Understanding Capital Cost Allowance (CCA) and Undepreciated Capital Cost (UCC)
Understand how depreciation works for tax purposes, when to use it, and how to manage the ongoing balance of your depreciable assets
If you have ever purchased a vehicle, equipment, or technology for work or business, you might have heard about Capital Cost Allowance (CCA). CCA is the method the Canada Revenue Agency (CRA) uses to let you deduct the cost of certain capital assets over time, rather than all at once. Alongside it, you'll often see another term: Undepreciated Capital Cost (UCC). This is the balance that remains after past deductions have been applied.
These concepts matter when you are using your own car for work, investing in tools as a tradesperson, or managing business equipment as a self-employed individual. Understanding how CCA and UCC work together helps you maximize deductions, stay compliant, and plan your tax outcomes more effectively.
What Is Capital Cost Allowance (CCA)?
Capital Cost Allowance is the tax deduction for the declining value of a capital asset. Unlike regular expenses, which are fully deductible in the year they occur, capital purchases (such as vehicles, computers, or machinery) must be deducted gradually over several years using CCA.
The CRA groups assets into classes, each with its own prescribed rate of depreciation. These rates reflect the expected useful life of the asset and how quickly it loses value for tax purposes.
Here are a few examples:
| Asset Type | CCA Class | Rate |
|---|---|---|
| Vehicles (most passenger cars) | Class 10 | 30% declining balance |
| Computers and software | Class 50 | 55% declining balance |
| Tools and equipment | Class 8 | 20% declining balance |
| Buildings | Class 1 | 4% (or higher for specific types) |
| Zero-emission vehicles | Class 54 | 100% in Year 1 (with conditions) |
Important: CCA is optional. You can choose how much to claim each year—up to the maximum allowed—depending on what benefits your tax situation most.
What Is Undepreciated Capital Cost (UCC)?
The Undepreciated Capital Cost is the balance remaining in your CCA class after you have deducted CCA in prior years. It reflects the current “tax value” of all the assets in that class.
Each year, you calculate your CCA based on the UCC at the start of the year, not the original cost of the asset. As you deduct CCA, your UCC balance goes down.
Here’s how the cycle works:
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You purchase a laptop for $2,000 (Class 50, 55% rate)
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In Year 1, you can claim 27.5% CCA (half-year rule applies) = $550
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UCC at the end of Year 1 = $1,450
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In Year 2, your CCA is 55% of $1,450 = $797.50
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UCC at end of Year 2 = $652.50
This continues until the asset is fully depreciated or sold.
What Is the Half-Year Rule?
In the year you acquire most capital assets, you can only claim half of the usual CCA rate. This is known as the half-year rule, and it is meant to account for the timing of purchases during the year.
For example, a $10,000 vehicle in Class 10 (30% rate) would allow a maximum claim of 15% ($1,500) in the year of purchase.
When and Why to Use CCA
Claiming CCA can be strategic. You might choose to:
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Maximize your claim in high-income years to reduce your tax bill
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Delay a claim to preserve deductions for future years
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Spread claims evenly to manage consistent taxable income
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Use 100% first-year write-offs (for eligible assets) when cash flow or income justifies it
At Optimize, we help you coordinate CCA with your overall income strategy—especially if you're transitioning between employment and self-employment, selling assets, or replacing older equipment.
What Happens When You Sell the Asset?
When you sell an asset, your UCC must be adjusted. If the sale price is less than the remaining UCC, you may have a terminal loss. If it’s more, and all assets in the class are disposed of, you may have a recapture—which is included in your income.
Key rules to remember:
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You do not include gains or losses from depreciable assets as capital gains
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You must reduce the UCC by the lesser of the proceeds of disposition or the original cost
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You cannot claim CCA in the year an asset is sold
We help you review sales of assets carefully, especially if multiple items are in the same class or if you are closing a business or retiring from self-employment.