Undepreciated capital cost is the remaining tax value of a depreciable asset after CCA deductions have been claimed, the balance the CRA uses to calculate future deductions and the tax consequences of a sale.
Each time CCA is claimed on an asset, the UCC declines. What remains is the tax base from which future deductions are calculated and against which sale proceeds are compared. When an asset is sold for more than its UCC, the excess up to the original cost is recaptured as taxable income, fully included in the year of sale, not at the preferential capital gains rate. Proceeds above the original cost are treated as a capital gain.
Monitoring UCC balances becomes planning-relevant in two scenarios: when assets are approaching the end of their CCA schedule and remaining deductions are minimal, and when a sale is contemplated and the recapture amount needs to be quantified before the transaction is structured. Discovering a large recapture exposure after a deal has been agreed is one of the more avoidable tax surprises in business transactions.
See also: Capital Cost Allowance (CCA) · Depreciable Property · Asset Sale vs Share SaleUCC balances determine the tax exposure on any asset sale. Knowing them before agreeing to a price is not optional. See how Wefinx approaches exit planning.