Your reasoning is correct but on the issue of present market value it is not as simple. For e.g. you purchased for $300/sq.ft. in 2002. Today it is worth $600/sq.ft. in 2012. However, when you sell, you have to recapture depreciation so based on 4%/year (2% the first year) you will have 38% of recaptured depreciation. Depending on your tax bracket, say 40% that would mean that 15.2% of your original cost of the building(not the land) will be lost. If we assume for arguments sake 1/3 land cost, that leaves 2/3 of 15.2 or 10% of your equity which goes to tax when you sell. Then you have all the expenses of selling. The point is that 15-18% of your equity based on $600/sq.ft. would disappear meaning you will see about $500/sq.ft.
As an investor you have to make the return on $500/sq.ft. which is what is left over, not the $600/sq.ft. when you reinvest. The longer the you own the property, the more the recapture of the depreciation.
Being an accountant myself, I agree with you. I wanted to keep it simple since I wanted to ensure my concept was clear. My point was if you can't even beat a GIC with your condo investment (using the amount you can obtain from selling your condo vs renting it out), its clearly not a good investment. And I'm being very generous comparing a condo investment to a GIC (risk adjusted).
I'm not sure how much CCA you'll have on some of these condos though, with the high price and low rents the past couple years. In general, you wouldn't take CCA if you don't even turn a tax profit on the condo. I admit I'm not a tax accountant though.