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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

Recourse Loan

A recourse loan is a type of loan where the lender can pursue the borrower’s personal assets, beyond the collateral, in the event of default.. more

Pari Passu

A pari passu clause is a contractual provision ensuring that multiple creditors share equally in repayment priority from the borrower’s assets.. more

Non-Recourse Loan

A non-recourse loan is a type of loan where the lender’s only remedy in case of default is to seize the collateral property; the borrower is not. more

Net Operating Income

Net operating income (NOI) is the total income generated by a property after operating expenses are deducted but before taxes and financing costs.. more

Mechanic's Lien

A mechanic’s lien is a legal claim by a contractor, subcontractor, or supplier for unpaid work or materials provided for a property.. more

Lis Pendens

Lis pendens is a legal notice filed in the land registry indicating that a property is subject to ongoing litigation that may affect its title.. more

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