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Capital Cost Allowance (CCA)

Income Tax Act s. 20(1)(a), Regulations Parts XI, XVII

Capital cost allowance (CCA) is the depreciation that is allowed to be expensed for tax purposes for fixed assets, except land. Different types of assets are allocated to different CCA classes, and each class has its own rate for capital cost allowance. For instance, most automobiles would be class 10, which is expensed at 30% per year on a declining balance basis. In most cases, the CCA allowed in the year an asset is purchased is only 50% of the normal amount - this is the "half-year" rule. Thus, the class 10 CCA would be 15% in the first year. See below for more information on the half-year rule.

What is Included in the Cost of Assets Being Capitalized?

Immediate Expensing of Certain Capital Assets for CCPCs

Capital Cost Allowance Classes and Rates

Capital Cost Allowance Half-Year Rule

Capital Cost Allowance - Short Fiscal Year

Accelerated CCA for New Purpose-built Rental Projects

Zero-Emission Vehicles (ZEVs and ZEVPs) - Enhanced CCA

Retroactive Adjustment of Capital Cost Allowance Claims

What is Included in the Cost of Assets?

The cost to be capitalized includes any taxes paid that are not refundable to the purchaser. If the purchaser is not registered for GST so they cannot recover GST as an input tax credit, the cost would include the GST paid. For a GST registrant, GST would not be included in the cost.

Immediate Expensing of Certain Capital Assets for CCPCs

This legislation (Income Tax Regulations Section 1100) for this is included in Bill C-19 which received Royal Assent on June 23, 2022.

As per CPA Canada's May 19, 2022 news, an updated T2 Schedule 8 is the prescribed form to be used when an immediate expensing limit is to be shared amongst an associated group of CCPCs.

Further information about immediate expensing is on the What's New for Corporations web page.

See the Video Tax News Life in the Tax Lane October 2023 for more information on this.

There is information in T4012 Corporation Income Tax Guide about immediate expensing for CCPCs.

An "eligible person or partnership" (EPOP) for the purposes of immediate expensing includes:

	a corporation that was a Canadian-controlled private corporation (CCPC) throughout the year;
	an individual (other than a trust) who was resident in Canada throughout the year; or
	a Canadian partnership, all the members of which were, throughout the period, either a CCPC or an individual as described above, or a combination thereof.

Characteristics of the immediate expensing proposal:

temporary measure

for "designated immediate expensing property" (DIEP) acquired

	by an "eligible person or partnership" (EPOP) after April 18, 2021, if the EPOP is a CCPC, or
	by an EPOP that is an individual or a Canadian partnership, after December 31, 2021.

for DIEP that becomes available for use

	before 2025, if the EPOP is an individual or a Canadian partnership all of the members of which are individuals throughout the year, and
	in any other case, before 2024.

only available for the year in which the property becomes available for use, as long as the property:

	has not been used for any purpose before it was acquired by the EPOP, and
	is not a property in respect of which an amount has been deducted under paragraph 20(1)(a) or subsection 20(16) of the Income Tax Act by any person or partnership for a taxation year ending before the time the property was acquired by the EPOP

maximum "immediate expensing limit" (IEL) amount is the lesser of:

	the UCC of the DIEP to the EPOP (before making any CCA deductions for the tax year);
	the EPOP's IEL for the year (generally $1.5 million, subject to requirements to allocate among group members, prorated for tax years shorter than 365 days); and
	if the EPOP is not a CCPC, the income (before any CCA deductions), if any, earned from the business or property in which the relevant DIEP is used.

the IEL cannot be used to create or increase a loss of an individual or a partnership.

half-year rule suspended for these properties

no carry-forward of excess capacity for CCPCs with less than $1.5 million of eligible capital costs

eligible property is all capital property that is subject to CCA rules, other than property included in CCA classes 1 to 6, 14.1, 17, 47, 49 and 51, which are generally long-lived assets.

Immediate expensing: buyer beware by M. Ruphina Kaulback, CPA, CA, on the bakertilly website.

Immediate Expensing Rules - Delays in implementing by Anni Zhu, CPA, CA and David Zheng, CPA, Welch LLP.

