6.5 Can you have a capital loss on depreciable property? If not, why not?
Pooja Sehgal
No, we cannot have a capital loss on depreciable property.
A capital loss occurs when a non-depreciable asset (such as land) is sold for less than its original cost. However, you cannot have a Capital Loss on depreciable property, i.e. items whose value declines over time, such as cars, buildings, houses, etc.
Why can’t you have a capital loss on depreciable property?
You can have a “Capital gain on depreciable property if you sell it for more than its adjusted cost base plus the outlays and expenses incurred to sell the property” (Canada Revenue Agency, 2018). But, “A loss from the sale of the depreciable property is not considered to be a capital loss. However, you may be able to claim a terminal loss” (Canada Revenue Agency, 2018). Depreciable assets are considered a part of the activities of your business and property; therefore, they are better integrated with your business or property through tax depreciation (CCA) and Terminal Losses than as a Capital Loss. Generally, a Terminal Loss is generated when you sell assets for less than their tax carrying value (UCC), and there are no other assets remaining in the CCA class.
When we buy a non-depreciable asset like land for example, and we sell it for less than what we paid for it, there is a Capital Loss. When we buy a depreciable asset like a car, there is no Capital Loss at the time of sale. Instead, we can claim CCA during the lifetime of that asset, and if it sells for less than the remaining UCC balance, we can claim a Terminal Loss (as a reduction to our business or property income) assuming there are no other assets remaining in the CCA class.
Let’s say we bought a table for $1,000. We claimed $200 in CCA (tax depreciation) over the last 3 years and its UCC is now $800. The table is subsequently sold for $700 and there are no other remaining assets in the CCA class. The difference between the sale price ($700) and the UCC ($800) creates a $100 Terminal Loss. The Terminal Loss represents additional tax depreciation we can claim in the year.
|
Original Cost |
$1,000 |
(1,000-800) $200 CCA (Tax depreciation) (800-700) $100 UCC (Terminal loss) |
|
UCC |
$800 |
|
|
Selling Price |
$700 |
Interactive Content
Author: Pooja Sehgal, March 2019
Interactive Content
Author: Alicia Mitchell, June 2019. The third slide is by Afeef Khan, July 2019
References and Resources
- Article – “Depreciable property – 2018, January 03” (Author: Government of Canada)
- Chartered Professional Accountants. (2022). The Chartered Professional Accountant Competency Map. Part 1: The CPA Competency Map: 6.3.2
“Can you have a capital loss on depreciable property? If not, why not?” from Introductory Canadian Tax Copyright © 2021 by Pooja Sehgal is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
