Claiming CCA on business equipment: a practical guide

Why equipment is not deducted all at once

The CRA explains that depreciable property, such as furniture, equipment or a building, wears out or becomes obsolete over time, so its cost is deducted over several years rather than in the year you buy it. The yearly deduction is called capital cost allowance. You generally cannot deduct the full cost of depreciable property when you calculate net business income for the year of purchase.

The first question is therefore whether a purchase is a current expense or a capital one. A box of printer paper is an expense. A new server is capital property. Items in between, such as repairs versus improvements, need judgment. Our article on categorizing business expenses covers the everyday cases, and your accountant can settle the borderline ones before year-end.

Work out the capital cost

Capital cost is generally your full cost of acquiring the property. According to the CRA, that is usually the purchase price plus the part of legal, accounting, engineering, installation and similar fees that relate to buying or constructing it. Land is not depreciable, so any land cost is left out.

Improvements you make later, if you did not claim them as a current expense, are added to the capital cost. Keep the invoice, the delivery or installation paperwork and the payment record together so the amount can be supported.

Find the class and the rate

Depreciable property is grouped into classes, and a rate generally applies to each class. The CRA’s class list shows how this plays out. Furniture, appliances, machinery and tools costing $500 or more are generally in Class 8, at 20%. General-purpose computer hardware and its systems software acquired after March 18, 2007 is generally in Class 50, at 55%. Tools costing less than $500 are generally in Class 12, at 100%, and most small tools in that class are not subject to the half-year rule.

Passenger vehicles are a special case. They go in Class 10 unless the cost exceeds the prescribed limit, in which case they are in Class 10.1, which has its own capital cost limit that has changed by year of purchase. Zero-emission vehicles have separate classes. These are the common cases only; check the CRA’s full class list for anything unusual, and see our article on vehicle expenses before buying a vehicle.

Available for use and the first-year rules

You can usually claim CCA only when the property is available for use. For property other than a building, the CRA says that is generally the earliest of the date you first use it to earn income, the second tax year after the year you acquire it, the time just before you dispose of it, and the time it is delivered or made available to you and is capable of producing a saleable product or service. Paying an invoice in the last week of the year does not by itself produce a claim.

In the year of purchase, you can usually claim CCA on only one-half of your net additions to the class. This is the half-year rule. The accelerated investment incentive generally suspends it for eligible property, with an enhanced first-year allowance that the CRA says is being phased out for property available for use from 2024 to 2027, and it applies only to property available for use before 2028. Some classes, including certain computer equipment, have proposed enhanced first-year deductions of their own.

In September 2026 the Department of Finance announced the Productivity Mega Deduction, a proposal to allow immediate expensing for most depreciable property acquired on or after September 15, 2026, with listed exclusions such as Class 1 and Class 3 buildings and certain vehicles. A proposal is not law until it is enacted. If you are deciding when to buy, ask your accountant which rules apply on the date the equipment is acquired and available for use.

An illustrative example

These figures are round and illustrative only. A corporation buys a $10,000 piece of Class 8 equipment and starts using it during its fiscal year. Under the ordinary rules, the half-year rule limits the first-year base to $5,000, so the claim is 20% of $5,000, or $1,000. The class balance at year-end is $9,000.

In the second year the claim is 20% of $9,000, or $1,800, which leaves $7,200. If the equipment instead qualified for an enhanced first-year allowance that suspends the half-year rule, the first-year claim could be as much as 20% of $10,000, or $2,000. If it qualified for immediate expensing, the claim could be the full cost. In each case the deduction is moved in time rather than created, and a larger early claim leaves less to claim later.

You can claim less than the maximum

The CRA states that you do not have to claim the maximum CCA in a given year. You can claim any amount from zero to the maximum allowed. Claiming CCA reduces the balance of the class, so the amount available in later years is reduced as well.

That choice matters when a corporation has little income to offset, or when you expect higher income in a later year. If the fiscal period is shorter than 365 days, the claim is prorated by the number of days in the period. A first fiscal year that begins part-way through the calendar year is a common example. Do not decide the amount in isolation. Discuss it alongside the small business deduction and the income you plan to take out of the company.

Where the claim goes and what to keep

For a corporation, the CRA’s T2 Schedule 8 is the form used to calculate CCA, recapture of CCA and terminal losses. A sole proprietor uses Area A of Form T2125. For Form T2125, the CRA says to fill in the appropriate areas to show additions and dispositions even in a year when you claim no CCA. Corporations should likewise keep the class history complete on Schedule 8.

Keep an asset register that lists each purchase with its date, cost, class, the date it became available for use, and any personal-use portion. Keep invoices for as long as the property is in the class, not only for the general retention period, because they support the opening balance of every later year.

What happens when you sell or replace equipment

Proceeds from a sale reduce the class balance. If the balance would fall below zero, the shortfall is recapture and is added to income. If you dispose of the last property in a class and a balance remains, the leftover may be a terminal loss. The CRA also counts compensation for destroyed, expropriated, damaged or stolen property as proceeds of disposition.

This is why a small sale price is not always harmless. Our article on selling a rental property walks through recapture and terminal losses with an example, and the same logic applies to business equipment. Tell your accountant about every sale, trade-in, insurance payout and write-off during the year.

What to bring to your accountant

Bring a list of equipment bought and sold during the fiscal year, the invoices, the in-service date for each item, and last year’s class balances. Mention any item bought from a related person, any grant or subsidy received, and any asset used partly for personal purposes, since those can change the cost.

Ask which class each item belongs in, whether any first-year incentive applies on its dates, how much to claim this year, and whether the timing of a planned purchase should change. The answers should be written into your asset register so next year starts from a clean balance.