Question

In 2014, Peter bought a piece of machinery, at a cost of $10,000, for his business. It is the only property in its class at the beginning of 2019. The class has a UCC of $6,000. He sold the piece of machinery in 2019 and did not buy any other property in that class. Calculate the following: (a) Terminal loss by assuming that he has sold machinery for $ 4000 (b) Capital gain and Recapture by assuming that he has sold machinery for $ 12000. (NOTE: For both (a) & (b) also discuss the treatment of respective results i.e terminal loss, capital gain and recapture)

Answer 1

We are given,

Cost of machine = $10,000

UCC = $6,000

a) Machine sold for $4,000

As machine is sold for less than the original cost of capital, there is no capital gain.

UCC at beginning is $6,000(10,000 - 4,000).

He subtracts 4,000 (the lesser of the proceeds and the cost of capital) from his UCC and hence the Terminal Loss is $2,000(6,000 - 4,000). He can deduct this amount from his business income.

b) Machine sold for $12,000

As amount is greater than the original cost of $10,000, the capital gain is $2,000.

The UCC is still the same 6,000.

He subtracts $10,000 (the lesser of the proceeds and the cost of capital) from his UCC and is left with a recapture of CCA of $4,000 (6,000 - 10,000) that he will include in his business income.

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