CCA, interest, and other permitted business deductions
Deductions permitted in computing income from business or property
Section 20 permits specific deductions from business or property income that would otherwise be blocked by s.18's general restrictions — most importantly Capital Cost Allowance (CCA) and interest on money borrowed to earn income.
Plain-language explanation
Section 20 provides an exhaustive list of deductions that are *specifically permitted* even though they might otherwise be caught by s.18's restrictions on capital expenditures or other limits. The most important provisions:
s.20(1)(a) — Capital Cost Allowance (CCA): Depreciable property (equipment, vehicles, buildings, computers) cannot be expensed immediately. Instead, you deduct a percentage of the cost each year under CCA. Rates are set by regulation and vary by class (e.g., Class 10 vehicles at 30%, Class 14.1 intangibles at 5%).
s.20(1)(c) — Interest deduction: Interest paid on money borrowed to earn income from business or property is deductible. The "use" test is key — the borrowed money must be *currently* used to earn income. If you repay the loan or the investment stops earning income, the deduction may be lost.
s.20(1)(e) — Financing costs: Issuance costs on debt (legal fees, underwriting fees) are deductible at 20% per year.
s.20(1)(m) — Reserve for unearned income: Businesses that collect cash before performing services can defer recognition by claiming a reserve.
Half-year rule: In the year you acquire depreciable property, you can only claim half the normal CCA (the "half-year rule" or "Accelerated Investment Incentive").
Example
Singh Consulting buys a computer (Class 10, 30% CCA) for $3,000 on July 1, 2026. In 2026, the half-year rule limits CCA to 150% × $3,000 × 30% = $1,350 (with the Accelerated Investment Incentive it may be higher). The UCC carries forward for future years.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Accelerated Investment Incentive (AII) introduced — allows 1.5× the normal first-year CCA rate in the year of acquisition, effectively eliminating the half-year rule for most property acquired after November 20, 2018.
Before
Half-year rule: only 50% of normal CCA rate in year of acquisition
After
AII: 1.5× normal rate in year of acquisition (3× for M&P and clean energy equipment)
Full expensing introduced for eligible depreciable property (manufacturing/processing, clean energy, zero-emission vehicles). 100% CCA in year of acquisition, phased out after 2023.
Before
AII at 1.5× rate
After
100% immediate expensing on up to $1.5M of eligible property
Common questions
What is the difference between CCA and depreciation? +
They serve the same purpose (spreading the cost of an asset over its useful life) but CCA is the tax version with rates fixed by regulation. Accounting depreciation follows GAAP/IFRS. CCA rates may differ significantly from accounting depreciation — you use CCA on your tax return, not your accounting depreciation.
Can I deduct interest on money borrowed to buy RRSP investments? +
No. RRSP investments do not earn "income from business or property" in a tax sense — RRSP income is tax-sheltered. Interest on money borrowed to contribute to an RRSP is not deductible under s.20(1)(c). The borrowed money must be used in a non-registered investment or business.
What happens to CCA if I sell a depreciable asset? +
If the proceeds exceed your undepreciated capital cost (UCC), you have recaptured CCA — income you must recognize. If the UCC exceeds proceeds, you have a terminal loss, which is deductible. These rules are in ss.13 and 20(16).
Key terms
Related sections
Related calculators
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 20. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.