Capital cost allowance (CCA)
Capital cost allowance is the deduction that spreads the cost of a depreciable asset over its useful life for tax purposes, replacing accounting depreciation.
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Key facts
| Category | Corporate tax |
|---|---|
| Also known as | CCA, tax depreciation |
| Claimed on | T2 Schedule 8, or the T2125 for an unincorporated business |
| Method | Declining balance within a class, at the rate set for that class |
| Optional | Any amount up to the maximum, including nil |
| On disposal | Recapture is income; a terminal loss is deductible |
| Authority | Canada Revenue Agency; Revenu Québec |
What it means in practice
Assets are sorted into classes, each with its own rate and rules — vehicles, computers, buildings and leasehold improvements all sit in different classes and depreciate at different speeds. CCA is optional in any given year. Claiming less than the maximum, or none at all, is a legitimate planning choice: it preserves the deduction for a year when the business is profitable, though it also leaves a larger balance to recapture on eventual sale. Selling an asset for more than its remaining undepreciated cost triggers recapture, which is taxed as ordinary income in the year of sale.
Claiming less than the maximum is sometimes the right answer
CCA is permissive, not mandatory. You may claim any amount from nil up to the maximum, and the unclaimed balance stays in the class for future years rather than being lost. That flexibility is worth using. In a loss year, claiming CCA deepens a loss you may not be able to use while permanently reducing the pool available later. In a year where other deductions already reduce income to nil, the same logic applies. The reverse consideration is a planned sale. Every dollar of CCA claimed is a dollar that can come back as recapture when the asset is disposed of above its remaining balance — so an asset likely to be sold soon at a strong price deserves a different claim pattern from one that will be held to the end of its life.
FAQ
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What is the half-year rule?
Need this applied to your situation?
A definition only gets you so far. Talk to a Montréal CPA about what this means for your return — in English or French.