Canada Revenue Agency
www.cra.gc.ca
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Replacement property
In a few cases, you can postpone or defer adding a capital gain or recapture of capital cost allowance (CCA) to income. You might sell a business property and replace it with a similar one, or your property might be stolen, destroyed, or expropriated and you replace it with a similar one. You can defer tax on the sale proceeds which you reinvest in replacement property within a reasonable period of time. To defer reporting the capital gain or recapture of CCA, you must acquire and you, or a person related to you, must use the new property for the same or similar purpose as the one that you are replacing.
You can also defer a capital gain or recapture of CCA when you transfer property to a corporation or a partnership.
Example
When Cathy bought her new car in May 2011, it cost $16,000 including all charges and taxes. Since the car was $30,000 or less, she includes the car in Class 10. She was allowed a $1,000 credit when she traded in her old car (which was also in Class 10). Her undepreciated capital cost (UCC) on the old car at the start of 2011 was $1,000. Cathy knows that her personal use of the car will vary each year.
Cathy has a desk, calculator, filing cabinets, and shelves in her store. These are Class 8 depreciable properties. The UCC of these properties at the start of 2010 is $5,000. She did not buy any Class 8 properties in 2011.
Therefore, she completes Form T2125, Statement of Business or Professional Activities, as in this example.
Since Cathy used the car partly for personal use, she calculates the amount to include on line 9936 for her car as follows:
( 25,000 (business kilometres) ÷ 30,000 (total kilometres) ) × $2,550 = $2,125
The most that Cathy can claim for CCA for 2010 is $2,125 for her car and $1,000 for the Class 8 properties. She wants to claim the most CCA allowed to her in 2010. She enters $3,125 on line 9936 in Part 5 on page 2 of Form T2125.
Forms and publications
- Guide T4002, Business and Professional Income
- Form T2125, Statement of Business or Professional Activities
- Information Circular C76–19R3, Transfer of Property to a Corporation Under Section 85
- Interpretation Bulletin IT-259R4, Exchange of Property
- Interpretation Bulletin IT-291R3, Transfer of Property to a Corporation Under Subsection 85(1)
- Interpretation Bulletin IT-378R, Winding-up of a Partnership
- Interpretation Bulletin IT-413R, Election by Members of a Partnership Under Subsection 97(2)
- Interpretation Bulletin IT-491, Former Business Property
- Interpretation Bulletin IT-491SR, Former Business Property
