CCA recapture
Capital cost allowance recapture happens when depreciable assets are sold for more than their remaining undepreciated capital cost. The previously claimed depreciation is effectively taken back and included in income — taxed as ordinary business income, not as a capital gain.
Recapture catches sellers because the logic runs backwards from how it feels. Over years of ownership, the business claimed CCA on equipment and vehicles, reducing taxable income each year. If those assets are then sold for more than their depreciated value, the tax system treats the earlier deductions as having been too generous and brings them back into income in the year of sale.
Why it hits asset sales hardest
In an asset sale, the price is allocated across asset classes, and equipment allocated above its undepreciated cost triggers recapture directly. Because recapture is ordinary income rather than a capital gain, it does not get the capital gains inclusion treatment and it does not access the lifetime capital gains exemption. A seller who modelled their proceeds on capital gains treatment alone can find the actual tax bill materially higher.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentSelling a business
- 02Treadstone LawLegal commentaryCCA Recapture When You Sell Business Assets in Ontario
- 03Treadstone LawLegal commentaryHow Goodwill Is Taxed When You Sell a Business in Ontario
- 04Treadstone LawLegal commentaryTax Law
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