Capital Cost Allowance Classes and Rates

There are many classes of capital cost allowance (CCA). Lists of many of the classes, as well as information on calculating capital cost allowance, can be found in the following Canada Revenue Agency guides:

T2 Corporation Income Tax Guide (T4012), T2 return - for information on CCA rates, search for the phrase "CCA rates and classes" in T4012. To search any web page or pdf document, do ctrl-f to bring up the search box.

T4002 Self-employed Business, Professional, Commission, Farming and Fishing Income Guide for unincorporated businesses has CCA rates (Chapter 4) as well as a table which explains how to determine if a cost is an expense or should be capitalized (Chapter 3 - current or capital expenses?).

Rental Income Tax Guide (T4036) lists some of the classes which are more likely to be used by someone with a rental property.

Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance, including information on capital vs current expenditures.

Income Tax Folio S3-F8-C2, Tax Incentives for Clean Energy Equipment - includes information re accelerated CCA, enhanced CCA, and investment tax credits.

Current or Capital Expenses

Claiming Capital Cost Allowance

Classes of Depreciable Property

The Income Tax Regulations contain the classes and rates for capital cost allowance, at

- Part XI Capital Cost Allowances

- Schedule II and Schedule III to VI Capital Cost Allowance Rates

The Income Tax Act and Regulations can be accessed from the Canada Department of Justice.

Capital Cost Allowance Half-Year Rule

Income Tax Regulations s. 1100(2) to (2.4)

For most capital additions in the year, you can only claim CCA on one-half of your net additions to the CCA class in the year. The net additions amount is the cost of additions in the year less the lower of cost or proceeds of disposition for assets disposed of during the year.

Some additions are not subject to the half-year rule. These include additions in classes 13, 14, 23, 24, 27, 29, 34, and 52, as well as most of the additions to Class 12.

Class 12, which has a CCA rate of 100%, includes a variety of assets, including small tools, kitchen utensils, and medical or dental instruments costing less than $500 (less than $200 for purchases before May 3, 2006), as well as linens, uniforms, computer software and other items. The half-year rule does not apply to most items in Class 12, allowing 100% write-off in the year of acquisition. The only items in Class 12 to which the half-year rule does apply are:

	a die, jig, pattern, mould or last
	the cutting or shaping part in a machine
	a motion picture film or video tape that is a television commercial message
	a certified feature film or certified production
	class 12(o), which is computer software, but this does not include systems software, which is included in class 10

See paragraph 1.38 Half-year rule in the CRA Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance, for more detail on this topic.

Capital Cost Allowance - Short Fiscal Year

Income Tax Regulations s. 1100(3) Taxation Years Less Than 12 Months

When the fiscal year is shorter than 365 days, generally the capital cost allowance must be prorated. For instance, if the fiscal year is 200 days, first calculate the maximum CCA claim for a full year, then multiply by 200 and divide by 365. This must be done for all property except classes of property that are excluded by Regulation 1100(3). The property classes that are not prorated for a short fiscal year include:

	Class 14 assets
	Class 15 assets
	timber limits and cutting rights
	industrial mineral mines
	certified productions
	Canadian film or video productions, and
	certain mining equipment in classes 28 and 41

Accelerated CCA for New Purpose-built Rental Projects

The 2024 Federal Budget proposes to temporarily increase the CCA rate for new purpose-built rental projects from 4% to 10%. Eligible projects would be those beginning construction on or after April 16, 2024 and before January 1, 2031, and available for use before January 1, 2036.

Zero-Emission Vehicles (ZEVs and ZEVPs) Enhanced CCA

Income Tax Act s. 13(7)(i), 248(1), Regulations Sch II, s. 1100(1)(a)(xl),(xli), 1100(2)A(e)(i),(f)(i), 1102(26), 1103(2j), 7307(1.1)

Eligibility for Enhanced CCA for ZEVs and ZEPVs

Qualifying zero-emission vehicles must be fully electric, plug-in hybrids with battery capacity of at least 7 kWh, or fully powered by hydrogen.

For vehicles acquired prior to March 2, 2020 to be included as a ZEV they must not have been used for any purpose prior to the acquisition by the taxpayer. This restriction was removed in 2021 for vehicles acquired after March 1, 2020 so that vehicles acquired after that date could qualify whether new or used. See T4012 CCA Rates and Classes which includes the updated information, as well as T4002 Definition of ZEV which includes the updated information.

