What is undepreciated capital cost (UCC)?

Undepreciated Capital Cost (UCC) is the remaining balance of a capital asset's cost that has not yet been claimed as Capital Cost Allowance (CCA). It is the tax "book value" of your depreciable assets — the amount left after subtracting all CCA you have claimed in prior years. UCC is tracked separately for each CCA class. You calculate CCA each year as a percentage of the opening UCC, which reduces the UCC further each year.

How is UCC calculated in Canada?

UCC is calculated as follows: Start with your opening UCC (last year's closing UCC). Add the cost of any new assets added to the class during the year. Subtract the lesser of the original cost or the proceeds from any assets disposed of during the year. This gives you the net UCC before CCA. Claim CCA at the class rate applied to this net amount. The result is your closing UCC, which becomes next year's opening UCC.

What is the difference between CCA and UCC?

CCA (Capital Cost Allowance) is the annual tax deduction you can claim on depreciable assets — similar to depreciation for tax purposes. UCC (Undepreciated Capital Cost) is the running balance of what is left to depreciate. CCA reduces UCC each year. UCC is the pool; CCA is the amount you draw from that pool annually.

What is a terminal loss on UCC?

A terminal loss occurs when you dispose of all assets in a CCA class and your UCC at the end of the year is positive (i.e., proceeds from disposal were less than the UCC). The remaining UCC is a terminal loss — it is fully deductible against income in the year of disposition. Terminal losses only apply when the class is completely emptied of assets.

What is recaptured CCA?

Recaptured CCA occurs when you sell an asset and the proceeds exceed your remaining UCC (but are less than or equal to the original cost). The excess represents CCA you claimed in prior years that was "too much" — it is added back to your income in the year of sale and taxed as business or rental income. This is different from a capital gain (which applies only when proceeds exceed the original cost).

Does UCC apply to rental properties in Canada?

Yes. Rental property owners can claim CCA on the building (not the land) using the appropriate CCA class — typically Class 1 at 4% for buildings acquired after 1987. Claiming CCA reduces rental income for tax purposes but also reduces your UCC. When you eventually sell, any UCC remaining that is less than the proceeds triggers recaptured CCA, which is taxed as income. Many rental property investors deliberately avoid claiming CCA to avoid this recapture on sale.

Undepreciated Capital Cost (UCC) Canada: How CCA and UCC Work (2026)

Undepreciated Capital Cost (UCC) is one of the most important tax concepts for Canadian rental property owners, self-employed Canadians, and small business operators. It tracks how much of your depreciable assets you have left to write off — and determines whether you face a tax hit when you sell.

UCC at a Glance

Term	Definition
UCC (Undepreciated Capital Cost)	The remaining tax book value of your depreciable assets
CCA (Capital Cost Allowance)	The annual tax deduction claimed against UCC
CCA class	A category of assets with a set CCA rate (e.g., Class 1 = buildings at 4%)
Terminal loss	UCC remaining after selling all assets in a class — fully deductible
Recaptured CCA	When proceeds exceed UCC — taxed as income
Capital gain	When proceeds exceed original cost — 50% inclusion rate

How UCC Is Calculated

UCC changes each year based on additions, disposals, and CCA claimed. Here is the standard formula:

Step	Calculation
Opening UCC	Previous year’s closing UCC
+ Additions	Cost of new assets added to the class during the year
− Disposals	Lesser of: (a) original cost, or (b) proceeds from disposal
= Net UCC before CCA
− CCA claimed	Net UCC × CCA rate (optional — you can claim less)
= Closing UCC	Carry forward to next year

Key point: CCA is discretionary — you do not have to claim the maximum. Many rental property owners choose to claim less or no CCA to avoid recapture on eventual sale.

CCA Classes: Common Assets

Canada groups depreciable assets into CCA classes, each with a fixed declining-balance rate.

CCA Class	Asset type	Rate
Class 1	Buildings acquired after 1987	4%
Class 1	Non-residential buildings acquired after March 2007	6%
Class 6	Wooden structures, fences, greenhouses	10%
Class 8	Equipment, furniture, machinery, appliances	20%
Class 10	Motor vehicles	30%
Class 10.1	Passenger vehicles over $37,000 (2026 limit)	30%
Class 12	Computer software, tools under threshold	100%
Class 13	Leasehold improvements	Over lease term
Class 14	Limited-life intangible assets (patents, licenses)	Over useful life
Class 43.1	Clean energy equipment	30%
Class 54	Zero-emission vehicles (ZEV)	100% (immediately)
Class 55	ZEV taxicabs and ride-sharing	40%

Each class is tracked as a separate pool. You cannot mix assets across classes.

