Capital cost allowance (CCA) is the deduction the CRA allows for the cost of depreciable property, such as a rental building and the appliances in it, spread over several years. This page covers how it works on a rental: the classes, splitting the price between land and building, the first-year rules, the limit on losses and the effect of a sale. It is part of WealthNorth’s guide to real estate taxes. Whether claiming CCA pays off, given recapture on a later sale, is covered in should you claim CCA on a rental property; how the balance is tracked year to year is in undepreciated capital cost (UCC).
The rules on this page come from the CRA’s Guide T4036, Rental Income (T4036(E) Rev. 25, for the 2025 tax year), unless another source is named. The first-year incentives for property acquired after 2024 and the purpose-built rental rate are law: the Budget 2025 Implementation Act, No. 1 (S.C. 2026, c. 3), which received royal assent on March 26, 2026, wrote them into sections 1100 and 1104 of the Income Tax Regulations. T4036 was published before that and still calls them proposed changes.
CCA classes for a rental property
The CRA groups depreciable property into classes, each with its own rate, and CCA on most of them is calculated on a declining balance: the rate applies each year to what is left of the class’s cost. The classes that come up for a rental, from Guide T4036:
- Most buildings acquired after 1987 are Class 1, depreciated at 4% a year on a declining balance, unless they belong to another class.
- Most buildings acquired before 1988 are Class 3 or Class 6.
- The parts that make up the building, such as wiring, plumbing, heating equipment and lighting fixtures, go in the building's class.
- Furniture, household appliances and other equipment used in the rental are Class 8, at 20%.
- Fences are Class 6, at 10%.
- Land isn't depreciable: only the building's share of the price, and of the buying costs, goes in a class.
- A new purpose-built residential rental is a separate class of its own, and for each tax year it qualifies throughout, you can claim an additional allowance of up to 6% of its undepreciated capital cost on top of the Class 1 rate, 10% in total.
- To be new, its construction has to have begun after April 15, 2024 and before 2031 (or, for a former commercial building converted to rental housing, the substantial renovation has to have begun in that window; renovating an existing residential building doesn't count), and it has to become available for use before 2036.
- The building, or part of a building, has to be in Canada and contain at least 4 residential rental units with a private kitchen, bath and living area, or at least 10 residential rental units, and all or substantially all of its units have to be rented or offered for rent for continuous periods of at least 28 consecutive days; units provided to travellers or vacationers don't count as residential rental units.
A condominium unit belongs to the same class as the building it is in, according to T4036. Vehicles and computers used for the rental have their own classes, listed in the guide to CCA classes and rates. The CRA’s rule for vehicles used for a rental: Vehicle costs for a rental are deductible only in limited cases: with one rental property, only if it is in the general area where you live and you do repairs or maintenance yourself and drive tools and materials there (driving to collect rent is a personal expense); with two or more rental properties at two or more different sites away from your home, also to collect rent, supervise repairs and manage the properties. Other travel to a rental follows the same conditions.
Step 1: separate the land from the building
Land is never depreciable, so only the building’s share of the price goes into Class 1. Buying costs are split the same way: T4036 says to divide legal fees connected with the purchase between the land and the building and add each part to its cost. The guide doesn’t set a method for the split itself; keep the document you based it on, such as an appraisal or an assessment notice that values the land and the building separately.
T4036’s own example: a property bought for $200,000 , of which $50,000 is land and $150,000 the building, with $10,000 of legal fees split in the same proportion.
| Item | Land | Building |
|---|---|---|
| Purchase price | $50,000 | $150,000 |
| Legal fees, split by value | $2,500 | $7,500 |
| Cost | $52,500 | $157,500 |
Only the building’s $157,500 goes into a CCA class; the land’s cost goes in Area F of Form T776.
A government grant, subsidy or rebate received to buy depreciable property is subtracted from its capital cost before you enter it, according to T4036.
Step 2: the first year
The first-year rules, from T4036, the CRA’s accelerated investment incentive page and section 1104 of the Income Tax Regulations:
- Generally, in the year you buy, you can claim CCA on only half of your net additions to a class (the half-year rule), and only once the property is available for use; property that qualifies for the accelerated or reaccelerated investment incentive is the exception.
- The half-year rule doesn't apply to accelerated investment incentive property: property acquired after November 20, 2018 and before 2025 that becomes available for use before 2028. Its first-year claim can be up to three times the normal first-year claim, reduced to two times for property that becomes available for use in 2024 to 2027.
- The half-year rule doesn't apply to reaccelerated investment incentive property either: property acquired after 2024 that becomes available for use before 2034, with the enhanced first-year claim phased out over four years for property that becomes available for use after 2029.
- Property on which CCA or a terminal loss was claimed before you acquired it qualifies for the accelerated investment incentive only if neither you nor a person you don't deal with at arm's length owned it before and it wasn't transferred to you on a tax-deferred rollover; otherwise the half-year rule can still apply to it.
You can generally claim CCA only once the property is available for use; for a building, T4036 says that is usually the earliest of: when a fully constructed building is bought or its construction is completed, when you rent out 90% or more of it, the second year after the year you acquired it, or just before you dispose of it.
