Can I claim a terminal loss when I sell assets for less than their tax value?

Capital cost allowance is claimed class by class on the classes of depreciable property the CRA lists, and a terminal loss is what is left over when the last asset of a class goes for less than the class balance. The sale price alone does not settle it. The Income Tax Act applies a test at the end of the tax year, so the result depends on what you still own then.

The two-part test

Subsection 20(16) of the Act allows a deduction when two things are true at the end of a taxation year. The class balance, built from the cost of the assets and reduced by amounts that include proceeds of disposition, must still be positive. And you must no longer own any property of that class. If both conditions are met, the excess is deducted in computing income for the year, and no capital cost allowance is deducted for that year on that class.

Why one asset left behind changes the result

Because the test works class by class, selling most of a class does not produce a terminal loss. If a single asset in the class remains, the balance stays in the class and keeps depreciating. The loss may then appear in a later year, when the last asset goes, rather than on the day of the main sale. An individual whose business has a fiscal period that does not match the calendar year generally reads “year” as the fiscal period.

Exceptions to check

Subsection 20(16.1) switches the rule off in some cases, including:

• A passenger vehicle whose cost is above the prescribed limit.
• Class 14.1 property, unless the business to which the class relates has ceased.
• A limited-period franchise, concession or licence treated as still owned after a joint election under subsection 13(4.2), where a similar property for the same fixed place is acquired within a set period.

Why the price allocation matters

The CRA notes that a sales agreement may set a price for each asset, and it lists both recaptured capital cost allowance and terminal loss as items to work out on a sale. The allocation sets the proceeds used in each class, so it directly decides whether a class ends with a terminal loss or a recapture. Our page on selling a business at a loss compares terminal losses with capital losses.