CRA's own T4036 rental-income guide puts most rental buildings in CCA Class 1 at a 4% declining-balance rate, halves the first year under the half-year rule, caps every year's claim so it can never create a rental loss, and recaptures whatever you claimed into ordinary income — or lets you claim a terminal loss — when you dispose of the property.
What CRA's own guide says
A rental building may belong to CCA Class 1, 3, 6, 31 or 32, depending on what it's made of and when you acquired it; Class 1 at 4% declining balance is the default for most rental buildings, while Class 8 at 20% covers other rental property — furniture, appliances, equipment — not the building itself. CRA states the half-year rule plainly: in the year you acquire rental property, you can usually claim CCA only on one-half of your net additions to a class.
| Class | Rate | Covers |
|---|---|---|
| Class 1 | 4% declining balance | Most rental buildings |
| Classes 3, 6, 31, 32 | Varies by construction material and acquisition date | Certain older or specific-construction buildings — see T4036 |
| Class 8 | 20% declining balance | Furniture, appliances, equipment — not the building |
Class assignment depends on the building's material and the date you acquired it; do not treat Class 1 as universal without checking T4036.
A worked example, using CMHC's own Toronto rent data
Recapture is ordinary income; the property's capital gain is a separate number
On disposal, CRA requires adding a recapture of CCA to income if proceeds exceed the undepreciated capital cost, or deducting a terminal loss if proceeds are less than the remaining UCC — recapture is taxed at your full marginal rate, not a preferential rate. That's a distinct number from the capital gain on the property's appreciation, which stayed at the one-half capital gains inclusion rate after the government cancelled the proposed increase to two-thirds in March 2025. Every dollar of CCA claimed today at your marginal rate comes back as ordinary income at your marginal rate on sale — which is why the decision to claim is really a bet on your bracket now versus your bracket in the year you sell.
Sell within 365 days and the property-flipping rule can override the capital-gains question entirely
A property owned for less than 365 consecutive days before disposition is "flipped property" under CRA's rule effective for transactions on or after January 1, 2023, and the gain is deemed fully taxable business income — no capital gains treatment, no principal residence exemption. That rule doesn't touch CCA recapture, which still applies in full as ordinary income regardless of how long you held the property, but it does remove the very capital-gains-rate treatment that a CCA claim/no-claim decision is normally weighed against. Life-event exceptions exist — death, separation, job loss, and others CRA lists — that restore the ordinary facts-and-circumstances test.
If part of the property was ever your home
The principal residence exemption applies only if a property was solely your principal residence for every year you owned it; a rental portion of a house-hacked property does not qualify for that exemption for the rental-use years or space, regardless of whether CCA was claimed on it. Since the 2016 tax year, CRA only allows the exemption at all if the disposition and designation are reported on the return, via Schedule 3 and Form T2091(IND) — a step that's easy to miss on a property that was only partly rented.
Model the CCA decision alongside the rest of the hold
The CCA claim/no-claim decision doesn't sit in isolation — it changes both your annual cash flow and your tax bill in the sale year. Run the property's full income and expenses through the rental property ROI calculator to see whether net rental income before CCA is even positive, then model the disposition — recapture plus the capital gain — with the capital gains tax calculator before deciding whether to claim.
Methodology
CCA mechanics and classes are quoted directly from CRA's T4036 rental-income guide. The worked example combines CRA's stated formula with CMHC's own October 2025 Toronto rent figures — it is arithmetic on two verified sources, not a market claim of its own. Capital gains, property-flipping, and principal-residence figures come from the Prime Minister's Office capital-gains announcement and CRA's own lines/rules, all retrieved 2026-09-21.
Sources
- Canada Revenue Agency — T4036 Rental Income, Capital Cost Allowance — accessed 2026-09-21
- CMHC — Rental Market Survey Data Tables, Toronto, 2025 — accessed 2026-09-21
- Prime Minister of Canada — Carney cancels proposed capital gains tax increase — accessed 2026-09-21
- Canada Revenue Agency — Residential Property Flipping Rule — accessed 2026-09-21
- Canada Revenue Agency — Principal residence and other real estate (line 12700) — accessed 2026-09-21