Depreciation is the accounting method of spreading the cost of a tangible asset over its useful life, reflecting wear, age and obsolescence.
Depreciation recognises that a physical asset, a machine, vehicle or building, loses value as it is used, so its cost is expensed gradually rather than all at once. On the financial statements you choose a method (straight-line is most common) and a useful life to match the expense to the periods the asset helps generate revenue.
Depreciation on your statements is separate from the tax deduction. For tax, Canada uses capital cost allowance with rates fixed by class, which almost always differs from your book depreciation. The two are reconciled on the T2, and the tax version is the one that reduces your tax bill.
A $30,000 machine with a 10-year useful life is depreciated at $3,000 a year on the financial statements. For tax, the same machine is deducted through its CCA class at the prescribed rate, producing a different annual amount.
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