Definition
Capital Cost Allowance (CCA) is the tax equivalent of accounting depreciation for rental properties. In Canada, residential rental buildings belong to Class 1 with an annual rate of 4% of the remaining value.
Important: only the building value is depreciable — not the land value. The buyer must therefore allocate the purchase price between land and building (generally based on municipal assessment proportions).
Half-year rule: in the acquisition year, CCA is limited to 50% of the normal rate.
**Recapture risk on sale**: If the building is sold for more than book value (FMV > undepreciated value), the difference is recaptured as 100% taxable income (not 50% like capital gain). This 'amortization recapture' can generate a significant tax bill.
**Important rule**: CCA cannot create or increase a deductible rental loss in the current year. CCA is limited to net rental income before CCA (to avoid artificial losses).