Definition
Capital Cost Allowance (CCA) is the Canadian term for the tax deduction related to the depreciation of a property (Class 1 for buildings — CCA rate: 4% per year on declining balance).
**Tax mechanics**: - Class 1 (non-residential and income-producing residential buildings): 4% rate (declining balance) - Half-year rule: in the first year, only 50% of the rate applies - CCA is optional (the owner chooses whether to claim it) - Land is never depreciable
**Mortgage impact**: - Claimed CCA reduces net rental income (T776) - Low net rental income reduces mortgage qualification - Strategy: do not claim CCA if the goal is to maximize qualifying income for a future mortgage
**Depreciation recapture**: Upon sale of the property, previously claimed CCA is 'recaptured': the recapture amount is added to ordinary income (not capital gain — therefore taxed at full marginal rate). Example: building purchased $500,000, $100,000 CCA claimed, sold $600,000 - Recapture: $100,000 → ordinary income (taxed at ~50%) - Capital gain: $100,000 ($600K - $500K) → 50% inclusion → taxed at ~25%
**Tip**: Work with a real estate-specialized accountant to optimize CCA based on holding horizon and marginal tax rates.