Example for the calculation of recapture of CCA and terminal loss

In 2014, 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 2020. The class has a UCC of $6,000. He sold the piece of machinery in 2020 and did not buy any other property in that class. The following situations give you 3 different selling prices (proceeds of disposition) to show how Peter would handle each situation (A, B, and C).

Situation A

Peter sells the machinery for $4,000 (proceeds of disposition) and because this amount is less than the original capital cost of $10,000, there is no capital gain. Peter subtracts the CCA claimed in previous years from the original capital cost, and his UCC at the beginning of 2020 is $6,000 ($10,000 - $4,000). He subtracts $4,000 (the lesser of the proceeds of disposition of the property minus the related outlays and expenses; or the capital cost of the property) from his UCC and is left with a terminal loss of $2,000 ($6,000 - $4,000) which he can deduct from his business income.

Situation B

Peter sells the machinery for $8,000 (proceeds of disposition) and because this amount is less than the original capital cost of $10,000, there is no capital gain. In this situation, the UCC is also $6,000 ($10,000 - $4,000). He subtracts $8,000 (the lesser of the proceeds of disposition of the property minus the related outlays and expenses; or the capital cost of the property) from his UCC and is left with a recapture of CCA of $2,000 ($6,000 - $8,000) that he has to include in his business income

Situation C

Peter sells the machinery for $12,000 (proceeds of disposition) and because this amount is more than the original capital cost of $10,000, Peter has a capital gain of $2,000. In this situation, the UCC is also $6,000 ($10,000 - $4,000). He subtracts $10,000 (the lesser of the proceeds of disposition of the property minus the related outlays and expenses; or the capital cost of the property) from his UCC and is left with a recapture of CCA of $4,000 ($6,000 - $10,000) that he has to include in his business income.

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