Undepreciated capital cost (UCC) is the balance of a capital cost allowance (CCA) class that you haven’t deducted yet. It sets the size of each year’s CCA claim and, when you sell, decides whether you have recaptured CCA or a terminal loss. This page explains how the balance is calculated and what happens to it on a sale, with worked examples. It is part of WealthNorth’s guide to real estate taxes; the classes and first-year rules for a rental are in CCA on rental property, and the rates for other kinds of property in the guide to CCA classes and rates.
The rules here come from the CRA’s Guide T4036, Rental Income (T4036(E) Rev. 25), which follows the CCA table in Area A of Form T776.
UCC in brief
| Term | Meaning |
|---|---|
| Capital cost | What a property cost you, including buying costs; for a building, only the building’s share, not the land |
| CCA class | A group of depreciable property with one rate, for example Class 1 buildings at 4% or Class 8 furniture and appliances at 20% |
| Capital cost allowance (CCA) | The deduction you choose to claim for the year, up to the class rate applied to the balance |
| Undepreciated capital cost (UCC) | The class’s balance not yet deducted: it starts at cost and falls by each year’s CCA claim |
How UCC is calculated each year
T4036 walks through the CCA table on Form T776 one column at a time. In short:
- UCC at the start of the year: last year’s closing balance for the class.
- Plus additions: the capital cost of property added to the class in the year.
- Minus dispositions: for each property disposed of, the lesser of its proceeds minus related selling expenses and its capital cost.
- The result (column 7 of the table) decides what happens next. If it is negative, you have recaptured CCA. If it is positive and no property is left in the class at the end of the year, you may have a terminal loss. In either case, you can’t claim CCA on that class for the year.
- Otherwise, CCA: the class rate applied to the column 7 amount after the first-year adjustments for additions (the half-year rule, or the accelerated or reaccelerated investment incentive, explained in CCA on rental property). You can claim any amount from zero to that maximum.
- UCC at the end of the year: the column 7 amount minus the CCA you claimed. It becomes next year’s opening UCC.
T4036’s own example: a rental building bought last year for $60,000 , with $1,200 of CCA claimed on last year’s return, starts this year with a balance of $58,800, and this year’s claim is based on that.
Claiming less than the maximum keeps more in the balance for later: Claiming CCA is optional: you can claim any amount from zero up to the year's maximum, and only what you claim reduces the balance left in the class for later years.
A year with a disposition. A landlord’s Class 8 pool (appliances) starts the year at $20,000 . During the year a refrigerator that cost $1,200 is sold for $500 , and nothing is added. The maximum CCA is claimed.
| Step | Amount |
|---|---|
| UCC at the start of the year | $20,000 |
| Minus the disposition: lesser of $500 proceeds and $1,200 cost | $500 |
| UCC after dispositions (column 7) | $19,500 |
| CCA at 20% | $3,900 |
| UCC at the end of the year | $15,600 |
What happens to UCC when you sell
How the sale price compares with the property’s original cost and the class’s UCC decides the result. The rules, from T4036:
- If the proceeds from the property you sell are more than the undepreciated capital cost (UCC) of its class, the difference is recaptured CCA, added to your income in full rather than at the capital gains inclusion rate.
- The proceeds counted are the lower of the sale price (minus selling costs) and the property's original capital cost, so the recapture can't be more than the CCA claimed.
- Selling for more than the original cost is also a capital gain on the amount above that cost.
- If no property is left in the class at the end of the year and part of the UCC hasn't been deducted, that remainder is a terminal loss, deductible from your rental income in the year of the sale.
- Unlike CCA, a terminal loss can create a rental loss.
- Selling a building for less than its cost gives no capital loss; the loss can only be a terminal loss.
- A rental property acquired after 1971 with a capital cost of $50,000 or more goes in a separate class, so its recapture or terminal loss is worked out on that property alone.
- Recapture can be postponed in some cases, such as replacing the property with a similar one, an expropriation, or a transfer to a corporation, a partnership or your child.
Worked examples: one building, three sale prices
A rental building (the building share only, not the land) cost $400,000 and is alone in its class. Over the years the owner claimed $80,000 of CCA, so the UCC is $320,000. Three possible sale prices for the building, after selling costs:
| Sale price | Proceeds counted (lesser of price and $400,000 cost) | UCC minus proceeds counted | Result |
|---|---|---|---|
| $550,000 | $400,000 | −$80,000 | $80,000 recaptured CCA, plus a $150,000 capital gain, of which 50% ($75,000) is taxable |
| $360,000 | $360,000 | −$40,000 | $40,000 recaptured CCA, no capital gain |
| $300,000 | $300,000 | $20,000 | $20,000 terminal loss (no property left in the class), no capital loss |
In the first row the recapture equals the full $80,000 of CCA claimed: the sale price above the original cost is a capital gain, not recapture. The third row treats the building’s price on its own: if you or a non-arm’s length person also owned the land under it, T4036’s rules for disposing of a building can set the building’s proceeds at a higher deemed amount (for example, by moving part of a gain on land sold at the same time to the building), which reduces or removes the terminal loss. See the special cases below.
Recapture is reported on line 9947 of Form T776 and a terminal loss on line 9948. The capital gain goes on Schedule 3; the full sale calculation, including selling costs and the tax owed, is in capital gains on rental property.
Special cases
- A building sold at a loss with its land. T4036’s “Disposing of a building” rules can set the building’s proceeds at an amount other than the actual price when you sell it for less than both its cost amount and its capital cost, and you or a non-arm’s length person owned the land it stands on (or land next to it needed for its use).
- Mixed rental and personal use. If you used the property both for rental and personally, T4036 says you have to calculate the allowable part of the recapture or terminal loss, and refers to Guide T4002 for how.
- Class 10.1 passenger vehicles. T4036 says the recapture and terminal loss rules don’t apply to them (other than immediate-expensing property); instead, in the year you sell one you owned at the end of the previous year, you can claim half of the CCA that would otherwise be allowed.
Where UCC is tracked
For rental property, the UCC of each class is worked out in Area A of Form T776, Statement of Real Estate Rentals, with building additions in Area C, equipment in Area B and land in Area F. For a business, the CRA’s classes of depreciable property page points to the CCA table on Form T2125 (and Forms T2042 and T2121 for farming and fishing). Keeping a year-by-year schedule of each class, with the purchase and sale documents behind it, is what lets you work out recapture or a terminal loss years later.
Related guides
Sources
The figures and rules on this page come from these sources, last checked against them between September 23, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Rental Income
- Canada Revenue Agency: Capital Gains – 2025