You are self-employed and you have just replaced your laptop. Add a software licence, an external drive, two or three small tools: a few thousand dollars go out the door in a single afternoon. Then comes the question that returns every spring — do I deduct all of that this year, or do I spread it over several years? For this particular kind of purchase, the 2026 answer is more generous than most people expect.
Why a computer is not deducted like a ream of paper
The Canada Revenue Agency (CRA) sorts your business expenses into two families.
On one side, what gets consumed within the year: paper, fuel, your Internet plan. You subtract those amounts from your income in the year you pay them, and that is the end of it.
On the other side, lasting property. A computer serves you for several years. The CRA says so plainly on the page for line 9936 of form T2125: you cannot deduct the cost of such property all at once, but you can deduct it "over a period of several years".
That spread-out deduction has a name: capital cost allowance, or CCA. We have devoted an introductory article to it; what matters here is the principle, and it fits in one sentence. Every piece of lasting property falls into a numbered class, and the class sets the percentage you may deduct each year.
Two classes cover almost everything a self-employed person buys in order to work: Class 50 and Class 12.
Class 50: computer equipment, at 55%
The CRA defines Class 50 as property acquired after March 18, 2007 that is "general-purpose electronic data processing equipment and systems software for that equipment, including ancillary data processing equipment".
In plain words: your computer, whatever plugs into it to make it work, and the operating system sold with it. The rate is 55% a year.
Be careful about what "55% a year" means. It is not 55% of the purchase price every year. The calculation uses the declining balance method: you apply the rate to what is left to depreciate, not to the price you originally paid. The basic information about CCA page puts it this way: you "use the declining balance method to calculate your capital cost allowance (CCA), as it is the most common one".
The balance therefore melts away year after year without ever dropping to zero in one step. With a rate as high as 55%, most of the cost is nonetheless absorbed within two or three years.
Class 12: software and small tools, at 100%
Class 12 is the most generous of them all: its rate is 100%. Two things we care about belong to it.
Software, except systems software. The CRA is explicit: include in Class 12 at a rate of 100% software that is not systems software. The dividing line is easy to remember. Your machine's operating system belongs to Class 50, along with the hardware. The software you buy afterwards in order to work — accounting, editing, design — belongs to Class 12.
Small tools costing less than $500. Class 12 includes "tools, medical or dental instruments, and kitchen utensils that cost less than $500" and that were acquired on or after May 2, 2006.
That threshold is assessed tool by tool, and it matters. A tool costing $500 or more falls into Class 8, which groups furniture, appliances and "tools costing $500 or more" at a rate of only 20%. Between $499 and $501, the tax treatment is not the same.
The half-year rule, and the incentive that suspends it
One obstacle remains, and it is the one most people overlook.
The baseline rule is called the half-year rule. The CRA states it simply: in the year you acquire your property, "you can usually claim CCA only on one-half of your net additions to a class". In the first year, then, you count only half of your purchase.
Except that a federal measure puts it on hold. The accelerated investment incentive provides for "suspending the CCA half-year rule" for property acquired after November 20, 2018 that is "available for use before 2028". Available for use means installed and usable — not merely invoiced.
In its place, you get an enhanced allowance in the first year. It was originally worth three times the normal first-year deduction. Since 2024, the incentive has been phasing out and that factor has come back down to two times.
Do the arithmetic: two times half a rate is the whole rate. For property available for use in 2026, the first year is therefore calculated at the class's full rate, on the full cost.
Two clarifications before moving on. First, the half-year rule has not disappeared: it remains the baseline rule, the incentive merely suspends it, and that incentive expires with 2028. Second, most small tools in Class 12 were never subject to it anyway — the CRA specifies that "most small tools in Class 12 are not subject to the half-year rule", the exceptions being dies, jigs, patterns, moulds and lasts, as well as the cutting or shaping parts of a machine.
Note finally that Classes 54 and 55, the zero-emission vehicle classes, are excluded from this incentive: they have their own regime, set out in our article on CCA for an electric vehicle.
