Corporation A sold a building having a cost of $3,800,000 to an associated corporation (Corporation B) for its FMV of $4,200,000, so that s. 13(7)(e) reduced its cost to Corporation B to $4,000,000. Corporation B then resold the immovable for $4,150,000 to arm’s length purchasers, and incurred disposition expenses of $40,000.
Regarding the disposition expenses, CRA stated:
Under the definition of "undepreciated capital cost" in the description of F in subsection 13(21), expenses made or incurred for the purpose of disposing of depreciable property reduce the UCC balance where the proceeds of disposition are less than the capital cost of the property. Based on the facts you have provided, the $40,000 selling costs will not be applied against the UCC of the prescribed class of the ITR, since the deemed capital cost is less than the proceeds of disposition.