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Terminal Loss

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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, its capital cost allowance (CCA) class is reduced by deducting the lower of its original cost, or its proceeds of sale.  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".

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 on the Small Business page 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:  Note that if any 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: April 25, 2016

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