CCA recapture and terminal losses when you sell depreciable property
Recaptured depreciation and terminal losses
Section 13 governs what happens when you sell depreciable property — if the proceeds exceed the remaining undepreciated capital cost (UCC), you have recaptured CCA (income); if UCC exceeds proceeds, you may have a terminal loss (deductible).
Plain-language explanation
When you sell depreciable property (vehicles, equipment, buildings), Section 13 determines the tax consequences based on how the sale price compares to the remaining undepreciated capital cost (UCC) in that CCA class.
Recaptured CCA (s.13(1)): If total proceeds from selling property in a class exceed the remaining UCC balance, you have "recaptured depreciation." This amount is included in income. Recapture occurs because you previously deducted more CCA than the actual decline in value.
Terminal loss (s.20(16)): If you have no more property in a CCA class and the UCC balance is still positive, you can deduct the remaining balance as a terminal loss. This recovers the cost of property whose value declined more than the CCA claimed.
Exception — buildings (Class 1, 3, 6): Terminal losses on buildings are not allowed (s.20(16)(c)) unless you also sold the land. This prevents converting capital losses into terminal losses for buildings still standing.
Capital gain interaction: Recaptured CCA and capital gains are separate. If you sell a building for more than its original cost, you have both recaptured CCA (original cost minus UCC) and a capital gain (sale price minus original cost). Both are taxable but at different rates.
Example
TechCorp buys a computer (Class 10) for $10,000. It claims $4,500 in CCA over three years, reducing the UCC to $5,500. It then sells the computer for $7,000. The $1,500 excess over UCC ($7,000 − $5,500) is recaptured CCA, included in income. There is no capital gain because the proceeds ($7,000) are below the original cost ($10,000).
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Accelerated Investment Incentive introduced — increases CCA in year of acquisition, which can reduce or eliminate recapture for short-held assets.
Common questions
How is recaptured CCA taxed? +
Recaptured CCA is included in ordinary income — it is not a capital gain. It is taxed at your full marginal rate. For a corporation, it is taxed at the full corporate rate, not the preferential capital gains rate.
Can I avoid recapture by buying new equipment? +
If you buy a replacement asset in the same CCA class before year-end, the proceeds from the sale increase the class balance rather than triggering recapture until the class is fully disposed of. Timing acquisitions and disposals within the same CCA class can defer recapture.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 13. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.