Terminal loss

How a terminal loss arises

Capital cost allowance reduces the undepreciated capital cost (UCC) of a class each year you claim it. When you sell property, the proceeds reduce the class balance. The CRA says that if the resulting UCC is positive and you have no property left in that class at the end of the fiscal period, you have a terminal loss. If the balance is negative, you instead have recapture of CCA.

You cannot claim ordinary CCA on that class in the year. The balance is dealt with as a terminal loss, and the CRA’s rental guidance says it can usually be subtracted from income in the year you disposed of the property.

An illustrative example

A business owns one delivery van in its own class, and after prior claims the UCC is $8,000. It sells the van for $3,000 and owns no other property in that class at year-end. The balance after the sale is $5,000, which is a terminal loss. Had the van sold for $9,000, the balance would be negative $1,000, and that amount would be recapture added to income instead. These numbers are illustrative only.

Common traps

The loss depends on the class being empty. If you still own another asset in the same class, no terminal loss arises and the balance stays in the class for future claims. For rental property of $50,000 or more in capital cost, the CRA requires a separate class for each property, so selling one building can create a terminal loss on its own.

Land is not depreciable, so a loss on land is not a terminal loss. Special deemed-proceeds rules can also apply when a building is sold for less than both its cost amount and its capital cost and the taxpayer or a non-arm’s-length person owned the land. In rental cases, the CRA notes that a terminal loss larger than rental income can create a rental loss.

What to discuss with your accountant

Bring the original invoices, your prior CCA schedules, the sale agreement and details of who bought the asset, including any relationship. Ask how the class is defined, whether other property remains in it and how the loss interacts with other income. A terminal loss can matter in a closing or restructuring year.

See capital cost allowance for how the balance builds, the half-year rule for first-year claims, and capital gains for the separate tax result on land and property sold at a profit.