What is CCA recapture when I sell my business assets?

Recapture surprises sellers because it works backwards from how ownership felt. Every year the business claimed capital cost allowance on its vehicles, equipment and leasehold improvements, and every year that reduced taxable income. Selling those assets above their depreciated value tells the tax system the earlier deductions were larger than the actual decline in value, and the difference comes back.

A worked illustration of the mechanism

Suppose equipment originally cost $400,000 and has been depreciated down to $150,000 of undepreciated capital cost. If the purchase price allocates $300,000 to that equipment, the $150,000 difference is generally recaptured into income. A seller who modelled their proceeds assuming capital gains treatment on the whole price has understated their tax bill on that portion.

Why it hits asset sales specifically

Recapture arises on the disposition of depreciable property, which happens in an asset sale. In a share sale the corporation keeps its assets and its CCA history — the shares change hands, not the equipment — so recapture does not arise for the seller in the same way. This is another reason structure and after-tax outcome have to be modelled together.

How sellers manage it

• Negotiate the purchase price allocation rather than accepting the buyer’s first proposal
• Model recapture across every asset class before agreeing the allocation
• Consider whether a share sale is achievable, and what it would take to qualify
• Plan the timing — the income lands in the year of sale, which affects that year’s marginal rate