What Is the Accelerated Investment Incentive (AII)?

The Accelerated Investment Incentive is a federal rule that lets Canadian businesses take a larger capital cost allowance (CCA) deduction in the year they put an eligible asset to work, instead of spreading that first-year deduction thinly under the usual half-year rule.¹ It was introduced in the 2018 Fall Economic Statement, and it is now winding down: the enhanced deduction is reduced for property that becomes available for use between 2024 and 2027, and the incentive disappears entirely in 2028. For assets you put into service in 2026, the first-year deduction is still larger than the standard rules allow, but smaller than what the full incentive delivered before 2024.

How the Enhanced First-Year Deduction Works

Under normal CCA rules, most depreciable property is subject to a half-year rule: in the year you acquire an asset, you can only claim depreciation on half of the net additions to its CCA class.² Buy $100,000 of Class 8 furniture, which has a 20% CCA rate, and the half-year rule caps your first-year deduction at 20% of $50,000, or $10,000.

The Accelerated Investment Incentive suspends the half-year rule for eligible property and instead applies a factor greater than one to the net addition. At full strength, for property available for use before 2024, the factor was 1.5, so the CCA rate was applied to 150% of the net addition. That turned the $10,000 first-year deduction in the example above into $30,000.¹

The total deduction over the asset’s life does not change. A larger upfront deduction just draws down the undepreciated capital cost (UCC) faster and leaves less to deduct in later years.

Where the Phase-Out Stands in 2026

The full 1.5× factor no longer applies. For property that becomes available for use in the 2024 to 2027 phase-out period, the incentive is scaled back, and the reduction depends on whether the property would normally be subject to the half-year rule.¹

For property subject to the half-year rule, the enhanced first-year deduction is now two times the normal first-year CCA. In practice, this means the CCA rate is applied to 100% of the net addition without further enhancement. That $100,000 Class 8 purchase yields a first-year deduction of $20,000 in 2026, compared with $10,000 under the plain half-year rule and $30,000 under the original full incentive.
For property not subject to the half-year rule, the enhanced first-year deduction is 1.25 times the normal first-year CCA.

The incentive expires for property available for use in 2028 or later, and the standard half-year rule takes over again for new acquisitions from that point on. If you are planning a major capital purchase, the 2026 and 2027 window still gives you a boost, but it is narrowing.

Which Property Qualifies

The incentive applies to depreciable property acquired after November 20, 2018, that becomes available for use before 2028.³ Most CCA classes qualify, including everyday categories such as Class 8 (furniture and general equipment, 20%), Class 10 (motor vehicles, 30%), and Class 50 (computer equipment, 55%).⁴ Used property purchased at arm’s length from an unrelated party can also qualify, as long as no prior CCA or terminal loss was claimed on that same asset by you or a related person.

An asset is generally considered available for use when you first put it to work earning income or when it can reasonably be used for its intended purpose.⁵ You cannot claim CCA on it until then. Buying equipment in December but not having it installed and operational until February shifts the deduction to the following tax year, and the available-for-use date also determines which phase-out rate applies. A short delay in getting an asset running can change the size of the first-year deduction.

Property acquired from a related party (a family member, an affiliated corporation, or a partnership where the parties do not deal at arm’s length) does not qualify.¹ Neither does property transferred through a tax-deferred rollover. In both cases the CRA treats the property as non-eligible, and standard CCA rules apply. The point is to stop businesses from shuffling assets between related entities to restart the depreciation clock at a boosted rate.

Manufacturing, Clean Energy, and Zero-Emission Equipment

Several categories of assets sit outside the general Accelerated Investment Incentive because they have their own enhanced first-year rules, most of which allowed a 100% write-off before 2024 and are now on their own phase-out.¹

Manufacturing and Processing Equipment

Class 53 covers eligible machinery and equipment used primarily to manufacture or process goods for sale, at a 50% CCA rate. Class 53 only applies to property acquired after 2015 and before 2026.⁴ Manufacturing equipment acquired in 2026 or later falls into Class 43 at a 30% rate instead. The enhanced first-year deduction for this equipment is 55% in 2026 and 2027, down from 100% before 2024.

