Encyclopedia
Recapture of capital cost allowance (CCA)
When you sell depreciable property for more than its undepreciated cost, some CCA claimed may be added back to income.
For example: A seller asks their accountant about recapture on a building sale. (Illustration only, not a real deal.)
The Canada Revenue Agency (CRA) handles federal tax. Official source: CRA: claiming capital cost allowance
Example only, not a real client. Say you sell a building for more than its depreciated tax value. Some of the capital cost allowance you claimed is added back to your income in the year of sale. Your accountant plans for that tax before you list.
What I’d tell a friend
Plan for recapture before you sell. It can add a significant amount to your tax bill.
Why it matters to you
If you've claimed capital cost allowance and then sell the building for more than its depreciated value, that deduction can come back as income. Owners who don't plan for it are often surprised by the tax bill.
How to use it in your deal
Owners should track CCA claimed on each building, since each rental building costing over a set amount is usually in its own class and recapture is calculated building by building. Before selling, ask your accountant to estimate recapture and capital gains together, so the net proceeds are realistic.
Consider the purchase price allocation with the buyer: more to land and less to building can reduce recapture, but it must be reasonable and supported. In some cases, buying a replacement property can defer recapture under replacement property rules. Buyers should know that sellers care about allocation and may negotiate hard on it.
Families transferring property should know recapture can arise on a deemed disposition, such as at death. Lenders don't care directly, but your after-tax proceeds affect your next purchase.
Mistakes I see
Forgetting recapture when planning a sale. Assuming CCA was free money. Unsupported allocations. Missing replacement property rules.
In BC and Vancouver
The Income Tax Act sets CCA and recapture rules; CRA's rental income guide explains them.
Official sources: Income Tax Act (Justice Laws) · CRA: claiming capital cost allowance · CRA Guide T4037: Capital gains
What it is
Recapture happens when you sell a depreciable asset for more than its remaining tax value. The excess, up to the original cost, is added to income.
Gains above the original cost may be treated as capital gains.
Planning
Your purchase price allocation and sale price allocation both affect recapture.
Talk with your accountant about timing, structure and any options that may apply, such as replacement property rules, before you agree to a sale.
Keep good records of what you claimed and what you spent on improvements.
Questions to ask before you sign
- How much CCA have I claimed?
- What will recapture be?
- How should the price be allocated?
- Can I defer it?
- What are my after-tax proceeds?
Keep reading
Related terms: Capital cost allowance (CCA)
- Is there a 1031 exchange in Canada? What BC owners can look at instead
- Sale-leaseback for BC business owners
- Selling a business that owns or leases its real estate in BC
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.