How capital cost allowance works, which classes small businesses use, what the half-year rule does, how the CRA describes the incentive for equipment bought in 2026, buying versus leasing, and what to keep for your T2, with every rule linked to the CRA or the Government of Canada.
Only if your business needs the equipment, and only if it is ready to use by your year-end. You cannot deduct the full cost of equipment in the year you buy it. You claim capital cost allowance (CCA), a yearly percentage set by the CCA class. Normally the half-year rule halves the first-year claim, but for new eligible property acquired after 2024 the CRA’s T2 guide describes a reaccelerated investment incentive that suspends the half-year rule and raises the first-year claim. Computers and systems software in Class 50 acquired after April 15, 2024 can be written off in full if they are available for use before 2027.
What Is Capital Cost Allowance?
When you buy depreciable property such as furniture, tools, machinery, a vehicle or a computer for your business, you cannot deduct its full cost in the year you buy it. Because the property wears out or becomes obsolete over time, you deduct its cost over several years. That yearly deduction is capital cost allowance (CCA).
Each property goes into a CCA class with its own rate. For most classes you use the declining balance method: the rate is applied to the balance left in the class, so the claim gets smaller each year. A corporation calculates its claim on Schedule 8 of its T2 return; a sole proprietor uses Form T2125.
A repair that restores something to its original condition is usually a current expense you deduct right away. A purchase that gives a lasting benefit, improves a property beyond its original condition, or is a separate asset (the CRA’s example is a compressor) is a capital expense, and goes through CCA.
- You choose how much to claim. You can claim anything from zero to the maximum for the year. Claiming less now leaves a larger balance for later years.
- Capital cost is more than the price. It includes the part of legal, accounting, engineering, installation and other fees that relate to buying the property.
- Land is not depreciable. No CCA is claimed on land.
- Short first year. If your tax year is shorter than 12 months, you generally prorate the claim.
Which CCA Class Does Your Equipment Go In?
These are the classes small businesses use most, with the CRA’s rate for each:
| What you buy | Class and rate |
|---|---|
| Furniture, appliances, machinery, tools costing $500 or more, photocopiers and other equipment | Class 8, 20% |
| Tools, medical or dental instruments and kitchen utensils costing less than $500; software that is not systems software | Class 12, 100% |
| Computer hardware and systems software | Class 50, 55% |
| Motor vehicles, and passenger vehicles that are not Class 10.1 | Class 10, 30% |
| Passenger vehicle bought in 2026 for more than $39,000 before tax | Class 10.1, 30% |
| Zero-emission passenger vehicles | Class 54, 30% |
Most small tools in Class 12 are not subject to the half-year rule, so they are fully deductible in the year you buy them. A tool that costs $500 or more goes in Class 8.
For a passenger vehicle, the class depends on its cost before GST and PST. For vehicles acquired in 2026, the Class 10.1 ceiling is $39,000 before tax, so the capital cost you can claim CCA on is capped at $39,000 plus the tax on that amount. The ceiling for Class 54 zero-emission passenger vehicles stays at $61,000 before tax for 2026.
What Is the Half-Year Rule?
In the year you acquire a depreciable property, you can usually claim CCA on only one-half of your net additions to the class. This is the half-year rule. You claim the full rate on the remaining balance from the next year on.
What Is the Accelerated Investment Incentive Status for 2026?
The accelerated investment incentive (AII) is the older rule. The CRA’s T2 guide now limits it to property acquired after November 20, 2018 and before 2025 that becomes available for use before 2028, and the CRA’s AII page describes its first-year boost being phased out for property that becomes available for use from 2024 to 2027. Equipment you buy in 2026 falls under the newer rule instead.
The CRA’s T2 Corporation Income Tax Guide describes a reaccelerated investment incentive (RII) for property acquired after 2024 that becomes available for use before 2034. It does two things: it suspends the half-year rule, and for property that becomes available for use before 2030 it increases the net addition to the class by up to 50% for the first-year claim. The guide also describes a full first-year write-off for Class 44, 46 and 50 property (patents, data network equipment, and computers and systems software) acquired and available for use after April 15, 2024 and before 2027.
The CRA’s guide for self-employed individuals (T4002) and its classes page show the same rules but still label them “under proposed changes”. The incentive does not change the total you deduct over the life of the property: a larger claim now means smaller claims later.
$1,000 in year one
- $10,000 of Class 8 equipment (20%)
- Claim on half the cost: 20% of $5,000
- $9,000 left for later years
$3,000 in year one
- The same $10,000, acquired after 2024 and available for use in 2026
- Cost increased by 50%: 20% of $15,000
- $7,000 left for later years
$10,000 in year one
- $10,000 of computer hardware (55%)
- Acquired after April 15, 2024, available for use before 2027
- Full cost written off; $2,750 under the half-year rule
The examples above use the CRA’s method with no other additions or sales in the class. Property you already owned, property from a person you do not deal with at arm’s length, and property transferred to you on a tax-deferred rollover generally do not qualify. If you move personal property, such as a car or a personal computer, into your business, the half-year rule applies to it.
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Does Buying Before December 31 Lower This Year's Tax?
Only if the property is available for use before your year-end. Under the CRA’s available-for-use rules, equipment usually becomes available for use on the earlier of the date you first use it to earn income and the time it is delivered or made available to you and can produce a saleable product or service. Paying a deposit in December for a machine that arrives in January does not help this year. The enhanced first-year claim is only available in the tax year the property first becomes available for use.
Your year-end matters too. These are tax-year rules, so for a corporation the deadline is the end of its fiscal year, which is December 31 only if that is its year-end.
