Depreciable Property

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A trust cannot deduct a terminal loss upon the disposition of depreciable property (the "property concerned") if the following conditions are met:

  • The following calculation results in an excess amount: subtract the proceeds of disposition of the property concerned (or its fair market value [FMV] at the time of the disposition, if the disposition is made for no consideration or for a consideration that is less than the FMV) from the lesser of amounts A and B, where: 
    • A is the capital cost of the property;
    • B is the result of C × D ÷ E, where: 
      • C is the undepreciated capital cost (UCC) of all property in the same class immediately before the time of the disposition,
      • D is the FMV of the property at that time, and
      • E is the FMV of all property in the class immediately before that time.
  • On the 30th day after the disposition, the trust or an affiliated person owns the same property or has the right to acquire the property (other than a right serving as security only, such as a right derived from a hypothec).

The consequences of the disposition are as follows:

  • The proceeds of disposition of the property concerned are deemed to be equal to the lesser of amounts A and B. Thus, if the property concerned is the last in the class, a terminal loss cannot be claimed. 
  • The above-mentioned excess amount (amount by which the lesser of amounts A and B exceeds the proceeds of disposition of the property or its FMV, as applicable) is deemed to be the capital cost of hypothetical property that is deemed owned by the trust before the beginning of the taxation year in which this disposition occurs and that is in the same class as the property concerned. Thus, the trust may claim capital cost allowance for the hypothetical property, without applying the half-year rule (50% reduction of the amount of capital cost allowance). The trust is entitled to such a deduction until the time that immediately precedes the earliest of the following events: 
    • the trust or an affiliated person no longer owns or has a right to acquire the property concerned for a period of at least the following 30 days;
    • the trust or an affiliated person ceases to use the property concerned for the purpose of earning income;
    • the trust ceases to be resident in Canada while owning the property concerned (the trust is deemed to have disposed of the property);
    • the trust is subject to a loss restriction event.

If, during the event in question, the trust has no other property in the class, the UCC of that class entitles the trust to a deduction for a terminal loss.

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