Say your corporation buys a delivery van, a batch of new laptops or a piece of machinery. The cost usually doesn’t come off taxable income in one go. Instead it trickles off over several years via capital cost allowance, which is basically depreciation as the tax system defines it. Get a feel for how capital cost allowance works and you’ll make better calls on when to buy, you’ll budget for tax more realistically, and you’ll avoid some classic errors on the T2.
What Capital Cost Allowance Is
Your financial statements show depreciation based on accounting estimates of how long an asset will last. For tax, the CRA swaps that out for capital cost allowance (CCA), worked out using prescribed classes and rates. On the T2, the accounting depreciation gets added back and CCA is deducted in its place.
CCA is a ceiling, not an obligation. A corporation can claim anything from zero up to the maximum in a given year. That’s handy in years with losses or low income, because whatever you don’t claim stays in the pool for later.
CCA Classes and Rates
Everything you buy lands in a class with its own rate. For most classes the math is declining-balance: each year you apply the rate to what’s left of the class’s undepreciated capital cost, or UCC. So a 20% class doesn’t empty in five years; it shrinks by a fifth of the remainder each time. Some common ones:
- Class 8 (20%): desks, shelving, fixtures and the bulk of general equipment.
- Class 10 (30%): vehicles in general, vans and trucks included.
- Class 10.1 (30%): pricier passenger cars, over a prescribed limit. Every one gets a class to itself, and its cost is capped at that limit.
- Class 50 (55%): laptops, desktops and other general-purpose computer hardware.
- Class 12 (100%): certain small tools and utensils, and application software.
- Class 1 (4%): most buildings. Some non-residential buildings kept in a separate class qualify for higher rates.
- Class 13: leasehold improvements, usually claimed over the term of the lease.
Get the class right. It decides how quickly the cost comes off.
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The Half-Year Rule and Accelerated Write-Offs
Traditionally, in the year you acquire an asset you can only claim half the usual CCA. That’s the half-year rule, and it exists to stop businesses buying something on the last day of the year and claiming a full year’s deduction.
Ottawa has tinkered with this repeatedly. Budget 2025 announced a “Productivity Super-Deduction” that brings back the Accelerated Investment Incentive, giving an enhanced first-year write-off for most depreciable property, plus immediate expensing for certain categories like manufacturing or processing equipment and some productivity-enhancing assets. There have been further proposals since then. Whether a given purchase qualifies depends on what it is, when you got it and whether the relevant legislation has passed, so for anything significant, check where the rules stand at the time.
“Available for Use” Matters
Generally, you can’t claim CCA until an asset is available for use: delivered, installed if it needs to be, and able to be used in the business. Buy a machine in December that doesn’t arrive until February and you usually can’t claim it until next year. If you’re timing a purchase for this year’s deduction, make sure it’s actually in place before year-end.
Vehicles: A Special Case
Passenger vehicles are where CCA gets messy. Cars above the prescribed cost limit go into Class 10.1, each in its own class, with the capital cost capped. Zero-emission vehicles have separate classes and limits of their own. On top of that, if an owner or employee uses a corporate vehicle personally, that creates a taxable benefit. Look at the whole picture before buying a vehicle through the corporation.
Selling or Disposing of Assets
When you sell an asset, the lesser of what it originally cost and what you sold it for comes off the class’s UCC. Two possible results are worth knowing:
- Recapture: if the UCC goes negative, that negative amount is added to income. Put simply, you claimed more CCA than the asset really lost in value.
- Terminal loss: if every asset in a class is gone and there’s still UCC left, the remaining balance can generally be deducted.
And if you sell something for more than you paid, that extra slice is a capital gain. It isn’t recapture.
Planning Purchases Around Year-End
- Buy before year-end only if you need the asset. The deduction only gives you back part of what you spend. Buying purely for the write-off loses money.
- Make sure it’s available for use by the last day of the fiscal year.
- Check which incentives apply, because with accelerated or immediate write-offs on the table, when you buy can matter a lot.
- Consider your income level. When this year’s income is all being taxed at the low small business rate anyway, holding back CCA for a higher-income year might make sense. Ask about it.
- Keep invoices and delivery records, since they prove what you paid and when the asset was ready to use.
Shopping for corporate tax services? Ask each provider a pointed question: do they look at your asset additions and CCA strategy fresh each year, or just copy last year’s schedule forward? Firms offering corporate tax services Toronto owners use ought to be able to tell you which class each purchase belongs in, and why.
Common Mistakes
- Writing off capital purchases as repairs or supplies.
- Assets dropped into the wrong class.
- Claiming CCA on something that isn’t available for use yet.
- Not recording disposals, so the UCC ends up too high.
- Forgetting about vehicle cost caps, or the taxable benefit when a company car gets personal use.
Conclusion
In short, CCA spreads a big purchase over years of deductions, guided by classes, rates and timing rules. Recent federal measures have made first-year write-offs more generous for many assets, which makes the details worth even more. Book assets properly, choose the right class, get them in use before year-end, keep the paperwork. Do that and your CCA claims will hold up and give you the full benefit.
Frequently Asked Questions
Do I have to claim the maximum CCA each year?
No. CCA is optional, up to the maximum. Whatever you don’t claim stays in the class for later years.
What is the half-year rule?
It’s a rule that has traditionally cut the first-year claim to half the normal amount. Accelerated incentives have temporarily swapped it for bigger first-year claims on many assets.
Can I claim CCA on equipment ordered but not delivered?
Generally not. The asset has to be available for use before you can claim CCA on it.
What happens when I sell an asset for more than its UCC?
The excess, up to the original cost, is recaptured as income. Anything above original cost is a capital gain.
