Half-year rule

What the rule does

When you buy depreciable property, the CRA says you can usually claim CCA in that year on only one-half of your net additions to the class. Net additions are the cost of the new property less proceeds from property sold from the same class in the year. The CRA’s own illustration is a $30,000 purchase, where the claim is based on $15,000 in the first year.

The rule applies by class and by fiscal period, not by calendar date. Buying on the first day or the last day of the fiscal year produces the same first-year base, as long as the property is available for use.

An illustrative example

A corporation buys one $30,000 piece of equipment in a class that, for illustration, has a 20% rate. With the half-year rule, the first-year claim is 20% of $15,000, or $3,000. Without the rule it would be 20% of $30,000, or $6,000. The class balance at year-end is $27,000. In year two the claim is 20% of that balance, or $5,400, so the rule delays part of the deduction rather than removing it.

Exceptions and related measures

The CRA lists property that is not subject to the rule, including Classes 13, 14, 23, 24, 27, 34 and 52 and most of Class 12, such as small tools. It also does not apply when the available-for-use rules postpone the claim to the second year after acquisition, and it can be different for some purchases from a non-arm’s-length person. Zero-emission vehicles and Class 56 are also outside the rule.

The accelerated investment incentive suspends the half-year rule for eligible property, and the CRA notes proposed changes that would reinstate the incentive for qualifying property acquired on or after January 1, 2025. Immediate expensing goes further by allowing up to the full cost. Which of these applies depends on acquisition and available-for-use dates, so check the date on each invoice.

What to discuss with your accountant

Bring a list of additions and sales for each class, with purchase dates, in-service dates and the length of the fiscal period. A first fiscal period shorter than 365 days has its own proration for the claim, and this interacts with the half-year rule.

Ask whether the rule, the accelerated investment incentive or immediate expensing governs each purchase, and whether claiming less than the maximum suits the year. See capital cost allowance for the basics and terminal loss for what happens when you sell.