Quick answer: Capital cost allowance (CCA) is the tax deduction that lets a corporation write off the cost of equipment, vehicles, computers and other capital assets over time instead of all at once. Assets are grouped into CRA-defined classes, each with its own maximum annual rate, and a half-year rule generally limits the deduction in the year you buy an asset. CCA is optional — you can claim anywhere up to the maximum, or claim less.
Key takeaways
- CCA lets a corporation deduct the cost of capital assets gradually rather than all at once.
- Assets are grouped into CRA classes (Class 1, 8, 10, 10.1, 12, 13, 50 and others), each with its own maximum rate.
- The half-year rule generally allows only half the normal deduction in the year you acquire an asset.
- Selling an asset can trigger recapture (extra income) or a terminal loss (extra deduction).
- CCA is optional each year — claim the maximum, claim less, or claim none.
When your corporation buys a truck, a laptop, or a set of tools, you generally can't deduct the full cost as an expense in the year you bought it. Instead, the tax system spreads that deduction out through capital cost allowance, CRA's version of depreciation. It's one of the more mechanical corners of the T2 return, but understanding the basics helps you plan purchases and understand what your accountant is actually claiming on your behalf.
Why CCA exists
A capital asset — something that provides value over multiple years, like a vehicle, a building, or major equipment — isn't treated like an office supply purchase. Because the asset keeps earning its keep for years after you buy it, the deduction for its cost is spread over those years too, rather than taken all at once. CCA is the mechanism that spreads it, using rates CRA prescribes for each class of asset.
How the declining-balance method works
Most CCA classes use a declining-balance method. Each class has a running balance — the undepreciated capital cost (UCC) — and each year you can claim up to a set percentage of that balance as a deduction. The deduction reduces the UCC going into next year, so the dollar amount of the maximum claim shrinks over time even though the percentage stays the same. New additions to a class increase the UCC; dispositions reduce it.
The half-year rule
In the year you acquire an asset, most classes are subject to the half-year rule: you can generally only claim half of what the class's normal rate would otherwise allow. It's a simplification that assumes, on average, assets are bought partway through the year rather than on day one of the fiscal year. The full rate becomes available starting the following year.
Every corporation’s situation is different. Book a free 30-minute consult with a CPA and get a straight answer — plus a fixed quote before any work starts.
Common CCA classes for small business
There are dozens of CCA classes, but incorporated contractors and small business owners deal with a handful repeatedly:
| Class | Typical assets |
|---|---|
| Class 1 | Buildings acquired by the corporation — the lowest annual rate, reflecting a very long useful life. |
| Class 8 | Furniture, fixtures, and equipment that doesn't fall into a more specific class — a common catch-all. |
| Class 10 | Most motor vehicles used in the business. |
| Class 10.1 | Higher-cost passenger vehicles, with a capped addition to the class and no recapture or terminal loss when the vehicle is eventually sold. |
| Class 12 | Tools, small equipment, and certain computer software — several items in this class are not subject to the half-year rule. |
| Class 13 | Leasehold improvements, amortized based on the term of the lease rather than a fixed percentage. |
| Class 50 | General-purpose computer hardware and related systems software. |
Getting the class right matters: put an asset in the wrong class and you either overclaim, underclaim, or create a mismatch that surfaces later when the asset is sold.
Recapture and terminal loss
CCA classes settle up when assets leave the business. If you sell an asset for more than the remaining UCC in its class, the excess — up to the asset's original cost — is added back to income as recapture. If, instead, you dispose of the last asset in a class and the proceeds are less than the remaining UCC, you can generally claim the shortfall as a terminal loss, an extra deduction in that year. Class 10.1 vehicles are a notable exception — they don't generate recapture or a terminal loss on disposal at all.
CCA is optional — and that's a planning tool
Unlike accounting depreciation, CCA isn't mandatory. Each year, for each class, you can claim anywhere from zero up to the maximum allowed. That flexibility matters: in a year where your corporation already has little or no taxable income, claiming less CCA (and preserving a larger UCC balance) can make more sense than claiming the maximum and wasting the deduction. In a profitable year, claiming the full amount available reduces tax owing now. Getting this right is part of year-end tax planning, not just bookkeeping.
The bottom line
CCA is one of the most valuable deductions available to an incorporated business, but it only works properly when asset purchases, classes, and dispositions are tracked accurately from the start. That's a bookkeeping problem as much as a tax one, which is why we handle CCA tracking as part of our accounting and bookkeeping service, not as an afterthought at tax time.
This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique — please speak with a CPA before acting on anything here.
Founder of EverStone CPA, an Abbotsford CPA firm, and a member of the Chartered Professional Accountants of British Columbia (CPABC). Sunny works with incorporated contractors and small business owners across Canada on tax, bookkeeping and advisory. More about Sunny →
Frequently asked questions
What is capital cost allowance (CCA)?+
What is the half-year rule?+
Which CCA class does a work vehicle fall into?+
What happens if I sell an asset for more than its remaining tax value?+
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