How to Calculate Recapture or Terminal Loss

By Carter McBride
Terminal losses and recapture are important Canadian tax concepts.

A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com

The Canadian Revenue Agency allows for either a recapture of a capital cost allowance during a year or a terminal loss on capital cost allowance during a year. To calculate the recapture or terminal loss, you need to know your asset class's total undepreciated capital cost increases or decreases during the year. Undepreciated capital cost are costs to depreciable assets that, for some reason, you did not depreciate. There are various reasons undepreciated capital costs change.

Find your undepreciated capital cost increases and decreases for each different asset class you have. The undepreciated capital cost increases and decreases are a separate calculation from the terminal loss and recapture. For example, you had a undepreciated capital cost increase of $2,000 on a Class 1 asset, a undepreciated capital cost decrease of $4,000 on a different Class 1 asset, a undepreciated capital cost increase of $5,000 on a Class 3 asset and a undepreciated capital cost decrease of $1,000 on a different Class 3 asset.

Net together the undepreciated capital cost increases and decreases for each asset class. You may have several different asset classes that you need to net together. In the example, net together the Class 1 assets, then net together the Class 3 assets. So, a $2,000 increase plus a $4,000 decrease equals a $2,000 undepreciated capital cost decrease on Class 1 assets. Then, a $5,000 increase plus a $1,000 decrease equals a $4,000 increase on Class 3 assets.

Classify any positive number from netting the undepreciated capital cost increases and decreases for each asset class as a terminal loss. Classify any negative number from netting the undepreciated capital cost increases and decreases for each asset class as recapture. Typically, a terminal loss is a decrease in income and a recapture is an increase in income. Since Class 1 assets decreased $2,000, the $2,000 of recapture income. The $4,000 increase in Class 3 assets is a terminal loss.

About the Author

Carter McBride started writing in 2007 with CMBA's IP section. He has written for Bureau of National Affairs, Inc and various websites. He received a CALI Award for The Actual Impact of MasterCard's Initial Public Offering in 2008. McBride is an attorney with a Juris Doctor from Case Western Reserve University and a Master of Science in accounting from the University of Connecticut.

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