Depreciable property
When you dispose of depreciable property, you may have a capital gain. In addition, certain rules on capital cost allowance (CCA) may require that you add a recapture of CCA to your income or allow you to claim a terminal loss.
Capital gain
Usually, you will have a capital gain on depreciable property if you sell it for more than its adjusted cost base plus the outlays and expenses incurred to sell the property.
Note
A loss from the sale of depreciable property is not considered to be a capital loss. However, you may be able to claim a terminal loss.
Recapture of CCA and terminal losses
This section will provide you with a general look at the rules for the recapture of CCA and terminal losses.
Note
These rules do not apply to passenger vehicles in Class 10.1.
When you sell a depreciable property for less than its original capital cost, but for more than the undepreciated capital cost (UCC) in its class, you do not have a capital gain.
Generally, the UCC of a depreciable property class is the total capital cost of all the properties of the class, minus the total CCA you claimed in previous years. If you sell depreciable property in a year, you also have to subtract from the UCC one of the following amounts, whichever is less:
- the proceeds of disposition of the property, minus the related outlays and expenses
- the capital cost of the property
If the UCC of a class has a negative balance at the end of the year, this amount is considered to be a recapture of CCA. Include this recapture in your income for the year of sale.
If the UCC of a class has a positive balance at the end of the year and you do not have any properties left in that class, this amount is a terminal loss. Unlike a capital loss, you can deduct the full amount of the terminal loss from your income in that year.
If the balance for the UCC of a class is zero at the end of the year, then you do not have a recapture of CCA or a terminal loss.
See example below that shows the calculation of recapture or terminal loss.
Example for the calculation of recapture of CCA and terminal loss
In 2018, Peter bought a piece of machinery at a cost of $10,000 for his business. It is the only property in its class at the beginning of 2023. The class has a UCC of $6,000. He sold the piece of machinery in 2023 and did not buy any other property in that class. The following chart gives you three different selling prices (proceeds of disposition) to show how Peter would handle each situation (A, B, and C).
| Description | A($) | B($) | C($) |
|---|---|---|---|
| Calculation of capital gain | |||
| Proceeds of disposition | 4,000 | 8,000 | 12,000 |
| Minus: Capital cost | – 10,000 | – 10,000 | – 10,000 |
| Capital gain | = 0 | = 0 | = 2,000 |
| Calculation of terminal loss (or recapture of CCA) | |||
| Capital cost | 10,000 | 10,000 | 10,000 |
| Minus: CCA 2014 – 2022 | – 4,000 | – 4,000 | – 4,000 |
| UCC at the beginning of 2023 | = 6,000 | = 6,000 | = 6,000 |
| Minus the lesser of: | |||
| The capital cost of $10,000 and the proceeds of disposition | – 4,000 | – 8,000 | – 10,000 |
| Terminal loss (or recapture of CCA) | = 2,000 | = (2,000) | = (4,000) |
In situation A, Peter does not have a capital gain. However, he does have a terminal loss of $2,000, which he can deduct from his business income.
In situation B, Peter does not have a capital gain. However, he does have a recapture of CCA of $2,000 that he has to include in his business income.
In situation C, Peter has a capital gain of $2,000. He also has a recapture of CCA of $4,000 that he has to include in his business income.
Completing your Schedule 3
When you dispose of property included in CCA Class 14.1, you may qualify to make an election to treat the disposition as a capital gain, which you would report on lines 13599 and 13800 of Schedule 3. For more information, see Disposing of property included in capital cost allowance Class 14.1.
Forms and publications
The following guides contain information about CCA and how to report a recapture of CCA or a terminal loss:
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