Canada Revenue Agency
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Disposing of a building in the year
If you disposed of a building in the year, special rules may apply that make the proceeds of disposition an amount other than the actual proceeds of disposition. This happens when you meet both of the following conditions:
- you disposed of the building for an amount less than both its cost amount, as calculated below, and its capital cost to you; and
- you, or a person with whom you have a non-arm's length relationship owned the land that the building is on, or the land next to it, which was necessary for the building's use.
To calculate the cost amount:
- If the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before you disposed of the building.
- If more than one property is in the same class, you have to calculate the cost amount of each building as follows:
(A ÷ B) × C = D
where:
A = capital cost of the building
B = capital cost of all property in the class not previously disposed of
C = UCC of the class
D = cost amount of the building
Note
If any property in the class of the building that was acquired at non-arm's length was previously used for a purpose other than gaining or producing income, or if the part of a property used for gaining or producing income has changed, the capital cost of such property has to be recalculated to determine the cost amount of the property.
If you disposed of a building under these conditions, and you or a person with whom you do not deal at arm's length disposed of the land in the same year, calculate your deemed proceeds of disposition as shown in Calculation A.
If you, or a person with whom you do not deal at arm's length, did not dispose of the land in the same year as the building, calculate your deemed proceeds of disposition as shown in Calculation B.
Calculation A
Land and building sold in the same year
| Fair Market Value (FMV) of the building when you disposed of it | $________ 1 | |
| FMV of the land just before you disposed of it | $________ 2 | |
| Line 1 plus line 2 | $________ 3 | |
| Seller's adjusted cost base of the land | $________ 4 | |
| Total capital gains (without reserves) from any disposition of the land (such as a change in use) in the three-year period before you disposed of the building (by you, or a person not dealing at arm's length with you, to you or to another person not dealing at arm's length with you) | $________ 5 | |
| Line 4 minus line 5 (if negative, enter "0") | $________ 6 | |
| Line 2 or line 6, whichever amount is less | $________ 7 | |
| Line 3 minus line 7 (if negative, enter "0") | $________ 8 | |
| Cost amount of the building just before you disposed of it | $________ 9 | |
| Capital cost of the building just before you disposed of it | $________ 10 | |
| Line 9 or line 10, whichever amount is less | $________ 11 | |
| Line 1 or line 11, whichever amount is more | $________ 12 | |
| Deemed proceeds of disposition for the building | ||
| Line 8 or line 12, whichever amount is less (enter this amount in column 3 of Area E and in column 4 of Area A on Form T2125) | $________ 13 | |
| Deemed proceeds of disposition for the land | ||
| Proceeds of disposition of the land and building | $________ 14 | |
| Amount from line 13 | $________ 15 | |
| Line 14 minus line 15 (include this amount on line 9924 of Area F on your form) | $________ 16 | |
| If you have a terminal loss on the building, include it on line 9270 in Part 5 on your Form T2125, Statement of Business or Professional Activities. | ||
Calculation B
Land and building sold in different years
| Cost amount of the building just before you disposed of it | $________ 1 | |
| FMV of the building just before you disposed of it | $________ 2 | |
| Line 1 or line 2, whichever amount is more | $________ 3 | |
| Actual proceeds of disposition, if any | $________ 4 | |
| Line 3 minus line 4 | $________ 5 | |
| Line 5 $________ × 1/2 = | $________ 6 | |
| Amount from line 4 | $________ 7 | |
| Deemed proceeds of disposition for the building: Line 6 plus line 7 | ||
| Enter this amount in column 3 of Area E and in column 4 of Area A. | $________ 8 | |
| If you have a terminal loss on the building, include it on line 9270 in Part 5 on your Form T2125. | ||
Ordinarily, you can deduct the full amount of a terminal loss but only part of a capital loss. Calculation B ensures that you use the same factor to calculate a terminal loss on a building as you use to calculate a capital loss on land. As a result of this calculation, you add part of the amount on line 5 to the actual proceeds of disposition from the building.
