Disposing of a building in the year

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

• you disposed of the building for an amount less than both its cost amount, as calculated below, and its capital cost to you
• you, or a person with whom you have a non-arm's length relationship, owned the land that 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 the 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:

A ÷ B × C = D

where:
A = capital cost of the building
B = capital cost of all property in the class not previously disposed of
C = UCC of the class
D = 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 below.

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 as shown in Calculation B below.

Calculation A – Land and building disposed of in the same year

1. Fair market value (FMV) of the building when you disposed of it

\$ Blank space for dollar value
Line 1

2. FMV of the land just before you disposed of it

+ \$ Blank space for dollar value
Line 2

3. Line 1 plus line 2

= \$ Blank space for dollar value
>
\$ Blank space for dollar value
Line 3

4. Seller's adjusted cost base of the land

\$ Blank space for dollar value
Line 4

5. Total capital gains (without reserves) from any disposition of the land (such as a change in use) by you, or by a person not dealing at arm's length with you, in the three-year period before you disposed of the building, to you or to another person not dealing at arm's length with you

− \$ Blank space for dollar value
Line 5

6. Line 4 minus line 5 (if negative, enter "0")

= \$ Blank space for dollar value
Line 6

7. Line 2 or line 6, whichever amount is less

− \$ Blank space for dollar value
Line 7

8. Line 3 minus line 7 (if negative, enter "0")

= \$ Blank space for dollar value
Line 8

9. Cost amount of the building just before you disposed of it

\$ Blank space for dollar value
Line 9

10. Capital cost of the building just before you disposed of it

\$ Blank space for dollar value
Line 10

11. Line 9 or line 10, whichever amount is less

\$ Blank space for dollar value
Line 11

12. Line 1 or line 11, whichever amount is more

\$ Blank space for dollar value
Line 12

Deemed proceeds of disposition of the building

13. Line 8 or line 12, whichever amount is less (enter the amount from line 13 in column 3 of Area E and include it in column 5 of Area A)

\$ Blank space for dollar value
Line 13

Deemed proceeds of disposition of the land

14. Proceeds of disposition of the land and building

\$ Blank space for dollar value
Line 14

15. Amount from line 13

− \$ Blank space for dollar value
Line 15

16. Line 14 minus line 15 (enter this amount at line 9924 of Area F)

= \$ Blank space for dollar value
Line 16

If you have a terminal loss on the building, include it on line 9270 of form T2125 for business and professional, line 9790 of form T2042 for farming, or line 9270 of form T2121 for fishing.

Calculation B – Land and building disposed of in different years

1. Cost amount of the building just before you disposed of it

\$ Blank space for dollar value
Line 1

2. FMV of the building just before you disposed of it

\$ Blank space for dollar value
Line 2

3. Line 1 or line 2, whichever amount is more

\$ Blank space for dollar value
Line 3

4. Actual proceeds of disposition, if any

− \$ Blank space for dollar value
Line 4

5. Line 3 minus line 4

= \$ Blank space for dollar value
Line 5

6. Amount from line 5

\$ Blank space for dollar value
× 1/2
= \$ Blank space for dollar value
Line 6

7. Amount from line 4

+ \$ Blank space for dollar value
Line 7

Deemed proceeds of disposition for the building

8. Line 6 plus line 7 (enter this amount in column 3 of Area E and include it in column 5 of Area A)

= \$ Blank space for dollar value
Line 8

If you have a terminal loss on the building, include it on line 9270 of form T2125 for business and professional, line 9790 of form T2042 for farming, or line 9270 of form T2121 for fishing.

Usually, you can deduct 100% of a terminal loss, but only 50% of a capital loss. Calculation B makes sure 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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