# CCA Recapture Clarification



## Bruce_K (Jan 15, 2017)

I, along with several co-owners, own an office condo. Two of the co-owners own a professional practice that rents the condo. We have put the condo up for sale. We have owned it for about 7 years and we have each claimed the maximum allowable CCA every year.

I understand that there is a recapture upon disposition and I have worked through scenarios in TurboTax in order to decide whether or not to continue claiming CCA for as long as it takes to sell. In the current market in Edmonton Alberta, that might take a few years.

I have researched the issue and have found conflicting information. Some sites say that upon disposition, you must recapture ALL of the prior CCA claimed. For example, it says at in a page at turbotax.intuit.ca/tax-resources/taxes-and-rental-properties/dos_and_donts-cca-for-rental-property-explained.jsp : "...all prior CCA claims are recaptured and treated as taxable income..." Yet, in actually working through a scenario on TurboTax, I find that the amount to be recaptured is just the negative amount that results from subtracting the Proceeds of Disposition" from the UCC; NOT all prior CCA claims. In other words, it is the excess of the proceeds of disposition over and above the UCC that must be recaptured. In total, CCA has been about $164,000 and I have claimed my pro rata share of that as a co-owner. I would be responsible for a pro rata share of a total recapture amount of about $72,000 based on an assumption that we will receive our asking price.

I find various other sites that agree with the forgoing approach. In fact the T4036 produced by CRA along their T776 form seem to agree that it is just the negative amount that results from subtracting the Proceeds of Disposition" from the UCC that has to be recaptured; NOT all prior CCA claims.

Would I be correct in assuming that those sites that talk about needing to recapture ALL prior CCA claims are just being careless in their description of what must be recaptured?

Thank you for any advice you can offer.


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## CPA Candidate (Dec 15, 2013)

Bruce_K said:


> I, along with several co-owners, own an office condo. Two of the co-owners own a professional practice that rents the condo. We have put the condo up for sale. We have owned it for about 7 years and we have each claimed the maximum allowable CCA every year.
> 
> I understand that there is a recapture upon disposition and I have worked through scenarios in TurboTax in order to decide whether or not to continue claiming CCA for as long as it takes to sell. In the current market in Edmonton Alberta, that might take a few years.
> 
> ...


The lower of cost or proceeds is deducted from the CCA class/pool. Any resulting negative balance has to be taken into income. If the proceeds exceed initial cost, you will also have a capital gain.

Example:
Initial Cost $500,000
CCA claimed $150,000 UCC is therefore $350,000
Sold for $600,000

Result: CCA recapture of $150,000 (350,000 - 500,000)
Capital gain of $100,000 (600,000 - 500,000) equal to a taxable capital gain of $50,000


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## Bruce_K (Jan 15, 2017)

Thank you for your response "CPA Candidate". In your example, the total CCA claimed does result in a recapture of ALL CCA claims previously made. However, following is a real life scenario I constructed in TurboTax and manually double-checked following CRA's instructions in T4036 and their downloaded T776 assuming we claim CCA in 2016 and that we will sell our unit in 2017. 

As noted in my original post, our unit is up for sale and we are trying to decide whether to claim the CCA for 2016, considering what we may have to include in our incomes as a recapture. This site does not allow me to post attachments, so I will reproduce the "Coles Notes" version of our history.

UCC at end of first year of ownership (2009)= $516,745.14
Additions to UCC since 2009 to end of 2016 = $198,011.26
Projected addition to UCC in 2017 = $61,942.83
Total Additions to UCC: 2009 to end of 2017= $259,954.09 
Note that this is made up of our initial purchase price of an empty shell, the cost of our build-out and various other items that had to be capitalized. Capitalized items were added over the years for various reasons (long story) and there will be more in 2017.

Total Capitalization = $776,699.23 Adjusted Cost Base
CCA claimed to end of 2016 = $164,249.89 (assuming we claim CCA for 2016
Projected Total of UCC in 2017= $612,449.34

UCC at start of 2017 = $550,506.51
Projected UCC additions in 2017 = $61,942.83
Projected Total of UCC in 2017= $612,449.34 

Projected Disposition = $707,631.25 (asking price less realty commission) 
Projected UCC recapture = $95,181.91 ($612,449.34 - $707,631.25)

So, if I have done this right, we will have claimed $164,249.89 in CCA from 2009-2016, but our recapture (assuming we sell in 2017) will only be $95,181.89. If you agree, please respond and let me know. 

If I am correct, then this is why I am questioning websites that state recapture is ALL previous CCA claims made.

if I have done this incorrectly, please advise where I failed. 

Because we are projecting a disposition of the unit for less than our Adjusted Cost Base, we will have a capital loss, but my understanding is that we can't do anything with it as you can't claim a capital loss on a depreciable asset.

Thank you very much.


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## Numbersman61 (Jan 26, 2015)

It appears that you have allocated the entire original cost to depreciable property (a portion should have been allocated to land value). However, leaving that issue aside here is the calculation:
Cost of depreciable property, add cost of additions, deduct capital cost allowance claimed, deduct net proceeds of disposition. If balance is negative, this is included in income; if the balance is positive, this a terminal loss that is deductible in computing net income.


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## Bruce_K (Jan 15, 2017)

Thank you very much for your response "Numbersman 61" for the calculation. This confirms to me that we are doing it correctly and is consistent with what the CRA seems to say and with several YouTube videos produced by instructors that I finally found.

On the land issue, we purchased an office condo and discussed the depreciation with both CRA and our accountant at the time. The CRA confirmed we don't need to identify land costs for a condo unless it has an exterior patio or something of the sort, which ours does not.

For the benefit of other who may look at this post I am including links to the Youtube vidoes.

youtube.com/watch?v=tRkSR_VyQmQ

youtube.com/watch?v=NU42I9VEI6I

youtube.com/watch?v=lKhROLol0Qc

youtube.com/watch?v=PnM5R6cWg2g

What troubles me after all of this is that so many websites don't seem to accurately explain this issue or they use a simple example that does, indeed, result in a recapture of the entire CCA paid over the years, but that isn't the case in our situation.


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## Bruce_K (Jan 15, 2017)

I should have added the following:

In essence, it appears that upon disposition, UCC must be adjusted to match disposition. If the UCC is less, then there is a recapture and if it's more there is a terminal loss.


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## Nerd Investor (Nov 3, 2015)

Saying total recapture will equal all previous CCA claimed is only correct if your proceeds exceed the cost. We should point out however, since you were deciding whether to claim any additional CCA going forward, that any CCA you claim will increase your recapture (or decrease your terminal loss) on a dollar for dollar basis. In essence, all previous CCA claimed does come into income upon the sale, either directly or indirectly. It increases the recapture or decreases the terminal loss you would otherwise have had (without claiming CCA). 

In your example, you have claimed CCA of $164,249.89 and have recapture of $95,181.89. However, if you would have not claimed any CCA, you would instead have a terminal loss of 69,068. So the CCA does technically come back into income upon a sale, it's just that portion of that income is offsetting a loss that you would otherwise incur.


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## Bruce_K (Jan 15, 2017)

Thank you for your comments Nerd Investor. Good points. I ran the numbers to confirm what you said.


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