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Recapture

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Glossary ->
     Small Business  -> Recapture

Recapture

Income Tax Act s. 13(1)

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.

Revised: September 19, 2017

 

 

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