The CCA Dilemma: Why Your Real Estate Tax Strategy Could Cost You Later

Owning commercial real estate inside a corporation can be a great long-term strategy. But there’s a technical piece that’s often overlooked: Capital Cost Allowance (CCA).

Claiming (or not claiming) CCA isn’t just a small accounting choice. It can affect your current tax bill, your sale proceeds later on, and even your ability to access the small business deduction in other parts of your corporate structure.

Here’s what you need to know.

What is CCA and Why It Matters

CCA is Canada’s version of depreciation. It allows you to write off the value of a building over time, which reduces your taxable rental income.

That can be helpful—lower income means lower tax. But it’s not always that simple.

Claiming CCA gives you short-term relief, but it also creates a future tax liability. So it's important to think ahead before you decide to use it.

When It Makes Sense to Claim CCA

Here are a few situations where CCA can work in your favour:

1. You're Paying High Passive Income Tax

Rental income inside a corporation is taxed at passiverates—often over 50% in Ontario. Claiming CCA reduces your taxable income,which can bring down that tax bill.

2. You Want More After-Tax Cash in the Corp

Reducing tax means you keep more cash inside the company. That can help with mortgage payments, upgrades to the property, or other investments.

3. You're Holding the Property Long-Term

If you’re not planning to sell any time soon, you can defer the tax from CCA recapture—sometimes for years or even decades.

4. You Have Other Passive Income to Offset

If the corp owns other investments or properties, a rental loss from CCA can offset income from elsewhere, reducing overall tax.

When You Might Want to Hold Off on CCA

There are also good reasons to skip it—at least for now.

1. You're Thinking About Selling Soon

If you sell the building for more than its remaining tax value (UCC), any CCA you’ve claimed gets added back as income. That’s called recapture. It’s fully taxable and could lead to a large bill in one year.

2. You're Trying to Preserve the Small Business Deduction

If your HoldCo earns too much passive income, it can reduce the small business limit available to your OpCo. CCA doesn’t help with that test—so it could lower tax but still hurt you elsewhere.

3. You're Looking for Financing

Depreciation reduces accounting income. If you're applying for a loan or refinancing, it can make your financials look weaker than they are

4. You Want to Keep Your Options Open

Once you claim CCA, your UCC goes down and a future tax bill starts building. If you skip CCA, you keep more flexibility for planning later.

So What’s the Right Strategy?

There’s no single rule that works for everyone. But here’s how we often approach it:

• If a sale is likely in the next 5 years, it’s usually best to skip CCA.
• If you’re trying to preserve the small business deduction, it may not help—and in some cases, it can backfire.
• If you’re in a high-income year, or need to offset other passive income, claiming CCA might be worth it.
• You can also claim just enough to drop your passive income below certain thresholds—without using the full amount

The best way to know? Model both scenarios over the next 5–10 years and see which one gives the stronger after-tax result.

One Last Thing About CCA

CCA is optional. You decide every year whether to claim it. That gives you flexibility.

You can:

• Claim nothing (keep your UCC high)
• Claim some (reduce income but manage the future liability)
• Claim full (maximize tax deferral now

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But once the year is done, it’s done. If you skip it, you can’t go back and claim it later.

If you own commercial real estate in a corporation, don’t make the CCA decision in a vacuum. It’s a powerful tool—but it comes with trade-offs. Talk to your advisor, run the numbers, and make sure your strategy aligns with your bigger picture

Want help modeling the impact for your situation?

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Schedule a consultation with our team today. Let’s make sure you’re making the most of every opportunity.

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