What is Capital Cost Allowance (CCA) on a rental property?

Capital Cost Allowance (CCA) is the tax depreciation deduction the CRA allows on the cost of your rental property building (not the land). It allows you to deduct a portion of the building cost each year against your rental income — reducing your taxable income. For most residential rental buildings, the CCA rate is 4% per year on a declining balance basis. CCA is optional — you choose whether to claim it each year.

Should I claim CCA on my rental property?

It depends. Claiming CCA reduces your current tax bill by lowering your net rental income. However, when you sell the property, the CRA "recaptures" the CCA you claimed — adding it back to your income as fully taxable recaptured depreciation (not at the capital gains rate). If your marginal tax rate is similar at the time of claiming and selling, CCA provides a tax deferral but no net savings. If you expect a lower tax rate when you sell (e.g., retirement), claiming CCA can save you money. Many accountants advise not claiming CCA on rental properties because of the recapture risk.

What is CCA recapture?

CCA recapture occurs when you sell a rental property for more than its undepreciated capital cost (UCC). The difference between the UCC and the original cost (the amount of CCA previously claimed) is added back to your income as fully taxable recapture — taxed at your full marginal rate, not the capital gains rate. For example, if you claimed $80,000 of CCA over the years and sell the property for more than the UCC, the $80,000 is recaptured and taxed as regular income in the year of sale.

What CCA class is a residential rental property?

Most residential rental buildings fall under CCA Class 1 with a 4% declining balance rate. If the building is a non-residential building acquired after March 18, 2007, it may fall under Class 1 at 6%. Furniture and appliances in the rental are typically Class 8 (20%). Equipment like HVAC systems may be Class 8 or Class 43. The land is never depreciable — only the building portion qualifies for CCA.

Can CCA create a rental loss?

No. CCA cannot be used to create or increase a rental loss. You can only claim CCA up to the amount that brings your net rental income to zero. If you already have a rental loss from operating expenses, you cannot claim any CCA for that year. Unused CCA stays in the pool and can be claimed in future years when you have rental income.

Capital Cost Allowance (CCA) on Rental Property in Canada (2026)

Capital Cost Allowance lets you depreciate your rental property for tax purposes — but recapture on sale means it is not always the smart move. Here is how CCA works and whether you should claim it.

How CCA works

The basics

Concept	Details
What is depreciated	The building cost only (land is not depreciable)
CCA rate (Class 1)	4% per year, declining balance
Half-year rule	In the year of purchase, you can only claim 50% of the normal CCA amount
Optional	You choose whether to claim CCA each year — it is not mandatory
Cannot create a loss	CCA can reduce rental income to zero — but not below
Claimed on	Form T776 (Statement of Real Estate Rentals)

Determining the depreciable amount

Component	Treatment
Purchase price	Split between land and building
Land	NOT depreciable
Building	Depreciable (CCA Class 1 at 4%)
How to split	Use the municipality’s property tax assessment ratio (e.g., 70% building / 30% land) or an appraisal

Example: splitting land and building

Item	Amount
Purchase price	$600,000
Property assessment: building	70% → $420,000
Property assessment: land	30% → $180,000
Depreciable amount	$420,000

CCA classes for rental properties

Class	Rate	Assets
Class 1	4%	Residential rental building (most common)
Class 1	6%	Non-residential building acquired after March 18, 2007
Class 8	20%	Furniture, appliances, equipment in the rental unit
Class 10	30%	Motor vehicles (if used for property management)
Class 43	30%	Manufacturing and processing equipment, certain HVAC
Class 50	55%	Computer equipment

CCA calculation example

Year-by-year CCA on a $420,000 building (Class 1, 4%)

Year	UCC Start	CCA Claimed	UCC End
1	$420,000	$8,400 (half-year rule: 50% of $16,800)	$411,600
2	$411,600	$16,464	$395,136
3	$395,136	$15,805	$379,331
4	$379,331	$15,173	$364,158
5	$364,158	$14,566	$349,592
10	$291,520	$11,661	$279,859
15	$239,136	$9,565	$229,571
20	$196,226	$7,849	$188,377

After 20 years, you have claimed approximately $231,623 in total CCA — reducing your building’s UCC from $420,000 to $188,377.