Three purchases, three treatments
Here is what the rules above produce for property available for use in 2026.
| What you buy | Class | Annual rate | First-year deduction |
|---|---|---|---|
| Computer, ancillary equipment, systems software | 50 | 55% | 55% of cost |
| Software other than systems software | 12 | 100% | 100% of cost |
| Small tool costing less than $500 | 12 | 100% | 100% of cost |
| Tool costing $500 or more | 8 | 20% | 20% of cost |
Take an example in round numbers. In 2026 you buy a $2,400 laptop, a $600 accounting software licence and a few small tools for $200.
The software and the tools are deducted in full in the first year: $600 and $200. The laptop falls into Class 50: you deduct 55% of $2,400, or $1,320. That leaves $1,080 to depreciate, on which you will deduct 55% the following year, or $594, and so on against the remaining $486.
In the first year you have therefore deducted $2,120 of the $3,200 you spent — two thirds of it, on a single return.
What the deduction is actually worth
A deduction is not a refund. It reduces your taxable income, and what you actually save is that amount multiplied by your marginal rate — the tax rate that applies to your last dollar earned, not to your income as a whole.
The gap is real. On the $2,120 in the example, a marginal rate of 36% saves you roughly $763 in tax. At 27%, the same deduction is worth about $572.
That is why the first thing to know is not the property's class but your own marginal rate. Our Quebec net salary calculator shows it from your income.
Where all of this goes
A self-employed person's CCA is calculated and reported on form T2125. The CRA points to one precise place: "To determine the CCA, go to Area A – Calculation of capital cost allowance (CCA) claim." The result of that area is carried to line 9936.
Three habits are worth adopting at the moment of purchase:
- File the invoice as you incur it, noting the intended class. A year later, telling the operating system apart from software bought separately becomes archaeology.
- Check each tool against the $500 threshold, tool by tool and not invoice by invoice. That threshold is what separates 100% from 20%.
- Remember the available-for-use date, not the invoice date. A computer paid for in December but unboxed in January belongs to the following year.
Frequently asked questions
Is a $2,400 computer fully deducted in the first year?
No. A computer falls into Class 50, whose CCA rate is 55% a year, applied on the declining balance. On $2,400 you therefore deduct $1,320 in the first year, then 55% of the remaining $1,080 the following year, or $594. The good news: thanks to the accelerated investment incentive, property available for use in 2026 escapes the half-year rule, so that first deduction is calculated at the full rate rather than on half the cost.
What is the difference between Class 12 software and Class 50 software?
It is the distinction between systems software and application software. The operating system sold with your machine follows the hardware into Class 50, at 55% a year. Any other software — accounting, editing, design — goes into Class 12, at 100%. The CRA directs you to include in Class 12 at a rate of 100% software that is not systems software.
Are small tools costing less than $500 deducted in full in the first year?
Yes. They fall into Class 12, whose rate is 100%, and the CRA specifies that "most small tools in Class 12 are not subject to the half-year rule". There are named exceptions: dies, jigs, patterns, moulds and lasts, as well as the cutting or shaping parts of a machine.
Which class does a tool costing $500 or more fall into?
Class 8, at a rate of 20% a year. The CRA places there furniture, appliances and "tools costing $500 or more". The threshold is assessed tool by tool and not invoice by invoice: it is what separates a 100% deduction from a 20% one.
Does the half-year rule still apply in 2026?
It remains the baseline rule, but it is suspended for most purchases. The accelerated investment incentive provides for "suspending the CCA half-year rule" for property acquired after November 20, 2018 and available for use before 2028. Since 2024, the enhanced first-year allowance is worth two times the normal deduction instead of three times — which amounts, for property available for use in 2026, to deducting at the class's full rate.
Where does capital cost allowance go on my return?
On form T2125, the business or professional income form. The CRA states: "To determine the CCA, go to Area A – Calculation of capital cost allowance (CCA) claim." The result of that area is then carried to line 9936 of the form.