Rental Property and UCC: Key Rules

For rental properties, UCC applies to the building only — land is never depreciable.

Component	Depreciable?	CCA Class
Land	No	N/A
Building (residential, after 1987)	Yes	Class 1 at 4%
Appliances included with property	Yes	Class 8 at 20%
Improvements to the building	Yes	Class 1 or Class 13

Should Rental Property Owners Claim CCA?

This is one of the most common rental tax questions. Claiming CCA:

Reduces taxable rental income in the year claimed (saves tax now)
Reduces your UCC (creates more recapture later)
Does not create a rental loss — CCA cannot be used to create or increase a net rental loss for tax purposes

When you sell a rental property, any amount where proceeds > UCC is recaptured CCA taxed at your marginal rate (not the capital gains rate). For investors in high tax brackets who expect to sell, claiming CCA now and paying full marginal rate on recapture later may not be beneficial.

Terminal Loss vs Recaptured CCA vs Capital Gain

Three different outcomes can occur when you sell a depreciable asset. Understanding each one is critical.

Scenario	What triggers it	Tax treatment
Terminal loss	Proceeds < UCC, and class is empty	Fully deductible against income
Recaptured CCA	Proceeds > UCC (but ≤ original cost)	Taxed as income at marginal rate
Capital gain	Proceeds > original cost	50% taxable (capital gains inclusion rate)

Example: Selling a Rental Property

Item	Amount
Original cost (building only)	$400,000
CCA claimed over years	$80,000
UCC at time of sale	$320,000
Sale proceeds (building portion)	$550,000

Recaptured CCA: $550,000 − $320,000 = $230,000 → taxed as income, BUT wait…
Actually: $400,000 (original cost) − $320,000 (UCC) = $80,000 recaptured CCA (the exact amount claimed) → taxed as income
Capital gain: $550,000 − $400,000 = $150,000 → 50% taxable = $75,000 taxable capital gain

So recapture = exactly the CCA you previously claimed (no more, no less), and any appreciation above the original purchase price is a capital gain.

The Accelerated Investment Incentive (AII)

For business assets acquired after November 20, 2018, the Accelerated Investment Incentive (AII) replaced the old half-year rule for most classes. Under AII, you can claim 1.5× the normal first-year CCA:

Year of acquisition	First-year CCA treatment
November 2018–December 2027	AII: 1.5× normal rate in year 1
2028 and later	Reverts to half-year rule (50% of normal rate in year 1)

Example: Class 8 (20%) asset purchased in 2026 for $100,000.

AII first-year CCA: $100,000 × 20% × 1.5 = $30,000 (vs $10,000 under old half-year rule)
Closing UCC: $70,000

Note: The AII applies only to new eligible property. Certain assets (like rental buildings in Class 1) are excluded from the AII and remain subject to the half-year rule.

UCC for Self-Employed and Business Owners

Self-employed Canadians report CCA and UCC on Form T2125 (Statement of Business or Professional Activities). The form includes a CCA schedule where you list each class, opening UCC, additions, disposals, and CCA claimed.

Common business assets	CCA Class	Rate
Office equipment and furniture	Class 8	20%
Computer hardware	Class 10 (or Class 45/50/52 for newer computers)	55%
Computer software	Class 12	100%
Business vehicles	Class 10 or 10.1	30%
Leasehold improvements to rented office	Class 13	Over lease term

For rental income, use Form T776 (Statement of Real Estate Rentals) which has its own CCA schedule.

Practical UCC Tracking Example

A landlord buys a rental property (building value $350,000) in 2022 and claims CCA each year.

Year	Opening UCC	CCA Claimed (4%)	Closing UCC
2022	$350,000	$7,000 (half-year rule: $350K × 4% × 50%)	$343,000
2023	$343,000	$13,720	$329,280
2024	$329,280	$13,171	$316,109
2025	$316,109	$12,644	$303,465
2026	$303,465	$12,139	$291,326

If sold in 2026 for $500,000 (building portion), recaptured CCA = $350,000 − $291,326 = $58,674 (taxed as income). Capital gain = $500,000 − $350,000 = $150,000 (50% included = $75,000 taxable).

Sources

Canada Revenue Agency. “Capital Cost Allowance (CCA).” canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses/capital-cost-allowance
Canada Revenue Agency. “CCA Classes.” canada.ca/cra/cca-classes
Canada Revenue Agency. “Form T776 — Real Estate Rentals.” canada.ca