The recapture problem

What happens when you sell

When you sell the rental property, the CRA recaptures the CCA you claimed:

Scenario	Tax Treatment
Sale price > original cost	CCA recapture (fully taxed) + capital gains on amount above original cost
Sale price between UCC and original cost	CCA recapture only (fully taxed) — no capital gains
Sale price < UCC	Terminal loss (deductible) — no recapture
Sale price = UCC	No recapture, no gain, no loss

Recapture example

Item	Amount
Original building cost	$420,000
CCA claimed over 10 years	~$140,000
UCC at sale	~$280,000
Building value at sale	$550,000
CCA recapture	$420,000 − $280,000 = $140,000 (taxed as regular income)
Capital gain	$550,000 − $420,000 = $130,000 (50% taxable at $65,000)
Total taxable in year of sale	$140,000 (recapture) + $65,000 (taxable gain) = $205,000

At a 40% marginal rate, the recapture alone costs $56,000 in tax. But you saved approximately $56,000 spread over 10 years by claiming CCA. The net effect is a tax deferral — not a savings — assuming the same tax rate.

Should you claim CCA?

When claiming CCA makes sense

Situation	Why It Helps
High marginal tax rate now, lower later	Claim CCA at 50% rate, pay recapture at 30% rate = net savings
Retirement within the CCA period	Lower income in retirement means lower recapture tax
Planning to hold indefinitely	Deferral has value over very long periods
Significant other deductions at sale	Terminal loss on another property, capital loss carryforward, etc.
Cash flow is tight	CCA reduces tax payable, improving cash flow now
Incorporation	Corporate tax rate on CCA savings (12%–26%) vs personal recapture rate

When claiming CCA does not make sense

Situation	Why It Hurts
Same tax rate when claiming and when selling	Pure deferral — no net benefit, added complexity
Planning to sell in a few years	Large recapture in a concentrated year can push you into a very high bracket
Property has appreciated significantly	Capital gains + recapture in the same year creates a huge tax bill
Already in a low tax bracket	CCA savings are minimal; recapture could hit at a higher rate
Want simplicity	CCA adds tracking complexity and requires careful record-keeping

CCA decision matrix

Current Tax Rate	Expected Tax Rate at Sale	Claim CCA?
High (45%+)	Low (< 30%)	✅ Yes — significant net savings
High (45%+)	Same (45%+)	⚠️ Maybe — deferral value only; time value of money
Moderate (30%–40%)	Lower	✅ Yes — moderate net savings
Moderate (30%–40%)	Same	⚠️ Probably not — complexity may not be worth the deferral
Low (< 30%)	Higher	❌ No — you would pay more tax on recapture than you saved
Any	Planning to hold forever / pass to estate	✅ Consider — deemed disposition at death triggers recapture, but estate may be in lower bracket

Reporting CCA

Form T776 — Statement of Real Estate Rentals

Section	What to Report
Part A	Statement of rental income and expenses
Area A	CCA schedule — list each class, UCC, additions, CCA claimed
Part D	Capital cost and proceeds of dispositions
Schedule	Maintain a CCA schedule with UCC for each class, updated annually

Record-keeping requirements

Record	Why
Purchase agreement	Establishing original cost and land/building split
Property tax assessment	Supporting the land/building allocation
Annual CCA schedule	Tracking UCC, CCA claimed, adjustments each year
Receipts for capital improvements	Additions to the CCA pool (increase UCC)
Sale documents	Calculating recapture and capital gains at disposition

Capital improvements vs repairs

Item	Treatment	CCA Class
New roof	Capital improvement — add to CCA Class 1	Class 1 (4%)
Roof patching	Repair — fully deductible in the current year	N/A (expense)
New furnace	Capital improvement	Class 1 or 8
Furnace repair	Repair — fully deductible	N/A (expense)
Kitchen renovation	Capital improvement	Class 1
Paint and minor fixes	Repair — fully deductible	N/A (expense)
New appliances	Capital addition	Class 8 (20%)
Appliance repair	Repair — fully deductible	N/A (expense)

The CRA’s general rule: if the expenditure extends the useful life of the asset or improves it beyond its original condition, it is a capital improvement. If it restores the asset to its original condition, it is a repair.

Alternatives to claiming CCA

Strategy	Details
Maximize expense deductions	Ensure you are claiming all legitimate expenses (management fees, travel, office, etc.)
Accelerate repairs	Time major repairs to high-income years
RRSP contributions	Use RRSP deductions to offset rental income instead of CCA
Incorporation	Hold in a corporation to benefit from lower corporate tax rates
Do nothing	Skip CCA entirely — simplifies taxes and avoids recapture