Vehicles for which assistance is paid under the new federal purchase incentive announced in Budget 2019 are not eligible for the first-year immediate expensing.

New Capital Cost Allowance Classes for Zero-Emission Vehicles

Two new CCA classes were created by Budget 2019 for zero-emission vehicles acquired after March 18, 2019 and before 2028.

Class 54

zero-emission passenger vehicles (ZEPVs) which would otherwise be included in class 10 or 10.1.

Vehicles in Class 54 have a capital cost limit of $55,000 plus taxes, increased to

	$59,000 as of January 1, 2022,
	$61,000 as of January 1, 2023

Class 55

	ZEVs that would otherwise be included in Class 16
	includes taxis, vehicles acquired for the purpose of short-term renting or leasing, and heavy trucks and tractors designed for hauling freight.

New CCA class 56 was created by the 2021 Budget for property acquired and available for use after March 1, 2020 and before 2028.

Class 56

This class includes automotive equipment not designed for use on highways or streets such as zero-emission aircraft, watercraft, trolley buses, and railway locomotives.

Includes property:

that is either

	automotive equipment (other than a motor vehicle) that is fully electric or powered by hydrogen, or
	an addition or alteration made by the taxpayer to automotive equipment (other than a motor vehicle) to the extent it causes the automotive equipment to become fully electric or powered by hydrogen; and

would be accelerated investment incentive property (AIIP) of the taxpayer if Income Tax Act s. 1104(4) were read without its exclusion for property included in Class 56.

See CRA information on Class 56 in the T4012 Corporation Income Tax Guide.

Enhanced CCA

First-year enhanced CCA is available in the amount of:

100% for vehicles available for use after March 18, 2019 and before 2024

75% for vehicles available for use in 2024/2025

55% for vehicles available for use in 2026/2027

remaining balances in both new classes will be deductible on a declining-balance basis at a rate of

	30% for class 54 or class 56, and
	40% for class 55

Calculating CCA Classes 54 and 55

See the CRA information on steps to be done before calculating the CCA for classes 54 and 55, in T4012 Corporation Income Tax Guide - scroll down from this link.

Recapture and Terminal Loss

Terminal losses cannot be claimed for CCA Class 10.1 vehicles, and vehicles in this class are not subject to recapture. Vehicles in the new CCA classes for ZEVs are subject to recapture, and terminal losses can be claimed.

Election Out of Class 54 or 55

Regulation 1103(2j) allows a taxpayer, in the taxation year in which the vehicle is acquired, to elect to not include the vehicle in these classes. The vehicle would then be included in the usual CCA class 10, 10.1 or 16.

Canada Revenue Agency Resources

Corporations: T4012 CCA Rates and Classes re ZEVs

Self-employed: T4002 Class 54 (30%) and Class 55 (40%) - Zero-Emission Vehicles

- employees: T4044 Employment Expenses Zero-Emission Vehicles

Retroactive Adjustment of Capital Cost Allowance Claims

A 2020 Tax Court case denied the appellant the ability to retroactively reduce capital cost allowance claims. See the following:

December 2020 Life in the Tax Lane re retroactive CCA adjustments

St. Benedict Catholic Secondary School Trust v. The Queen 2020 TCC 109 - re attempt to retroactively reduce CCA in order to reduce non-capital losses carried forward. This case subsequently went to the Federal Court of Appeal, 2022 FCA 125, and is also discussed in the September 2022 Life in the Tax Lane video.

TI 2023-0982881C6 Revision of Capital Cost Allowance Claims from CRA provides their current position on retroactive CCA claims, and this is discussed in the Video Tax News March 2024 Life in the Tax Lane.

A 1984 CRA Information Circular, IC 84-1, Revision of Capital Cost Allowance Claims and Other Permissive Deductions, provides information on CRA practices in relation to claims for revision of capital cost allowance or other permissive deductions.

TaxTips.ca Resources

What Vehicle Expenses Can Be Deducted By A Business?

Passenger Vehicle Expense Limitations

Tax Tips

	If you are planning to buy an asset and yearend is approaching, buy it before yearend so that you will get the full CCA write-off sooner. Note that the asset must be available for use in order to claim CCA.
	Don't create or increase a non-capital loss with CCA if it's likely that the losses will expire.

Revised: September 20, 2024