When a depreciable fixed asset
is sold, its capital
cost allowance (CCA) class is reduced by deducting the lower
of its original cost, or its proceeds of sale. If, at the end of
a fiscal year, the balance of the class is negative, a gain has
occurred. This gain is referred to as a "recapture" of
CCA, and must be included in business or property income for the year.
Example:
original cost of an item
$15,000
sales proceeds of the item
$5,000
UCC of the CCA class beginning of
year
$4,000
disposal (lower of $5,000 and
$15,000)
($5,000)
balance of UCC after disposal
($1,000)
recapture added to income
$1,000
final UCC
$
0
The recapture of $1,000 is included in income, and the UCC of the class is then
zero.
Recapture rules do not apply to passenger vehicles
included in Class 10.1. See Passenger
vehicles - expense limitations on the Small Business
page re class 10.1 vehicles.
Tax Tip: When
recapture is expected, it is beneficial to purchase assets
for that class prior to
year-end, rather than wait until the following fiscal
year, in order to reduce or eliminate the
recapture.