Disposing of a building

If you disposed of a building in the current tax year, special rules may apply making the proceeds of disposition an amount other than the actual proceeds of disposition. This happens when you meet both the following conditions:

  • you disposed of the building for an amount less than its cost amount, as calculated below, and its capital cost to you
  • you, or a person with whom you do not deal at arm's length, owned the land the building is on or the land next to it, which was necessary for the building's use

To calculate the cost amount:

  • if the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of that class before you disposed of the building
  • if more than one property is in the same class, you have to calculate the cost amount of each building as follows:
    • Capital cost of the building ÷ capital cost of all the properties in the class not previously disposed of × UCC of the class = Cost amount of the building

Note

If a building acquired in a non-arm's length transaction was previously used for something other than producing income, the capital cost of the property will need to be recalculated to determine the cost amount of the building.

If you disposed of a building under these conditions and you or a person with whom you do not deal at arm's length disposed of the land in the same year, calculate your deemed proceeds of disposition as shown in Calculation A. If you or, a person with whom you do not deal at arm's length, did not dispose of the land in the same year as the building, calculate your deemed proceeds of disposition for the building as shown in Calculation B.

Usually, you can deduct 100% of a terminal loss, but only 50% of a capital loss. Calculation B makes sure that you use the same percentage to calculate both a terminal loss on a building and a capital loss on land. As a result of this calculation, you add 50% of the amount on line 5 to the actual proceeds of disposition from the building.

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