Final answer:
Recapture of CCA occurs when an asset is sold for more than its undepreciated capital cost but less than or equal to its original purchase price, reversing some of the tax benefits received and becoming taxable income.
Step-by-step explanation:
Recapture of Capital Cost Allowance (CCA) takes place when an asset, previously subject to CCA, is sold for more than its book value or undepreciated capital cost (UCC), but less than or equal to its original cost. The recapture is a form of tax recovery mechanism for the government, ensuring that the depreciation claimed on assets does not exceed the actual loss in value over the time the asset is held by a taxpayer. Essentially, it reverses some of the tax benefits a taxpayer received from claiming CCA if the sale price of the asset indicates that the actual depreciation was less than the amounts claimed.
The recaptured amount is included in the taxpayer's income and hence becomes taxable. Recapture is a concept that applies mainly in the context of taxation and is particularly relevant for individuals and businesses that have claimed CCA on depreciable property.