Clean Energy Equipment

Classes 43.1 (30%) and 43.2 (50%) cover qualifying investments in clean energy generation and energy conservation equipment.⁴ Their enhanced first-year allowance also drops to 55% for property available for use in 2026 or 2027.

Zero-Emission Vehicles and Equipment

Zero-emission passenger vehicles and light trucks fall into Class 54 (30%). Heavier zero-emission vehicles that would otherwise sit in Class 16 go into Class 55 (40%). Class 56 covers zero-emission self-propelled equipment that is not a motor vehicle, such as electric aircraft, watercraft, and railway locomotives, at a 30% rate.⁴ All three follow the same schedule: 100% for property available for use before 2024, 75% for 2024 and 2025, and 55% for 2026 and 2027.

What Accelerating the Deduction Costs You Later

Because the incentive pulls deductions forward rather than adding new ones, a bigger first year means smaller declining-balance deductions in years two, three, and beyond.¹ For straight-line and unit-of-use classes, the incentive is a one-time bump and later years continue at the normal rate.

The knock-on effects show up when you sell. Sale proceeds reduce the UCC of the class. If the UCC drops below zero, the negative balance is a recapture of CCA and gets added back to income for that year. If you dispose of every asset in a class and a positive UCC remains, the leftover is a terminal loss you can deduct against other income.² Because the incentive shrinks the UCC faster, an early sale is more likely to trigger recapture and more likely to leave a smaller terminal loss than the standard rules would have.

Claiming It on the Return

You need clean records for each asset acquired during the year: original cost, acquisition date, available-for-use date, and the correct CCA class. The CRA’s list of depreciable property classes is the starting point for classification.⁴

Corporations report the enhanced first-year allowance on Schedule 8 (Capital Cost Allowance) of the T2 Corporation Income Tax Return, which tracks opening UCC, additions, disposals, and the incentive calculation for each class.⁶ Self-employed individuals use Form T2125 (Statement of Business or Professional Activities), whose CCA section has columns designated for the enhanced calculation.⁷

Corporations must file the T2 within six months of the end of the fiscal year.⁸ Self-employed individuals have until June 15, 2026, to file their 2025 return, but any tax owing is due by April 30, 2026.⁹ Missing the payment deadline means interest accrues even if the filing deadline has not passed.

Getting It Wrong

Overstating a CCA deduction by misclassifying an asset, applying the wrong phase-out factor, or claiming the incentive on non-eligible property can trigger the CRA’s false reporting penalty. If you knowingly or through gross negligence make a false statement on your return, the penalty is the greater of $100 or 50% of the understated tax related to the error.¹⁰

The most common errors involve applying the full 1.5× factor to property that became available for use during the phase-out period, or claiming the general incentive on assets that belong to excluded classes such as 54 or 56. The available-for-use date matters as much as the math, because a one-month slip can move an asset from one phase-out bracket to another.

1
Canada Revenue Agency. Accelerated Investment Incentive
2
Canada Revenue Agency. T4002 Self-employed Business, Professional, Commission, Farming, and Fishing Income – Chapter 4 – Capital Cost Allowance
3
Department of Finance Canada. Fall Economic Statement 2018 – Annex 3 – Accelerating Business Investment
4
Canada Revenue Agency. Classes of Depreciable Property
5
Canada Revenue Agency. Available for Use Rules
6
Canada Revenue Agency. T2SCH8 Capital Cost Allowance (CCA)
7
Canada Revenue Agency. T2125 Statement of Business or Professional Activities
8
Canada Revenue Agency. When to File Your Corporation Income Tax Return
9
Canada Revenue Agency. Due Dates and Payment Dates – Personal Income Tax
10
Canada Revenue Agency. False Reporting or Repeated Failure to Report Income