Sale of eligible capital property – Sole proprietor

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Sale of eligible capital property – Sole proprietor

When you sell eligible capital property, you have to subtract part of the proceeds of disposition from your cumulative eligible capital (CEC) account.

You have to do this calculation if you sold eligible capital property:

  • in your current fiscal period; or
  • before June 18, 1987, and the proceeds of disposition become due to you in your current fiscal period.

The amount you have to subtract is 75% of the total of these amounts:

  • the proceeds of disposition of all the eligible capital property you sell in your current fiscal period; and
  • the amount of any proceeds that become due to you in your current fiscal period from eligible capital property you sold before June 18, 1987.

There may be a negative amount (excess) in your CEC account after you subtract the required amount. In this case, you will have to include part of the negative amount in your business income.

Multiply by 2/3 the part of the negative amount in your CEC account that exceeds the annual allowances deducted. To that result, add whichever is less, the excess or annual allowances deducted. This is the amount to include in your business income.

The following example shows how to calculate the amount to include in your business income.

Example

Lysa started her business on January 1, 2009 with a December 31 year-end. In 2009, Lysa bought a client list for $10,000. Lysa sold her business on September 1, 2015. She sold her client list for $15,000 and she does not have any other eligible capital property in her business. She deducted annual allowances each year as follows:

Annual allowances
Year Amount
2009 $525
2010 $488
2011 $454
2012 $422
2013 $393
2014 $365
Total for the years from 2009 to 2014 $2,647

The amount Lysa has to include in her business income on Line 8230 - Other income on Form T2125, Statement of Business or Professional Activities, is the total of amounts A and C calculated as follows:

Calculation of amount A:

Actual proceeds of disposition ($15,000) × 75%

$11,250

Plus: total annual allowances deducted

$2,647
(i)

Minus: Eligible capital expenditures ($10,000) × 75%

$7,500

Equals: Excess amount

$6,397
(ii)

The lesser of (i) and (ii)

$2,647
A

Calculation of amount B:

Excess amount

$6,397

Minus: total annual allowances deducted

$2,647

Equals

$3,750
B

Calculation of amount C:

Amount B ($3,750) × 2/3

$2,500
C

Taxable amount from the sale of client list

Amount A ($2,647) + Amount C ($2,500)

$5,147

Lysa would include $5,147 on line 8230, other income, in Part 3 on page 1 of Form T2125.

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Date modified:
2016-01-05