How much of a Class 1 building’s cost each rule allows in the first year, using the factors in T4036 and section 1100 of the regulations (first-year CCA = rate × cost × (1 + factor), or rate × half the cost under the half-year rule):
| Building | First-year treatment | First-year CCA, % of the building’s cost |
|---|---|---|
| Not eligible for either incentive, and subject to the half-year rule (see the non-arm’s length note below the table) | Half-year rule: CCA on 50% of the net addition | 2% |
| Acquired after November 20, 2018 and before 2025, available for use in 2024 to 2027 | Half-year rule suspended, factor 0 | 4% |
| Acquired after 2024, available for use before 2030 | Half-year rule suspended, factor 1/2 | 6% |
The reaccelerated incentive has a four-year phase-out: under section 1100 the factor for most classes drops to nil for property that becomes available for use after 2029 (the half-year rule still doesn’t apply, so the first-year claim is the full rate on the cost), and property that becomes available for use after 2033 doesn’t qualify at all. The last row’s factor applies only before 2030.
The non-arm’s length condition above keeps a building bought from a non-arm’s length seller who claimed CCA on it out of both incentives, but that doesn’t always mean the half-year rule applies: T4036 gives, as one case where it doesn’t, depreciable property bought in a non-arm’s length transaction that the seller owned continuously from at least 364 days before the end of your fiscal period until you acquired it.
The enhanced first year doesn’t change the total you can deduct over the life of the property: the CRA notes that a larger first-year claim leaves smaller claims in later years.
Step 3: a five-year schedule
A building share of $450,000 (a $650,000 purchase with $200,000 of land), bought from an unrelated seller after 2024 and rented out the same year, so it is reaccelerated investment incentive property. The maximum CCA is claimed every year and there is enough net rental income to absorb it. Each year’s CCA is rounded to the dollar.
| Year | UCC at start of year | Base for CCA | Rate | CCA claimed | UCC at end of year |
|---|---|---|---|---|---|
| 1 | $0, plus a $450,000 addition | $675,000 (cost × 1.5) | 4% | $27,000 | $423,000 |
| 2 | $423,000 | $423,000 | 4% | $16,920 | $406,080 |
| 3 | $406,080 | $406,080 | 4% | $16,243 | $389,837 |
| 4 | $389,837 | $389,837 | 4% | $15,593 | $374,244 |
| 5 | $374,244 | $374,244 | 4% | $14,970 | $359,274 |
If the same building were subject to the half-year rule, the first-year claim would be $9,000 (cost × 2%) instead of $27,000.
On a declining balance the claim gets smaller each year, and normal claims never write the class down to zero.
The limit: CCA can’t produce a rental loss
- CCA can reduce your net rental income to zero but can't create or increase a rental loss.
- With more than one rental property, you combine the net income or loss from all of them before you claim CCA.
- Claiming CCA is optional: you can claim any amount from zero up to the year's maximum, and only what you claim reduces the balance left in the class for later years.
T4036 gives an example: an owner of three buildings with net results of $1,500 , $2,000 and a $4,000 loss has an overall net loss of $500, so no CCA can be claimed on any of the buildings or their appliances that year. Short-term rentals face a further limit: For a short-term rental (rented or offered for rent for less than 90 consecutive days), expenses and capital cost allowance for the days it doesn't comply with provincial or municipal rules (it isn't permitted at that location, or it lacks a required registration, licence or permit) can't be deducted.
What happens when you sell
A sale can produce recaptured CCA, a capital gain or a terminal loss, depending on how the price compares with the building’s original cost and its undepreciated capital cost. When you sell a rental building for more than its undepreciated capital cost (UCC), the difference, counting the sale price only up to the building's original cost, is recaptured CCA and added to your income in full; a sale above the original cost is also a capital gain, and if no property is left in the class and some UCC remains, that remainder is a terminal loss you deduct. Each case is set out in the guide to claiming CCA on a rental.
For the separate-class rule, T4036 says to list each such property on its own line of the CCA table on Form T776, so a sale is measured against that building’s balance alone, not against other buildings with the same class number. Recapture goes on line 9947 of Form T776 and a terminal loss on line 9948. Worked examples of each outcome are in the guide to undepreciated capital cost, and the full sale calculation, including the capital gain, is in selling a rental property.
CCA and your own home
Claiming CCA on a home you live in, or on the part of it you rent out, can affect the principal residence exemption:
- Renting out part of your home: Renting out part of your home keeps the whole home a principal residence only if the rental is ancillary to your use of it as a home, you make no structural change to it, and you claim no capital cost allowance on it; otherwise the rented part is treated as changed to a rental, and only the home part of the gain is exempt when you sell.
- Turning your whole home into a rental: Turning your home into a rental is a deemed sale at fair market value, but you can elect under subsection 45(2) of the Income Tax Act not to be treated as having changed its use: you then can't claim capital cost allowance on it, you still report the net rental income, and you can keep designating it as your principal residence for up to four years (longer for some work relocations) as long as you designate no other home and stay resident in Canada.
The guide to the principal residence exemption with a partial rental covers both situations.
Where CCA goes on the return
Rental CCA is calculated in Area A of Form T776, Statement of Real Estate Rentals, and the total claim goes on line 9936. Buildings bought during the year go in Area C, equipment in Area B and land in Area F. How to report rental income walks through the rest of the form, and rental property expenses you can deduct covers the expenses that come off before CCA.
Related guides
Sources
The figures and rules on this page come from these sources, last checked against them between September 26, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Rental Income
- Canada Revenue Agency: Accelerated investment incentive
- Canada Revenue Agency: Principal residence
- Canada Revenue Agency: Income Tax Folio S1-F3-C2, Principal Residence
- Justice Laws (Canada): Income Tax Regulations
- Justice Laws (Canada): Budget 2025 Implementation Act, No. 1
- Justice Laws (Canada): Income Tax Regulations
- Justice Laws (Canada): Income Tax Act