In a few cases, you can postpone or defer adding a capital gain or recapture of capital cost allowance (CCA) to income. You might sell a business property and replace it with a similar one, or your property might be stolen, destroyed, or expropriated and you replace it with a similar one. You can defer tax on the sale proceeds which you reinvest in replacement property within a reasonable period of time. To defer reporting the capital gain or recapture of CCA, you must acquire and you, or a person related to you, must use the new property for the same or similar purpose as the one that you are replacing.
You can also defer a capital gain or recapture of CCA when you transfer property to a corporation or a partnership.
When Cathy bought her new car in May 2017, it cost $16,000 including all charges and taxes. Since the car was $30,000 or less, she includes the car in Class 10 . She was allowed a $1,000 credit when she traded in her old car (which was also in Class 10). Her undepreciated capital cost (UCC) on the old car at the start of 2017 was $1,000. Cathy knows that her personal use of the car will vary each year.
Cathy has a desk, calculator, filing cabinets, and shelves in her store. These are Class 8 depreciable properties. The UCC of these properties at the start of 2017 is $5,000. She did not buy any Class 8 properties in 2016.
Therefore, she fills in Form T2125, as in this example.
Since Cathy used the car partly for personal use, she calculates the amount to include on line 9936, capital cost allowance for her car as follows:
(25,000 (business kilometres) ÷ 30,000 (total kilometres) ) × $2,550 = $2,125
The most that Cathy can claim for CCA for 2016 is $2,125 for her car and $1,000 for the Class 8 properties. She wants to claim the maximum CCA allowed to her in 2017. She enters $3,125 on line 9936 in Part 4 of Form T2125.
Forms and publications
- Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income
- Form T2125, Statement of Business or Professional Activities
- Income Tax Folio S3-F3-C1, Replacement Property
- Information Circular IC76–19R3, Transfer of Property to a Corporation Under Section 85
- Interpretation Bulletin IT-291R3, Transfer of Property to a Corporation Under Subsection 85(1)
- Interpretation Bulletin IT-378R, Winding-up of a Partnership
- Interpretation Bulletin IT-413R, Election by Members of a Partnership Under Subsection 97(2)
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