And a deduction is not a refund. A $3,000 CCA claim lowers your taxable income by $3,000; the tax you save is that amount times your tax rate. Spending $10,000 on something you do not need costs more than the tax it saves. Buy before year-end when you were going to buy anyway and the timing fits.
- Get it delivered and working before your year-end, and keep proof of the date.
- Check who owned it before. Property you, or a person you do not deal with at arm’s length, already owned usually does not qualify for the incentive.
- Check the class before you assume a rate: a $499 tool and a $500 tool land in different classes.
Should You Buy or Lease?
Leasing. You deduct the lease payments incurred in the year for property used in your business, and for computers and other equipment the part of the lease cost that reasonably relates to earning your business income.
Buying. You cannot deduct the purchase price. You claim CCA, and you can deduct the interest on money you borrowed to buy the equipment, for the part that relates to the business. With the incentive above, more of the cost comes off in the first year.
Vehicles have their own limits. For 2026, deductible leasing costs for a passenger vehicle stay at $1,100 a month before tax for new leases, and the interest deduction on a new car loan stays at $350 a month. Our vehicle expenses guide covers the logbook the CRA expects and how the business share of a vehicle is claimed.
If the leased property is worth more than $25,000 and both sides agree, you can elect (Form T2145) to treat a lease as a purchase: you deduct the interest part of each payment and claim CCA. The CRA notes that office furniture and vehicles often do not qualify.
Which is better depends on your cash flow, how long you will keep the equipment and how much income you expect in the next few years. It is worth working out both before you sign.
What Should You Keep for Your T2?
For each piece of equipment, keep:
- the invoice or bill of sale, showing the date, the seller, the price and the GST charged,
- proof of when it was delivered, installed or first used (this sets the year you can start claiming),
- the loan or lease agreement, if you financed it,
- the class you put it in and each year’s CCA claim, so the balance can be followed from year to year,
- for a vehicle, a record of total kilometres and business kilometres, since only the business part can be claimed, and
- the sale or trade-in record when you dispose of it.
The CRA’s general rule is to keep records for six years from the end of the last tax year they relate to. Records about long-term acquisitions and disposals of property must be kept indefinitely. For a corporation, the tax year is its fiscal period.
Our year-end tax checklist covers the other things to do before December 31.
How Can We Help Before Your Year-End?
We prepare T2 corporate tax returns, including the CCA schedule, for corporations from our Calgary office, and T1 returns for sole proprietors. Our monthly bookkeeping records equipment purchases as they happen, so the class, cost and date are ready at year-end. Fees are fixed and quoted up front.
See our T2 corporate tax and bookkeeping services, or, if you are deciding about a purchase before December 31, see our packages.
Frequently Asked Questions
Can I write off equipment I buy before December 31?
Not in full, in most cases. You claim capital cost allowance at your class’s rate. Most small tools under $500, and computers in Class 50 acquired after April 15, 2024 and available for use before 2027, can be deducted in full. Either way, the property has to be available for use before your year-end.
Does the half-year rule apply to equipment bought in 2026?
Generally not for new eligible equipment. The CRA’s T2 guide says the reaccelerated investment incentive suspends the half-year rule for property acquired after 2024 that becomes available for use before 2034. It still applies to property that does not qualify, such as personal property you move into the business.
What is the CCA rate for a work truck or car?
Most motor vehicles are Class 10 at 30%. A passenger vehicle bought in 2026 for more than $39,000 before tax goes in Class 10.1, also 30%, with its cost capped at $39,000 plus tax. Zero-emission passenger vehicles are Class 54.
Do I have to claim the maximum CCA?
No. You can claim any amount from zero to the maximum for the year. What you do not claim stays in the class balance for later years.
How long should I keep receipts for equipment?
The CRA’s general rule is six years from the end of the last tax year they relate to. Records about long-term acquisitions and disposals of property must be kept indefinitely.
Reviewed on 22 October 2026. CCA classes, rates, incentives, vehicle limits and record-keeping rules in this article are from the Canada Revenue Agency and the Department of Finance Canada, linked beside each fact and listed below.
T2 Corporate Tax
Every Canadian corporation must file a T2 within six months of fiscal year-end, active or inactive
Bookkeeping
Monthly cloud bookkeeping, with bank and credit card reconciliation, monthly reports and GST/HST filing included
Sources
- Canada Revenue Agency, Claiming capital cost allowance (CCA) (page dated 2026-08-31, checked 21 October 2026)
- Canada Revenue Agency, Basic information about capital cost allowance (page dated 2026-08-31, checked 21 October 2026)
- Canada Revenue Agency, Classes of depreciable property (page dated 2026-08-31, checked 21 October 2026)
- Canada Revenue Agency, Accelerated investment incentive (page dated 2025-07-21, checked 21 October 2026)
- Canada Revenue Agency, T2 Corporation Income Tax Guide, Chapter 3 (Schedule 8, AIIP and RIIP) (page dated 2026-05-28, checked 21 October 2026)
- Canada Revenue Agency, Guide T4002, Chapter 4: Capital cost allowance (page dated 2026-04-16, checked 21 October 2026)
- Canada Revenue Agency, Current or capital expenses (page dated 2026-08-31, checked 21 October 2026)
- Canada Revenue Agency, Leasing costs (page dated 2026-08-31, checked 21 October 2026)
- Canada Revenue Agency, Computer and other equipment leasing costs (page dated 2026-08-31, checked 21 October 2026)
- Canada Revenue Agency, Motor vehicle expenses (page dated 2026-08-17, checked 21 October 2026)
- Canada Revenue Agency, Where to keep your records, for how long (page dated 2026-08-03, checked 21 October 2026)
- Department of Finance Canada, 2026 automobile deduction limits and expense benefit rates (news release) (page dated 2026-01-14, checked 21 October 2026)
