Capital Cost Allowance (CCA) Explained: CRA Classes

When you buy equipment, furniture, or a vehicle for your business, you usually cannot deduct the full cost in the year you bought it. Instead, the CRA has you spread the deduction over several years through a system called Capital Cost Allowance (CCA). This is the Canadian equivalent of depreciation.

Computer equipment is the big exception right now. A Class 50 addition that becomes available for use before 2027 is written off in full in year one, and the investment incentive section below is where that comes from.

Understanding CCA can save you thousands of dollars in taxes, but the rules are specific. This guide covers the classes you are most likely to encounter, how to calculate your deduction, and what happens when you dispose of an asset.

What Is Capital Cost Allowance?

CCA is the tax deduction the CRA allows you to claim each year for the gradual decline in value of your capital assets. A capital asset is anything you purchase for long-term business use, typically costing $500 or more. Think computers, vehicles, furniture, and buildings.

Instead of expensing the full purchase price in year one, you assign the asset to a CCA class. Each class has a prescribed rate that determines how much you can deduct annually.

CCA is optional. You can claim less than the maximum in any year, or skip it entirely. This is useful if your income is low and you want to save the deduction for a higher-income year.

Common CCA Classes

The Income Tax Regulations, Schedule II defines dozens of CCA classes. Here are the ones most relevant to freelancers and small business owners:

Class	Rate	Type	Examples
1	4%	Buildings	Rental properties, office buildings acquired after 1987
8	20%	Miscellaneous tangible property	Furniture, appliances, tools over $500, photocopiers, fax machines
10	30%	Vehicles and equipment	Motor vehicles (not passenger vehicles over the cost limit)
10.1	30%	Luxury passenger vehicles	Passenger vehicles costing more than the prescribed limit ($39,000 before tax for a 2026 purchase)
12	100%	Small tools and application software	Tools under $500, uniforms, tableware, kitchen utensils, computer software other than systems software
50	55%	Computer equipment	General-purpose electronic data processing equipment and the systems software for it (computers, laptops, tablets), acquired after March 18, 2007

Class 10 vs Class 10.1

This distinction trips up many business owners. If your passenger vehicle costs at or below the prescribed limit, it goes in Class 10 with your other vehicles. If it costs above the limit, it goes in Class 10.1 and its capital cost is capped at the limit plus the tax on it.

Regulation 7307(1) sets the limit and Finance restates it each January. It is $39,000 before tax for a vehicle bought in 2026, up from $38,000 in 2025 and $37,000 in 2024. A zero-emission passenger vehicle in Class 54 has its own ceiling, $61,000 before tax.

The key difference: each Class 10.1 vehicle gets its own separate class. You cannot pool it with other vehicles. And when you sell a Class 10.1 vehicle, there is no recapture and no terminal loss, which simplifies the disposition but means you lose some flexibility.

Class 12: The 100% Write-Off

Class 12 is powerful because it lets you deduct the full cost of qualifying items: tools under $500, uniforms, tableware, kitchen utensils, and application software. The class covers computer software but stops at a boundary that matters, "not including systems software", so an operating system or a utility program is not Class 12 property at all. It follows the machine into Class 50 at 55%.

Most of Class 12 is left out of the half-year base by name. Software is one of the few items in the class the half-year rule can reach, and even there it does not bite on a licence bought now, because property acquired after 2024 and available for use before 2034 is out of that base for a different reason (see the investment incentive below). A perpetual application licence you buy today is deducted in full in the year it becomes available for use.

The Half-Year Rule

In the year an asset becomes available for use, the CRA normally lets you claim CCA on half the net addition to the class. This is the half-year rule, and it is the default across most classes.

It is not what governs a purchase you make now. Regulation 1100(2) keeps out of the half-year base any addition that qualifies as accelerated or reaccelerated investment incentive property, which covers essentially everything bought new and at arm's length since late 2018. The investment incentive section below has the schedule.

Example, an asset outside both incentive windows: You buy a $2,000 laptop in 2017 (Class 50, 55% rate).

