Capital Cost Allowance

CCA

Tax depreciation a landlord can claim on a rental building and other depreciable property, spread over years and recaptured on sale.

Capital cost allowance (CCA) is the tax deduction for depreciable property. Buildings and equipment wear out or become obsolete, so their cost is deducted over several years instead of all at once. Land is not depreciable. The purchase price of a rental must therefore be split between the land and the building.

Each type of property belongs to a class with a prescribed rate. Classes used for rental property include Class 1 at 4%, Class 3 at 5%, Class 6 at 10% and Class 8 at 20%. The rate applies to the undepreciated capital cost (UCC), which is the balance left after earlier claims. Each rental property acquired after 1971 that cost $50,000 or more goes in its own separate class.

In the year you acquire property, you can usually claim CCA on only half of your net additions to a class. This is the half-year rule. Accelerated investment incentive rules can change the first-year amount for qualifying property. The result depends on when it was acquired and put in use, so check the current guide.

CCA is optional. You can claim any amount up to the maximum for the year, or nothing at all. Rental property has a firm limit: you cannot use CCA to create or increase a rental loss. When you later sell, CCA you claimed may come back into income as recapture.

Claiming CCA on part of your own home can also cost you the principal residence exemption on that part. For these reasons, CCA is a timing decision rather than a permanent saving. Model the sale year before you claim it, and confirm your situation with CRA guidance or a tax professional.

General information only, not legal, tax, or financial advice. Rules change and vary by province; confirm the current details with the relevant authority before you rely on them.