ACB, capital cost, and UCC: three records you should not mix up

A property can have several cost numbers at once. Adjusted cost base (ACB) helps measure a capital gain. Capital cost records the cost of a depreciable asset. Undepreciated capital cost (UCC) tracks the remaining tax balance after adjustments and capital cost allowance (CCA).

They answer different questions. Treating UCC as the entire property’s sale cost can turn old depreciation deductions into an incorrectly calculated capital gain.

This is a hypothetical Ontario individual’s recordkeeping example, reviewed against federal guidance for 2025. The purchase and improvement occurred in earlier years. The property has always been fully rented, with no personal use, grants, conversion, related-party transfer or special election.

Keep land and building apart

Assume a CAD 600,000 purchase has a supported allocation of CAD 180,000 to land and CAD 420,000 to the building: 30% and 70%. Those percentages are stipulated facts for this example, not a recommended split for another property.

There are also CAD 12,000 of eligible acquisition costs, comprising purchase legal fees and land transfer tax. Allocate CAD 3,600 to land and CAD 8,400 to the building on the same supported basis. The opening costs become CAD 183,600 for land and CAD 428,400 for the building. CRA explains purchase-fee allocation in its legal-fee guidance and treats purchase land transfer tax as a property cost rather than a current deduction.

Land normally does not qualify for depreciation. A rental building’s CCA class depends on its characteristics and acquisition date. The example assumes an ordinary Class 1 building; it is not a shortcut for every house or condo. See CRA’s classes guidance.

Keep the closing statement, purchase agreement, valuation support and invoices together. The allocation affects both records and the eventual sale calculation. A convenient percentage found online is not valuation evidence.

Add improvements to the right record

A later CAD 20,000 project is stipulated to be a capital improvement to this building. Its building cost becomes CAD 448,400. A separate CAD 3,000 ordinary repair is a current expense and stays out of that cost total.

ACB generally includes acquisition expenses and capital improvements, but excludes current maintenance and repair costs. That distinction comes from CRA’s ACB guidance. The current-versus-capital tests examine lasting benefit, restoration versus improvement, separate assets and the circumstances of the work. “Renovation” on an invoice is not a complete classification.

For this ordinary purchase history, the building’s ACB and its capital cost start with the same CAD 448,400 amount. That equality is a feature of these assumptions. Conversion from personal use, assistance and special transactions can produce different amounts; CRA discusses deemed CCA cost in its principal-residence folio, paragraph 2.61.

UCC remembers the CCA already claimed

Suppose the owner’s filed schedules show cumulative CCA of CAD 48,400 on the building, with no other adjustments or assets in its separate class. The remaining UCC is:

$$U = K - D$$

Here $U$ is UCC, $K$ is capital cost and $D$ is cumulative CCA in this simplified history. Therefore $448{,}400-48{,}400=400{,}000$: CAD 400,000.

The table is a reconciliation, not an annual CCA computation. Historical claims are supplied inputs, not a promise that this property could deduct precisely CAD 48,400 over any chosen holding period. Each filed year has its own class, rate, available-for-use and deduction limits; the CRA rental-income guide explains the CCA framework for the stated filing year.

UCC is also not the building’s market value, replacement value or mortgage balance. Changing the loan does not redraw this tax ledger.

A sale can produce two different income amounts

Assume an arm’s-length capital-property sale has supported net amounts, after properly allocated selling costs, of CAD 230,000 for land and CAD 500,000 for the building. There are no other class assets or transactions.

Land gain is $230{,}000-183{,}600=46{,}400$. Building gain is $500{,}000-448{,}400=51{,}600$. Total capital gain is CAD 98,000 before the applicable inclusion calculation. This example stops before estimating personal income tax.

For the building’s CCA account, the disposition deduction is capped at capital cost. CAD 448,400 leaves the UCC account that held CAD 400,000. The CAD 48,400 excess produces recapture, included in income under section 13 of the Income Tax Act. It is separate from the CAD 51,600 building capital gain. Selling below original capital cost can instead lead to different recapture or terminal-loss results; use the actual class schedule.

If you mistakenly subtract CAD 400,000 UCC from CAD 500,000 to label CAD 100,000 as a capital gain, you combine the CAD 51,600 gain with CAD 48,400 recapture and give the combined amount the wrong character.

Maintain a record that survives the holding period

Record purchases, capital additions, CCA claims and disposals as separate entries. Keep the source invoice and allocation rationale attached to each. Compare the closing UCC with the next year’s opening schedule before calculating a new claim.

Before a sale or conversion, obtain the historical cost file and filed CCA schedules, then document proceeds and selling-cost allocation. CRA’s retention guidance requires specified long-term acquisition/disposal records indefinitely. The purchase file remains useful long after the bank payment stops appearing in your annual ledger.

The practical question is simple: can another person reconstruct each balance from the documents? If they cannot, resolve the missing history before modelling the tax bill.

Related guides

• Repairs, CapEx, and capitalized items: where does this expense belong?
• Should you claim CCA on a rental? Look beyond this year's tax bill
• Keep or sell a rental: compare the next chapter, not just the past

Sources

• CRA, Rental expenses you cannot deduct, purchase land transfer tax and property cost. Accessed 2026-10-01; federal guidance checked for the 2025 example.
• Justice Canada, Income Tax Act, section 13, subsection 13(1) recapture and the subsection 13(21) UCC definition. Accessed 2026-10-01; apply the law for the relevant disposition year.
• CRA, Adjusted cost base. Accessed 2026-10-01; federal guidance/provision checked for the 2025 examples; recheck for the filing year.
• CRA, Rental expenses you can deduct. Accessed 2026-10-01; federal guidance/provision checked for the 2025 examples; recheck for the filing year.
• CRA, Current expenses or capital expenses. Accessed 2026-10-01; federal guidance/provision checked for the 2025 examples; recheck for the filing year.
• CRA, Rental classes of depreciable property. Accessed 2026-10-01; federal guidance/provision checked for the 2025 examples; recheck for the filing year.
• CRA, Rental income (T4036). Accessed 2026-10-01; T4036 revision 25, for 2025; proposals are labelled in the guide.
• CRA, Income Tax Folio S1-F3-C2: Principal Residence. Accessed 2026-10-01; federal guidance/provision checked for the 2025 examples; recheck for the filing year.
• CRA, Where to keep records and for how long. Accessed 2026-10-01; federal guidance/provision checked for the 2025 examples; recheck for the filing year.