• Year 1: CCA base = $2,000 x 50% (half-year rule) = $1,000. CCA = $1,000 x 55% = $550
• Year 2: Undepreciated capital cost (UCC) = $2,000 - $550 = $1,450. CCA = $1,450 x 55% = $797.50
• Year 3: UCC = $1,450 - $797.50 = $652.50. CCA = $652.50 x 55% = $358.88

And so on until the balance is negligible. The same $2,000 laptop bought in 2026 is a $2,000 deduction in 2026, which the investment incentive section works through.

The half-year rule does not apply in the year you dispose of an asset. Class 10.1 has its own rule instead: a Class 10.1 car you owned at the end of the previous year and sell during the year still gets CCA for the year of sale, at half the normal amount, and nothing after that (Income Tax Regulations 1100(2.5)).

How to Calculate CCA: Step by Step

Here is the general formula for the declining-balance method used by most CCA classes:

1. Start with the opening UCC for the class (the undepreciated capital cost carried forward from the prior year).
2. Add the cost of any new assets acquired during the year.
3. Subtract the proceeds of disposition for any assets sold during the year (limited to the original cost of the asset).
4. Adjust the net addition (acquisitions minus dispositions, if positive). Halve it under the half-year rule if it is outside the incentive windows; otherwise leave it whole and add the first-year factor from the section below.
5. Multiply the adjusted UCC by the class rate. That is your CCA deduction for the year.
6. Subtract the CCA claimed from the UCC. The remainder carries forward to next year.

A Practical Example

You are a freelance consultant. At the start of 2025, your Class 8 (20% rate) has an opening UCC of $3,000 from prior furniture purchases. During the year, you buy a $1,500 standing desk.

The desk is reaccelerated investment incentive property, so it is out of the half-year base and takes a first-year factor of one half instead.

Step	Amount
Opening UCC	$3,000
Add: new desk	$1,500
Half-year rule on net addition	none, the addition is excluded
First-year factor on the net addition: $1,500 x 1/2	+$750
Adjusted UCC for CCA calculation	$4,500 + $750 = $5,250
CCA at 20%	$1,050
Closing UCC: ($3,000 + $1,500) - $1,050	$3,450

You claim $1,050 as a CCA deduction on your T2125. The $3,450 closing UCC carries forward to 2026. The same desk under the half-year rule would have produced $750, so the incentive is worth $300 of deduction in year one.

The Accelerated and Reaccelerated Investment Incentive

Regulation 1100(2) computes the first-year deduction as if the class had been increased by a factor times the eligible net addition, and it leaves that addition out of the half-year base entirely. Two definitions set the windows:

• Accelerated investment incentive property (AIIP), Regulation 1104(4): acquired after November 20, 2018 and before 2025, available for use before 2028.
• Reaccelerated investment incentive property (RIIP), Regulation 1104(4.01): acquired after 2024, available for use before 2034.

Both require property that is new to you. Something you or a non-arm's-length person owned before does not qualify, and neither does property rolled in from another business.

The factor depends on the class and on the year the property becomes available for use. For property acquired after 2024, the two classes most self-employed people touch run like this:

Class	Available for use	Factor	First-year deduction
50 computer equipment	Through 2026	9/11	55% x (1 + 9/11) = 100% of the addition
50 computer equipment	2027 through 2033	nil	55% of the addition, half-year rule waived
8 furniture and equipment	Through 2029	1/2	20% x (1 + 1/2) = 30% of the addition
8 furniture and equipment	2030 through 2033	nil	20% of the addition, half-year rule waived

Classes 44 and 46 take the same 100% first-year treatment as Class 50 through 2026, and zero-emission vehicles in Classes 54 to 56 run on their own longer schedule. Class 12 is left out of the factor by name, because 100% is already the whole cost.

What that means for the laptop above: a $2,000 computer available for use in 2026 is a $2,000 deduction in 2026, not $550. The pool is empty in year two.

The half-year rule comes back for property available for use in 2034 and later, on the current text of the regulation.

Recapture and Terminal Loss

When you sell or dispose of an asset, two things can happen to the remaining UCC in that class:

Recapture

If you sell an asset and the proceeds bring the UCC of the class below zero, the negative amount is added back to your income as recapture. This happens when you sold the asset for more than its depreciated value, meaning you claimed too much CCA over the years.

