What do the terms recapture of Capital Cost Allowance (CCA) and Terminal Loss mean?

Question:

My company sold capital assets (including a building, furniture and equipment). I see the terms “Recapture” and “Terminal Loss” on my corporate tax return, what do these mean?

Answer:

When you purchase capital assets (e.g. vehicles, buildings, furniture, computers, equipment), the Canada Revenue Agency (CRA) applies specific depreciation (CCA) rates. The rates are a medium to represent the declining value of the asset each year.

When an asset is disposed of during the year, its selling price is compared to the undepreciated value of the asset. If the selling price is lower than the undepreciated value, the difference is called a terminal loss. The terminal loss is a tax deduction on the corporate tax return.

If the selling price exceeds the undepreciated value, the excess is called recapture and is included in income.

ABOUT THE AUTHOR

ALLAN MADAN

CA.CPA.CGA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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