What is Capital cost allowance (CCA)?

When a Canadian business buys equipment, vehicles, computers or buildings, it cannot deduct the full cost in the year of purchase. Instead, the Income Tax Act lets it claim capital cost allowance, a yearly deduction that spreads the cost over the asset’s life. Each type of asset belongs to a CCA class with a prescribed rate: for example, Class 8 (most furniture and equipment) at 20%, Class 10 (most vehicles) at 30%, and Class 50 (computer hardware) at 55%.

Most classes use the declining-balance method. The rate applies to the class’s undepreciated capital cost (UCC), the pool of cost not yet claimed, so the deduction shrinks each year. Traditionally a half-year rule limited the first-year claim to half the normal amount. Accelerated investment incentive rules have since allowed larger first-year claims on eligible property, and some property qualifies for immediate expensing, so check current CRA guidance for the year the asset became available for use.

CCA is a tax figure, separate from the depreciation in your financial statements, and it is optional: you can claim anything from zero to the maximum. Businesses with losses sometimes claim less to save the deduction for profitable years. Selling an asset reduces the class pool and can trigger recapture (income) or a terminal loss. Keeping a fixed asset register by class makes the T2 Schedule 8 straightforward at year-end.