Disposition of rental property

[Luvlocks]

Hello, 

I am hoping someone could provide me with some information on how to account for the disposition of rental property where I have claimed CCA for a new roof, furnance and air conditioner in prior years. 

 

I have read several posts on how to account for the sale of a rental property but I am not sure what I am to do with CCA expenses I have been claiming on the rental for , such things as a new roof, furnance, air conditioning, appliances, etc. 

Obviously these capital cost have been disposed of with the sale of the property but what do you put in for the total proceeds of the disposition?

Any help would be greatly appreciated. 

 

[TheTaxSmith]

Hello Luvlocks. 

In the area where you have the asset that you disposed of (within the CCA category of assets) make sure you have entered the opening balance of the UCC, the date of purchase, and the ACB (Adjusted Cost Base) which will be the amount you paid for the asset. Once you have verified they are all entered move down and look for "Proceeds of disposition of an asset" and enter the amount you received upon sale or the disposal amount. Underneath complete the "ACB of the disposition" for the specific item disposed of. Then respond to the questions further down concerning "Calculate the capital gain and carry the result to schedule 3" and "Did you liquidate all assets in this class".

Once you have completed the data entry you should now see any recapture on the Income Statement (or perhaps a Terminal Loss) and a Capital Gain if there was any on Schedule 3.

When you sell depreciable property such as rental you could have both recapture of CCA which is income and a capital gain. Recapture is the difference between your original ACB and the current opening USS. The capital gain is the difference between the Proceeds and the ACB.

[Luvlocks]

TheTaxSmith, thank you for your response.

 

I'm still unsure how to close off a CCA for a furnace on a rental property which has been sold. What do you put in for the proceeds of a furnace that was sold as part of the sale of the property? thanks

[TheTaxSmith]

Hi Luvlocks. What Class did you use for the furnace when you entered it? Did you add it to the building UCC or did you use a separate group? If you added it to the building then you don't need to do anything else other than make sure for the ACB that you included it with the building ACB. 

[Luvlocks]

Hi TaxSmith, I have been claiming the costs of the furnace and other household appliances under CCA Class 8. Now how do I dispose of them?  

[TheTaxSmith]

Hi Luvlocks. Ok to get rid of Class 8 just show a zero amount for the Proceeds. You should put in the ACB as well and make sure you answer the question as "Yes" for disposing all the assets in the Class 8 group. This will produce a terminal loss which will balance out against the recapture on the building. Take a look at the final rental schedule to make sure the terminal loss shows up as an expense and any recapture as a revenue.

[Luvlocks]

Cheers mate!

If I could trouble you for one more question. When selling a property what percentage of the price do accountants typically use for the building and the land?

[TheTaxSmith]

Hi Luvlocks. Ok if you were in Quebec you get nice tax bills broken down for land and buildings. But in Ontario its not as nice. And then there is a problem of rural vs city. So it was always a bit of a problem to allocate between the two. In Quebec we used the municipal tax bills and did the ratio of land over the total times the Proceeds to allocate for land, the balance of course being the building. If you have some type of document showing a breakdown between land and building you could then do a ratio allocation for the Proceeds. If you have an insurance contract where the building is insured for market value you could possibly compare that with the Proceeds to get an allocation.

But we commonly had CRA auditors consider 10% of the proceeds as a land value in city areas so that would possibly be the best allocation. Since we dealt with property dispositions for clients all across Canada and non-residents we would default to that, even for condos.

One thing to understand for the ACB it includes the original purchase price, plus legal fees, transfer taxes, surveys and any broker/finance charges. You can probably find those on the Statement of Transaction/Sale/Disbursements provided by the lawyer.

Hey are you from the UK. All my family there says "Cheers mate!"

Hope that all helps.

[Luvlocks]

I spent some time in Australia and they use "Cheers and Mate" all the time and so its something I picked up.

I noticed there is a line in the CCA worksheet called "Description of Capital Cost Additions", but I don't know what this is for. When you click on question mark for additional information is says;

"Enter the cost of current year capital additions (acquisitions) to this CCA class (determined on a declining balance basis)."

I renovated the the kitchen before selling the rental property last year. Do I enter the capital cost for the kitchen in this line or do I ignore this line and just add the cost of the kitchen to the ACB of the building?

thanks again, mate. 

[TheTaxSmith]

Hi Luvlocks. If you were using Class 1 for the building and had an opening UCC you should add the kitchen cost to that as "Current year capital additions". When you have the data filled out for the CCA classes you can also ask within each data entry area to have the capital gain calculated. It will carry the gain to Schedule 3 without having to report dispositions any where else. Make sure you have the opening UCC entered. That amount will be the actual remaining balance after taking CCA over the years, or if you have never taken CCA on the building the opening UCC and the ACB will be one and the same.