Solution to the problem:

1. Capital Gains: Capital Gains are the increase in the value of capital assets. It is considered to be realized on the sale of asset. Capital Gains can be short term or Long term.

Short term Capital gains occur on sale of securities held for one or less than one year.

Capital gains are the net profit that an investor makes after selling a capital asset at a price exceeding the Purchase prifce.

2. CCA recapture: A recapture of capital cost allowance (CCA) can occur when the proceeds from the sale of depreciable rental property are more than the total of both: the undepreciated capital cost (UCC) of the class at the start of the year and the capital cost of any additions during the year. To calculate CCA recapture start with UCC in any class and add the amount spent on new property in class then subtract the proceeds earned from property disposal in that class.

When you buy a capital property for business purpose, you cannot deduct its entire cost as an expense for the year of purchase. Instead, you must claim the expense incrementally over several years. This amount is known as the Capital Cost Allowance (CCA). In some cases you may have recapture capital cost allowance and CRA (Canada revenue Agency) will require you to report that amount as part of your income.

3. Terminal Loss in relation to Depreciation and taxes: If, on disposal of all the assets in a particular CCA(Capital Cost allowance) class, there still remains a UCC (Undepreciated Capital Cost) balance at the end of the taxation year, the balance referred to as a “terminal loss” and is fully deductible for Income tax purposes. A terminal loss is attributable to unrecognized depreciation.

More precisely, you terminal loss is when you have no more property in the same class at the end of a year, but you still have an amount you have not deducted as capital cost allowance (CCA).

When an asset is disposed of, its selling price is compared to the undepreciated value of the asset. If the selling price is less than the undepreciated value, the difference is called a terminal loss. The terminal loss is allowed as deduction from tax in the corporate tax return.

For example: Mr X bought the Computer for $15000 a few year ago. The computer is the only asset in the class, and UCC at the begining of the year was $7000. He sells the computer for $10000. Then $3000 will be recorded as recapture and added to Mr X's income.

Lets consider another example: Mr X bought the computer for $15000 severeal years ago. The UCC for computer at the start of the year was $9500 and he sold the computer for $6000. Then $3500 (9500- 6000) will be recorded as the terminal loss.

Recaptures occurs when you sell the asset at the amount greater that the UCC and terminal loss occurs when you sell the asset at the amount less than the UCC recorded.