How to Calculate Capital Cost Allowance (CCA) in Canada

To calculate capital cost allowance in Canada, you identify the class your depreciable property belongs to, look up that class’s prescribed rate, and apply the rate to your undepreciated capital cost (UCC) after adjusting for the year’s additions, dispositions, and the half-year rule.¹ CCA uses the declining balance method, so each year’s deduction is a percentage of the balance that remains, not the original purchase price.

The Six-Step CCA Calculation

Every CCA calculation follows the same sequence for each class you hold:

Start with the opening UCC. This is last year’s closing UCC, or zero if you are creating the class for the first time.
Add current-year acquisitions. Include the capital cost of every property added to the class during the year.
Subtract dispositions. Remove the lesser of the original capital cost or the proceeds of sale for anything you disposed of.
Apply the half-year rule. For CCA purposes only, reduce the net cost of current-year additions by 50%.
Multiply by the class rate. The result is the maximum CCA you can claim.
Calculate the closing UCC. Subtract the CCA you actually claim from the balance before the half-year adjustment. That figure becomes next year’s opening UCC.

CCA is discretionary, so you can claim any amount up to the maximum, including zero. Whatever you don’t claim stays in the UCC balance and remains available in future years.

A Worked Example

You buy Class 10 equipment (30% rate) for $100,000 and have no other property in the class. In year one, the half-year rule limits your base to $50,000, so your maximum CCA is $50,000 × 30% = $15,000. Closing UCC is $100,000 − $15,000 = $85,000. In year two, no half-year adjustment applies, so your maximum CCA is $85,000 × 30% = $25,500, leaving a closing UCC of $59,500. The deduction keeps shrinking each year as the balance declines, which is why declining balance never fully depreciates an asset to zero on its own.

Working Out the Capital Cost

The capital cost is more than the invoice price. It includes purchase price plus legal fees, accounting fees, engineering costs, installation, and delivery expenses tied to putting the asset into service. For construction or renovation, soft costs like interest and property taxes during the construction period get folded in as well. Land is never depreciable, so if you buy a building, separate the land value from the structure and only put the structure into a CCA class.²

If you are registered for GST/HST and claim input tax credits on a purchase, subtract those credits from the capital cost before adding the property to its class. A non-registrant who cannot claim ITCs includes the full tax-inclusive price. Buy $10,000 of equipment in Ontario and reclaim the 13% HST as an ITC, and your capital cost for CCA purposes is $10,000, not $11,300.³

Not every expense tied to an asset is a capital cost. The CRA distinguishes current repairs (fully deductible in the year) from capital expenditures (added to CCA) using several tests: whether the expense provides a lasting benefit, whether it improves the property beyond its original condition, and whether you are replacing a part or an entirely separate asset. Painting a building’s exterior is current. Replacing wooden steps with concrete ones is capital because you improved the property. Where the tests are inconclusive, the CRA looks at cost relative to the property’s value; repairs made to prepare a property for sale are also treated as capital.⁴

Choosing the Right Class and Rate

Every depreciable property belongs to a class listed in Schedule II of the Income Tax Regulations, and each class has its own maximum rate.⁵ The classes most businesses run into:

Class 1 at 4% for most buildings acquired after 1987. Eligible non-residential buildings used at least 90% for manufacturing can qualify for a 10% rate, and other non-residential buildings can qualify for 6%, but you have to elect these higher rates.
Class 8 at 20%, a catch-all for furniture, fixtures, appliances, tools, and machinery not assigned elsewhere.
Class 10 at 30% for motor vehicles, general automotive equipment, and passenger vehicles costing at or below the prescribed limit.
Class 10.1 at 30% for passenger vehicles costing more than the prescribed limit. The 2026 ceiling is $39,000 before tax, and each such vehicle sits in its own separate class.⁶
Class 43 at 30% for manufacturing and processing equipment used in Canada primarily to produce goods for sale.
Class 50 at 55% for general-purpose computer hardware and systems software acquired after March 18, 2007.
Class 54 at 30% for zero-emission passenger vehicles, with a 2026 capital cost ceiling of $61,000 before tax. Class 55 at 40% for zero-emission vehicles that are not passenger vehicles (delivery vans, freight trucks).⁶

Dozens of other classes cover everything from pipelines to patents; the CRA’s published class tables walk through each with examples.⁷ Getting the class wrong over- or under-claims your deduction every year going forward, so confirm before you file.

Timing Rules That Change First-Year Math

The Half-Year Rule

In the year you acquire depreciable property, you generally claim CCA on only half of your net additions to a class. This is step 4 above. It stops a taxpayer who buys equipment in December from claiming the same deduction as someone who bought it in January.⁸ From year two onward, the full UCC balance is your base.

