Depreciation

Explore how depreciation works in Canadian real estate, how it affects insurance, investment taxes, and how it’s calculated for assets and property value.

Depreciation

May 22, 2025


What is Depreciation?

Depreciation is the reduction in the value of a property or asset over time due to wear and tear, aging, or market conditions.

Why Depreciation Matters in Real Estate

In Canadian real estate, depreciation plays an important role in property valuation, insurance claims, investment accounting, and taxation.


Depreciation affects:
  • Actual Cash Value (ACV) of insurance claims
  • Capital cost allowance for rental properties
  • Resale value and maintenance planning


For investment properties, the Canada Revenue Agency (CRA) allows owners to claim depreciation (called capital cost allowance) as a tax deduction, although it may affect capital gains tax on sale.


Understanding depreciation helps owners plan maintenance, assess insurance claims, and track asset value over time.

Example of Depreciation in Action

An older furnace is worth less today than when it was installed. Depreciation is deducted from its value in an insurance claim after a fire.

Key Takeaways

  • Reflects wear and aging over time.
  • Lowers insurance payouts under ACV.
  • Impacts taxes for investment properties.
  • Important for asset and claim evaluations.
  • Can affect resale value.

Related Terms

  • Actual Cash Value
  • Capital Cost Allowance
  • Replacement Cost
  • Home Insurance
  • Property Value

Additional Terms

Budgeting

Budgeting in real estate refers to the process of forecasting and managing income and expenses associated with owning, operating, or developing a property.. more

Tenant Improvements

Tenant improvements refer to custom modifications or build-outs made to a leased space to suit the tenant’s operational needs, often negotiated as. more

Highest and Best Use

Highest and best use refers to the reasonably probable use of a property that results in the highest value, provided it is legally permissible,. more

Gross Lease

A gross lease is a commercial lease where the tenant pays a fixed rent, and the landlord covers most or all operating expenses such as property. more

Brownfield

A brownfield is a property that was previously used for industrial or commercial purposes and is now vacant or underused, often requiring. more

Record of Site Condition (RSC)

A Record of Site Condition (RSC) is a formal document filed with a provincial environmental authority certifying that a property meets required. more

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