Example: Your Class 8 has a UCC of $800. You sell the only remaining asset in the class for $2,000 (but its original cost was $3,000). The UCC becomes $800 - $2,000 = -$1,200. That $1,200 is recapture and gets added to your business income.

Recapture is not a penalty. It simply corrects the over-deduction.

Terminal Loss

If you dispose of all the assets in a class and the UCC is still positive, that remaining amount is a terminal loss. You can deduct it in full in the year of disposition.

Example: Your Class 10 vehicle has a UCC of $5,000. You sell it for $2,000. The UCC becomes $5,000 - $2,000 = $3,000. Since there are no assets left in the class, the $3,000 is a terminal loss and is fully deductible.

Exception: Class 10.1 vehicles do not qualify for terminal loss or recapture. When you dispose of a Class 10.1 vehicle, the class goes to zero.

Tips for Managing CCA

• You do not have to claim the maximum. If your income is low this year, save your CCA room for a year when you are in a higher tax bracket.
• Keep records of every asset. Track the purchase date, cost, class, and any disposition. The CRA can ask for this at any time.
• Review class assignments carefully. Putting an asset in the wrong class can trigger reassessment.
• The $1.5 million immediate expensing measure has closed to individuals. Under Regulation 1104(3.1) it reached property that became available for use before 2025 for an individual or a Canadian partnership. A purchase you make now runs on the investment incentive above instead, which for computer equipment is the better of the two anyway.

FAQ

Can I deduct the full cost of a laptop in the year I buy it? Right now, yes. A $2,000 laptop is Class 50 at a 55% rate, and Regulation 1100(2) gives Class 50 property that becomes available for use before 2027 a first-year factor of 9/11, which turns 55% into exactly 100%. The year-one claim is the full $2,000 and the pool is empty afterwards. That factor is gone for property available for use after 2026, though the half-year rule stays waived through 2033, so a 2027 laptop takes 55% of the addition in year one rather than half of that. Furniture and most other equipment never reach the full write-off: they take a one-half factor, which is 30% in year one for Class 8.

What is the half-year rule? In the year an asset becomes available for use, the CRA lets you claim CCA on only half the net addition to the class. It is the default across most classes, but it is set aside for accelerated and reaccelerated investment incentive property, which is most of what a business buys new. It does not apply in the year you dispose of an asset either.

Is the accelerated investment incentive still available? Yes. The first version covered property acquired after November 20, 2018 and before 2025. A second version, reaccelerated investment incentive property, covers property acquired after 2024 that becomes available for use before 2034, and it does the same two things: it takes the addition out of the half-year base and adds a first-year factor on top. For computer equipment in Class 50, that factor is a full write-off through 2026.

What happens when I sell an asset I have been depreciating? Two outcomes are possible. If the proceeds push the undepreciated capital cost of the class below zero, the negative amount is added back to your income as recapture, which corrects an over-deduction rather than penalising you. If assets remain in the class with a positive UCC and nothing left in it, the reverse case is a terminal loss.

Do I have to claim the maximum CCA every year? No. Claiming less than the maximum is allowed, and the unclaimed amount stays in the class as UCC for future years. If your income is low this year, deferring CCA to a year in a higher bracket can be worth more.

What records does the CRA expect for CCA? The purchase date, cost, class, and any disposition for every asset. The CRA can ask for this at any time, and putting an asset in the wrong class can trigger a reassessment.

Sources

1. CRA Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income, Chapter 4 covers CCA for self-employed individuals.
2. CRA Capital Cost Allowance classes and rates, Full list of CCA classes and rates.
3. Income Tax Regulations, Schedule II, Capital Cost Allowance, Legal definitions of each CCA class, including Class 12 and Class 50.
4. Income Tax Regulations, s. 1100(2), The first-year formula: the factors, and the half-year base the incentive property is excluded from.
5. Income Tax Regulations, s. 1104, Subsections (4) and (4.01) define accelerated and reaccelerated investment incentive property; (3.1) defines immediate expensing property.
6. CRA Automobile and motor vehicle benefits and allowances, Limits and rates, Prescribed limits for Class 10.1 vehicles and other automobile deduction caps.