Available-for-Use

You cannot claim CCA the moment you sign a purchase agreement. Property other than a building generally becomes available for use on the earlier of the date you first use it to earn income or the second tax year after acquisition. For buildings, the date is typically the earlier of when at least 90% of the building is used for its intended purpose or the second tax year after acquisition. Order custom equipment in November 2026 that does not arrive and start operating until March 2027, and your first CCA claim is on your 2027 return.⁹

First-Year Enhancements for 2026

The Accelerated Investment Incentive (AII) gives enhanced first-year CCA to eligible property acquired after November 20, 2018 and available for use before 2028. For most classes it effectively suspends the half-year rule and produces a larger year-one deduction. The incentive is phasing out.¹⁰

For property that becomes available for use in 2026 and would normally be subject to the half-year rule, the enhanced first-year allowance equals two times the normal first-year CCA. For property not normally subject to the half-year rule, it is one-and-a-quarter times the normal deduction. The incentive disappears entirely for property available for use after 2027.¹⁰

Classes 54, 55, and 56 (zero-emission vehicles) get a 55% enhanced first-year deduction for property available for use in 2026, down from 75% through 2025. Classes 43.1, 43.2, and 53 (clean energy and manufacturing equipment) also get 55% for 2026, down from the 100% write-off that applied through 2023.¹⁰

Adjusting for Personal Use

If a property is used partly for business and partly personally, claim CCA only on the business-use share. A vehicle driven 70% for business and 30% personally means you claim CCA on 70% of the amount the formula produces. Keep a reasonable method for tracking the split, such as a mileage log. The CRA expects consistency year over year and will ask for the underlying records if the business-use percentage looks aggressive.

When Selling Changes the Math

Two things can happen when you dispose of property.

Recapture. If sale proceeds push a class’s UCC below zero, the negative amount is recaptured and added back to income. It happens when you have claimed more CCA over the years than the asset actually declined in value.¹¹

Terminal loss. The opposite: you have disposed of every asset in a class but a positive UCC balance remains. That leftover is deductible in full in the year of disposal.¹² One exception matters: Class 10.1 vehicles sit in their own separate classes and terminal losses are not permitted on them, so if you sell a Class 10.1 vehicle for less than its UCC, the undeducted portion is simply lost. Recapture, however, can still apply if proceeds exceed the UCC.

The Rental-Property Cap

The CCA formula works the same way for rental buildings and equipment, with one restriction that does not apply to other business property: CCA on rental property cannot create or increase a rental loss. If rental income before CCA is $4,000, you can claim up to $4,000 in CCA and no more. The unclaimed portion stays in your UCC balance and is available in a later year.¹³

Where the Numbers Go on Your Return

The form depends on how your business is set up. Sole proprietors and partnerships report CCA on Form T2125, Statement of Business or Professional Activities, which feeds into the personal T1 return.¹⁴ Corporations use Schedule 8 with the T2 corporate return; Schedule 8 handles CCA, recapture, and terminal loss on a single form.¹⁵ Rental property owners file Form T776 and complete the calculation in Area A.¹³

Each form asks for the opening UCC of every class, current-year additions, dispositions, the half-year adjustment, and the CCA you are actually claiming, which can be anything from zero up to the maximum. Match the form to your internal records before you file. Amending a CCA claim after filing is possible but slow, and it can draw attention to prior years.

1
Canada Revenue Agency (CRA). Claiming Capital Cost Allowance (CCA)
2
Canada Revenue Agency (CRA). Basic Information About Capital Cost Allowance (CCA) – Section: Determining Capital Cost
3
Canada Revenue Agency (CRA). Calculate Input Tax Credits (ITC) – ITC Eligibility Percentage
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Canada Revenue Agency (CRA). Current or Capital Expenses
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Department of Justice Canada. Income Tax Regulations – SCHEDULE II – Capital Cost Allowances
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Canada Revenue Agency (CRA). Government Announces the 2026 Automobile Deduction Limits and Expense Benefit Rates for Businesses
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Canada Revenue Agency (CRA). Capital Cost Allowance (CCA) Classes
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Canada Revenue Agency (CRA). Amount of Capital Cost Allowance You Can Claim – Section: Limits on CCA
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Canada Revenue Agency (CRA). Available for Use Rules
10
Canada Revenue Agency (CRA). Accelerated Investment Incentive
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Canada Revenue Agency (CRA). Line 9947 – Recaptured Capital Cost Allowance
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Canada Revenue Agency (CRA). Line 9948 – Terminal Loss
13
Canada Revenue Agency (CRA). Area A – Calculation of Capital Cost Allowance Claim
14
Canada Revenue Agency (CRA). T2125 Statement of Business or Professional Activities
15
Canada Revenue Agency (CRA). T2SCH8 Capital Cost Allowance (CCA)