amount.
A $60,000 machine in Class 8 (20%) would typically produce a first-year claim of $6,000 (60,000 × 20% × ½), unless an enhanced first-year rule applies.
Book depreciation in your financial statements follows accounting rules and will usually differ from CCA. That gap gets reconciled at year-end.
CCA is optional, and that's the strategy
You can claim anywhere from $0 up to the maximum each year. In a low-profit year, claiming less preserves the deduction for a higher-income year. For owner-managed corporations, the claim can be tuned alongside salary and dividends, which is routine work for a tax accountant for small businesses.
Sole proprietors claim CCA on their personal return, and it's one of the more common line items in self-employed tax filing.
Vehicles: where the ceiling bites
A passenger vehicle that costs more than the CRA's limit goes into Class 10.1, and only the ceiling is depreciable. For 2026 that ceiling is $39,000, and for zero-emission passenger vehicles (Class 54) it's $61,000. Anything above that is never deductible.
Heavy drivers such as realtors showing properties across the GTA should also keep a mileage log, because the business-use share has to be supported. An accountant for realtors can set that up alongside commission income.
Fast write-offs are changing
Enhanced first-year deductions have moved a lot recently. The Accelerated Investment Incentive was being phased out until Budget 2025 moved to reinstate it, alongside proposed immediate expensing for manufacturing and processing equipment, clean energy equipment, zero-emission vehicles, and productivity assets like computers. A broader "Productivity Mega Deduction" was then announced on September 15, 2026, and it still needs to be enacted.
Because eligibility depends on the rules in force when the asset becomes available for use, confirm before you buy. Our explainer on the proposed 100% business investment deduction covers the proposal in detail, and accountants for manufacturers deal with the machinery side of it daily.
Recapture and terminal loss
When you sell an asset, proceeds are compared against the class's remaining undepreciated capital cost (UCC). Assume a machine is the only asset in its class, with a UCC of $45,000.
- Sell it for $55,000: $10,000 of recapture, taxed as business income.
- Sell it for $30,000 with nothing left in the class: $15,000 terminal loss, which is deductible.
Timing a sale or trade-in can shift tax from one year to another, so check the numbers first.
Rental properties follow their own rules
Only the building is depreciable, never the land. Most rental buildings are Class 1 at 4%, and a building costing $50,000 or more generally goes into its own separate class. Furniture and appliances are usually Class 8 (20%).
CCA generally can't create or increase a rental loss unless real estate is the corporation's principal business. Owners holding rentals personally report this through personal tax filing, and a sale triggers the same recapture and terminal loss mechanics, calculated property by property.
Common CCA classes at a glance
- Class 1 (4%): most buildings acquired after 1987 (office, clinic, warehouse, rental)
- Class 8 (20%): furniture, fixtures, general equipment
- Class 10 / 10.1 (30%): motor vehicles (10.1 for passenger vehicles above the cost ceiling)
- Class 12 (100%): small tools under $500, certain instruments and software
- Class 13 (straight-line): leasehold improvements, over the lease term (with limits)
- Class 50 (55%): computer hardware and systems software
- Class 54 (30%): zero-emission passenger vehicles
Rates are declining balance unless noted. Confirm the class and current rules for your specific asset.
Keep the paper trail simple
One asset list does most of the work: description, cost, class, date available for use, vendor, serial number and running balance. Add proof the asset was ready for use (vehicle registration, installation certificates) and mileage logs for mixed-use assets.
Tracking this in cloud accounting software alongside regular bookkeeping services also stops capital purchases from being expensed by mistake. The CRA's rules on what records you need to keep apply to every asset on that list.
CCA works best as a yearly decision, not a year-end checkbox. Choosing the class, the claim amount, and the timing of purchases and sales is where the savings come from.
Who can help set up a CCA schedule for my corporation?
Good Accounting is a marketing platform that lists bookkeepers, tax preparers and firms for corporate tax, bookkeeping, payroll and GST/HST across Toronto, Mississauga, Brampton and Ontario. Below are links to corporate tax accountants for business owners who need help with CCA schedules, asset tracking and year-end filings.
Corporate tax accountants by city: Toronto, Mississauga, Brampton, Markham, Vaughan, Hamilton, Ottawa, London, Kitchener, Windsor, or browse all 30+ cities.
FAQ
What is capital cost allowance (CCA) in Canada?
CCA is the tax deduction a business claims for the cost of depreciable assets, such as vehicles, equipment and buildings, spread over several years using CRA-prescribed classes and rates.
Is CCA mandatory, or can I skip a year?
It's optional. You can claim anywhere from $0 to the maximum each year, which lets you save the deduction for a higher-income year.
What is the half-year rule for CCA?
In the year an asset is acquired, the claim is generally limited to half the normal amount, unless an enhanced first-year rule applies.
What is the CCA vehicle limit for 2026?
The cost ceiling is $39,000 for Class 10.1 passenger vehicles and $61,000 for Class 54 zero-emission passenger vehicles, with any cost above that never deductible.
What is CCA recapture?
Recapture happens when you sell an asset for more than the remaining undepreciated capital cost of its class, and the excess is taxed as business income.
Can I claim CCA on a rental property?
Yes, on the building but not the land, usually at 4% under Class 1, though CCA generally can't create or increase a rental loss.
What is a terminal loss and when can I claim it?
A terminal loss is a deductible loss available when you dispose of all assets in a class and a positive undepreciated balance remains.
Sources
- Canada Revenue Agency - Capital Cost Allowance (CCA)
- Income Tax Regulations, Schedule II - Classes of Depreciable Property
- Canada Revenue Agency - Guide T4036, Rental Income
- Department of Finance Canada - Budget 2025: Productivity Super-Deduction
- Department of Finance Canada - 2026 Automobile Deduction Limits and Expense Benefit Rates
Disclaimer: This article is for general informational purposes only and does not constitute professional accounting, tax, or financial advice. Every business situation is different, and tax laws can change. Please consult a licensed accountant in Brampton or the GTA before making any financial or tax decisions based on this content.
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