Rental - classes of depreciable property

The following explains the most common classes of depreciable rental property and the rates that apply to each class. Also included are the classes and rates for motor vehicle expenses.

• Class 1 (4%)
• Class 3 (5%)
• Class 6 (10%)
• Class 8 (20%) (also see Note)
• Class 10 (30%)
• Class 13
• Class 31 (5%) and Class 32 (10%)
• Class 38 (30%)
• Class 45 (45%)
• Class 50 (55%)
• Class 52 (100%)

Land
Your land is not depreciable property. Therefore, when you acquire rental property, only include the cost of the building in Area A and Area C of Form T776, Statement of Real Estate Rentals. Enter on line 9923 in Area F of Form T776 the cost of all land additions in 2012. For more information, see Area F and Column 3 - Cost of additions in the year.

Buildings
A rental building may belong to class 1, 3, 6, 31, or 32, depending on what the building is made of and the date you acquire it.

Condominiums
A condominium unit in a building belongs to the same class as the building. For example, if you own a condominium in a Class 3 building, the unit in the building is Class 3 rental property. If the whole building qualifies as a Class 31 or Class 32 rental property (a MURB), then each unit within the building is a Class 31 or Class 32 rental property. For more information, see Interpretation Bulletin IT-304, Condominiums.

Leasehold interest in real property that is a rental property
A leasehold interest is the interest of a tenant in any leased tangible property.

If you are a taxpayer or partnership and own a leasehold interest in a real property that is a rental property, include the leasehold interest in class 1, 3, 6, or 13 (or class 3, 6, or 13 for tax years before 1988).

It may be necessary in some situations to divide the capital cost of a leasehold interest into more than one prescribed class. For example, where you expend an amount to obtain a leasehold interest in land and construct a building that falls into Class 3, the capital cost of acquiring the lease will be included in Class 13 and the capital cost of the building will be included in Class 3.

Note (Class 8)
When all the property in the class is disposed of, the undepreciated capital cost (UCC) is fully deductible as a terminal loss.

Class 13

The capital cost of a leasehold interest of Class 13 property includes:

• an amount that a tenant expends in respect of improvements or alterations to a leased property that are capital in nature, other than improvements or alterations that are included as a building or structure; and
• an amount that a tenant expends to obtain or extend a lease or sublease or pays to the landlord to permit the sublease of the property.

The maximum CCA rate depends on the type of leasehold interest and the terms of the lease.

Certain amounts are not included in the capital cost of a leasehold interest. These include:

• an amount paid by a tenant to cancel a lease; and
• an amount paid by a tenant in lieu of rent or as a prepayment of rent.

For more information, see Interpretation Bulletin IT-464, Capital Cost Allowance - Leasehold Interests.

Class 31 (5%) and Class 32 (10%)

Class 31 and Class 32 include multiple unit residential buildings (MURB) certified by the Canada Mortgage and Housing Corporation (CMHC) to which all the following conditions apply:

• they are located in Canada;
• they contain two or more units; and
• they provide their occupants with a relatively permanent residence.

If the whole building qualifies as a Class 31 or Class 32 rental property (a MURB), then each unit within the building is a Class 31 or Class 32 rental property.

To be included in Class 31 with a CCA rate of 5%, the building must have been acquired after 1979 and before June 18, 1987. To be included in Class 32 with a CCA rate of 10%, the building must have been acquired before 1980.

Note
For 1994 and following years, you can no longer create or increase a rental loss by claiming CCA on a Class 31 or Class 32 property.

When a MURB no longer qualifies as a Class 31 or Class 32 rental property, you have to transfer it to the correct class.

For more information about the 1994 change in the CCA limit on MURBs, see Interpretation Bulletin IT-195, Rental Property - Capital Cost Allowance Restrictions.

Forms and publications

• Guide T4036, Rental Income
• Guide T4002, Business and Professional Income
• Form T776, Statement of Real Estate Rentals
• Interpretation Bulletin IT-79, Capital Cost Allowance - Buildings or Other Structures
• Interpretation Bulletin IT-195, Rental Property - Capital Cost Allowance Restrictions
• Interpretation Bulletin IT-304, Condominiums
• Interpretation Bulletin IT-464, Capital Cost Allowance - Leasehold Interests
• Interpretation Bulletin IT-478, Capital Cost Allowance - Recapture and Terminal Loss

Related topics

• Canada Mortgage and Housing Corporation (CMHC)
• Column 3 - Cost of additions in the year
• Line 9281 - Motor vehicle expenses
• Line 9948 - Terminal loss
• Type of vehicle you own or lease
• Vehicle definitions chart