Terminal loss
A terminal loss is the undepreciated capital cost left in a CCA class when, at the end of a taxation year, the taxpayer no longer owns any property of that class. Subsection 20(16) of the Income Tax Act has it deducted in computing income for the year, and subsection 20(16.1) lists cases where that does not apply.
An owner who sells the equipment, vehicles or other depreciable property of a business meets this term when the sale leaves a CCA class with no property but a positive balance. CRA’s Income Tax Folio S3-F4-C1 says that disposing of depreciable property can result in a recapture of CCA or a terminal loss, and that a terminal loss is deducted under subsection 20(16).
How it works
Where the taxpayer no longer owns any property in the class, the folio says the positive balance is deducted in computing income for the year. The deducted amount counts as depreciation allowed, which reduces the balance to nil so it cannot be claimed again. To the extent it cannot be used against income for the year, the folio says it creates or increases a non-capital loss that can be carried to other years under section 111.
What to check or ask
- Does the seller still own any property in that class?
- Does an exception in subsection 20(16.1) apply?
- Do other rules limit the loss, as the folio notes some deemed-proceeds rules do?
See claiming a terminal loss when assets sell below their tax value and undepreciated capital cost.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
- 02Canada Revenue AgencyGovernmentIncome Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance
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