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of <h1>Understanding Tax on Asset Sales: Section 41(2) Explains Business Income and Capital Gains from Depreciable Assets</h1> Section 41(2) of the Income Tax Act addresses the tax treatment of a balancing charge when a depreciable asset is sold, discarded, demolished, or destroyed. The written down value of the asset at the beginning of the year is compared to the sale consideration. If the sale consideration exceeds the written down value, the surplus up to the amount of depreciation claimed is taxed as business income under Section 41(2), while any remaining surplus is taxed as capital gains. Profits from assets sold in the year they are first used are treated as capital gains. Compensation from government acquisition is taxable in the year received.
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