Capital Cost Allowance (CCA) — Canada Tax Rules

CCA is Canada's depreciation system — claim annual depreciation on business equipment, vehicles, computers, and other capital assets.

Claimable: Fully claimable · Tax authority: CRA (Canada Revenue Agency)

CRA (Canada Revenue Agency) Rules

• Capital assets (equipment, vehicles, computers, furniture) cannot be expensed immediately — they are depreciated through CRA's Capital Cost Allowance (CCA) system.
• Each type of asset falls into a CCA class with a specified depreciation rate: Class 50 (computers, 55%), Class 8 (tools/equipment, 20%), Class 10 (vehicles, 30%), Class 12 (tools under C$500, 100%).
• In the first year of ownership, the half-year rule applies — you can only claim 50% of the normal annual CCA.
• CCA is claimed on Schedule T2125 Part 5 — you maintain an Undepreciated Capital Cost (UCC) pool for each class.
• CCA is discretionary — you can claim any amount from C$0 up to the maximum allowed rate. This is useful to avoid generating a loss.
• If you sell a capital asset, the proceeds reduce your UCC pool — potentially triggering recapture (additional income) or a terminal loss (additional deduction).
• Only the business-use proportion of a capital asset's CCA is deductible — track personal vs. business use.

Limits

CCA rates vary by asset class. The half-year rule reduces first-year claims by 50%. CCA cannot create or increase a business loss (unlike most other expenses).

Worked Example

Mark buys a C$3,000 professional camera (CCA Class 8, 20%) and a C$2,200 laptop (CCA Class 50, 55%), both used 100% for business. Camera Year 1 (half-year rule): C$3,000 × 20% × 50% = C$300. Laptop Year 1: C$2,200 × 55% × 50% = C$605. Total CCA claim: C$905.

Record Keeping

• Keep purchase receipts and invoices for all capital assets, noting the purchase date and original cost
• Maintain a CCA schedule for each asset class: opening UCC, additions, CCA claimed, and closing UCC
• Record the business-use percentage for each asset if used personally
• When disposing of an asset, record the date, sale proceeds, and buyer details
• Keep CCA schedules indefinitely — they are needed to calculate recapture or terminal loss in future years

Frequently Asked Questions

What is CCA and why do I need it?

CCA (Capital Cost Allowance) is Canada's depreciation system for business assets. Instead of expensing the full cost of a computer, vehicle, or piece of equipment in the year of purchase, you recover the cost gradually over time at CRA's prescribed rates. This accurately matches your expense deductions with the useful life of the asset.

What CCA class is a van or truck used for my business?

Vehicles used for business are typically CCA Class 10 (30%/year declining balance). Passenger vehicles costing over CRA's prescribed limit (C$37,000 for 2024 purchases) are restricted to Class 10.1, which limits the maximum deductible cost. Commercial trucks and vans not subject to the passenger vehicle limit use Class 10.

Can I choose not to claim CCA in a particular year?

Yes — CCA is discretionary. You can claim any amount from zero up to the maximum allowed rate for each class. This is often done to avoid creating a business loss in years with low income, or to manage your tax bracket. Unclaimed CCA accumulates in your UCC pool and can be claimed in future years.

What happens when I sell a business asset?

When you sell a capital asset, you reduce your CCA class pool by the lesser of the sale proceeds or the original cost. If this drives the pool negative, the amount is recaptured income — taxable in the year of sale. If you shut down an asset class with a remaining positive UCC balance, that balance is a terminal loss — deductible against your business income.