Capital Cost Allowance Recapture is tax payable to the Canadian Revenue Agency (CRA) upon the sale of a property when the property in question has been claiming ongoing depreciation as part of it's yearly Capital Cost Allowance (CCA).
Example of CCA Recapture:
If you purchased a Class 1 property for $300,000 with a building value of $250,000, the maximum CCA you can claim is 4% per year based on the Undepreciated Capital Cost (UCC). If after 3 years you claimed the maximum CCA, the total amount of recapture would be ~$28,800. Because CCA is a deferral tax, this now means you are liable to pay tax on the $28,000 at your current tax rate which could be higher or lower than if you had to pay it 3 years prior.
When don't you have to pay CCA recapture?
If you are selling a property which you have been depreciating over a number of years with the plan to buy another property, CCA can be deferred. This purchase must happen in a short time frame with documented proof of the new asset to be purchased.