The Half-Year Rule for Capital Cost Allowance (CCA)

The Half-Year Rule is a guideline set by the Canada Revenue Agency (CRA) that applies to newly acquired capital assets in the year they are purchased. This rule allows taxpayers to claim only 50% of the Capital Cost Allowance (CCA) for new additions in the first year.

Purpose:

The Half-Year Rule prevents a full CCA deduction in the year of purchase, recognizing that the asset was not used for the entire year.

How It Works:

In the first year you acquire a new asset, only 50% of the asset's cost is eligible for CCA.

In subsequent years, you can apply the full CCA rate to the remaining Undepreciated Capital Cost (UCC) without the Half-Year Rule.

Example 1:

If you buy machinery (Class 8, CCA rate of 20%) for $10,000:

Apply the Half-Year Rule: Only $5,000 (50% of $10,000) is eligible for CCA in the first year.

CCA Deduction: Multiply by the Class 8 rate (20%): $5,000 × 20% = $1,000 CCA deduction for the first year.

UCC for Future Years: The remaining balance ($10,000 - $1,000) = $9,000, which is the UCC carried forward for future CCA deductions.

Example 2:

Vivienne owns a business. On June 21, 2023, she bought two passenger vehicles to use in her business. Vivienne kept the following records for 2023:

Vehicle	Cost	GST	PST	Total
Number 1	$37,000	$1,850	$2,960	$41,810
Number 2	$28,000	$1,400	$2,240	$31,640

Vivienne puts vehicle 1 in Class 10.1, since she bought it in 2023 and it cost her more than $36,000. Before Vivienne enters an amount in column 3 of Area B, she has to calculate the GST and PST on $ 36,000 (this amount index to inflation). The calculations are as follows:

GST: 5% of $36,000 = $1,800

PST: 8% of $36,000 = $2,880

Column 3 Area B: Vivienne’s capital cost is $40,680 ($36,000 + $1,800 + $2,880).

Vehicle 2: Cost $28,000, GST $1,400, PST $2,240, Total $31,640. Vivienne puts this vehicle into Class 10 since it did not cost more than $36,000 (indexed to inflation). Column 3 Area B: Vivienne’s capital cost is $31,640 ($28,000 + $1,400 + $2,240).

Exceptions:

The Half-Year Rule does not apply to:

Assets that are sold during the year.

Certain acquisitions like assets eligible for the Accelerated Investment Incentive.

Vehicle classes: Class 54, Class 55, and Class 56.

For additional information, visit the Canada Revenue Agency: Canada Revenue Agency