Business -> Terminal loss
Terminal Loss
Income Tax Act s. 20(16), 20(16.1), 13(21.2)(e)i)
When a depreciable fixed asset is sold or otherwise disposed of, its capital cost allowance (CCA) class is reduced by deducting the lower of its original cost, or its proceeds of disposition (net of any costs incurred for the purpose of making the disposition). If all the assets in a class have been sold, but at the end of the fiscal year there is still a balance of undepreciated capital cost (UCC) remaining in the class, this balance can be fully written off against business or property income as a "terminal loss".
If the terminal loss exceeds other income, it can be carried back or forward to other taxation years as a non-capital loss.
A terminal loss is not deductible in some situations, such as when a "luxury vehicle" in class 10.1 is sold. See Passenger vehicles - expense limitations re class 10.1 vehicles.
Example:
| original cost of an item | $15,000 | |
| sales proceeds of the item | $5,000 | |
| UCC of the CCA class beginning of year | $8,000 | |
| disposal (lower of $5,000 and $15,000) | ($5,000) | |
| balance of UCC after disposal | $3,000 | |
| terminal loss | ($3,000) | |
| final UCC | $ 0 | |
The allowed terminal loss is $3,000, and the UCC of the class is then zero.
Tax Tip: If another asset had been purchased and added to the class just prior to year-end, there would be no terminal loss allowed because there would still be an asset left in the class. In this case it would be beneficial to postpone the purchase of the new asset until after year-end.
Revised: October 26, 2023