CRA is willing to prorate in characterizing recapture of depreciation

CRA accepts (with support from Bessemer Trust and Arnos) that recapture of depreciation has the same character (as business or property income) as the income from which the related capital cost allowance was deducted.  CRA has now indicated that where in earlier years the CCA claims on a building were deducted in computing active business income (or, in this case, rental income from an associated corporation that was deemed to be active by s. 129(6)), and deducted from property income in later years, subsequent recapture of depreciation will be allocated between active business and property income on the same proportionate basis.

In the context of this example, this position seems to be generous given that when the building is sold it no longer is an active business asset.

Neal Armstrong.  Summary of 9 May 2012 T.I. 2012-0440781E5 under s. 129(4).