Recapture (of CCA)

Capital cost allowance claimed in earlier years that is added back to income when a rental sells for more than its undepreciated cost.

Recapture is the reversal of capital cost allowance (CCA) when depreciable rental property is sold. It applies to buildings and equipment, not land. CCA lowers the undepreciated capital cost (UCC) of a class each year. If the sale shows the property did not lose that much value, the excess deductions are added back to income.

On the CCA chart, you subtract the lower of two amounts: the sale proceeds minus selling costs, or the property's original capital cost. If the class balance at year end is negative, that negative amount is recapture. It is reported on line 9947 of Form T776 and fully included in income in the year of sale. Co-owners report their share.

Because proceeds are capped at capital cost, recapture cannot exceed the CCA you claimed. Any part of the price above the original cost is a capital gain, which is taxed separately. Land is not depreciable, so the land portion of a sale produces only a capital gain or loss.

The opposite result is a terminal loss. If no property is left in the class and a positive balance remains, that balance is fully deductible. Each rental property costing $50,000 or more sits in its own class, so the result for one building is not blended with others. A terminal loss is reported on line 9948 of Form T776.

Recapture is why CCA defers tax rather than removing it. Claiming CCA shelters rental income now. It can also create a large income inclusion in a single later year, possibly at a higher marginal rate. Model both ends before you claim, using CRA guidance or a tax professional.

General information only, not legal, tax, or financial advice. Rules change and vary by province; confirm the current details with the relevant authority before you rely on them.