CTP12 Chapter 05

Canadian Tax Principles
Chapter 5
Capital Cost Allowances And

Cumulative Eligible Capital
Copyright 2013, Clarence Byrd Inc.
General System
ITA 18(1)(b)
Prohibits Deduction Of Capital Costs
ITA 20(1)(a)
Permits Deduction Of CCA
Tax Vs. Accounting
Terminology
CCA Vs. Amortization
Capital Cost Vs. Cost
UCC Vs. Net Book Value
Additions
Accounting Individual Assets
Tax Aggregated Classes
Tax Vs. Accounting
Write-Offs
Accounting
Variety Of Methods
Applied Consistently
Tax
Declining Balance
(Some Straight-Line)
Maximum Specified
(Consistency Not Required)
Tax Vs. Accounting
Dispositions
Accounting
Proceeds Less NBV = Gain (Loss)
Individual Assets
Tax
Subtract Lesser of Capital Cost or

POD From Class
Recapture, Terminal Loss,

Capital Gain, Or No Tax Effect
Additions
General Rules
Capital Assets Only
Usual Accounting Additions
Capitalization Of Interest
Can elect to include
Generally will not
Additions
General Rules
Government Assistance
Deducted
Similar to accounting rules
Non-Arms Length Transactions
May alter the values used
GST/HST/PST Considerations
Included if non-refundable
Additions
Available For Use Rules

General Criteria
First Used By Taxpayer
2nd Taxation Year After Year Of Acquisition
Public Companies: First Year Amortization Is Taken
Vehicles: Licence Acquisition
Rules For Buildings
Substantially All (90 percent) Used
2nd Taxation Year After Year Of Acquisition
Segregation Into Classes
Importance
Class 12 At 100%
Class 1 At 4%
Mistakes Are Costly
Capital Cost Allowances
Methods And Rates

Declining Balance Classes - ITR 1100(1)(a)
Straight-Line Classes
13
14
29
Others (not used in text)
10
Separate Classes
Separate Classes - ITR 1101

Separate Businesses
Car Dealership And Grocery Store Will Have Separate
Class 8 Balances
Cars With Cost > $30,000
No Recapture
No Terminal Loss
1/2 Years CCA In Year Of Disposition
11
Separate Classes
Rental properties with cost > $50,000

Separate classes election
Certain class 8 Assets
Photocopiers
Telephone systems
Provides for recognition of terminal losses
12
Common Classes
Class 1
Buildings After 1987
4% Declining Balance
10% for new M&P
90 percent M&P
Separate Class 1
6% for new non-residential
90 percent non-residential
Separate Class 1
13
Common Classes
Class 3
Buildings Before 1988
14
Common Classes
Class 8
Miscellaneous Tangible
15
Common Classes
Class 10
Vehicles with cost $30,000 or less
30% declining balance
16
Common Classes
Class 10.1
Vehicles with cost greater than $30,000
Each vehicle in separate class 10.1
17
Common Classes
Class 12
Tools
Computer Software
Dishes
Books
18
Common Classes
Class 13 (straight line)

Leasehold Improvements
Lease Term, Plus One Renewal
Between 5 And 40 Years
Each Expenditure Separate
19
Common Classes
Class 14
Limited Life Intangibles
Straight-Line Over Legal Life
Pro Rata On Days After Acquisition Or
Before Disposition
Patents To Class 44
20
Common Classes
Class 29
Manufacturing Equipment (after March 18, 2007 and
before 2014)
Two year straight line
21
Common Classes
Class 43
Manufacturing Equipment (before March 19, 2007)
22
Common Classes
Class 44
Patents After April 26, 1993
Can Choose To Use Class 14
23
Common Classes
Class 45
Computer hardware and systems software
Acquired after March 22, 2004 and before March 19, 2007
24
Common Classes
Class 50
Acquired after March 18, 2007 and before January 28, 2009,
and
Acquired after January 31, 2011
25
Common Classes
Class 52
Acquired after January 27, 2009, before February 1,
2011
100% Straight Line No half year rules.
26
First Year Rules - ITR 1100(2)
The problem assets acquired at various

times in the year
The solution limit CCA on net acquisitions

to one-half year
27
First Year Rules - ITR 1100(2)

Exceptions
All of class 14
Part of class 12
Non-arms length acquisitions if
previously used to produce income
28
Short Fiscal Periods

Rule
Pro Rata Based On Number Of Days
Application
First And Last Year Of Operation
Deemed Year Ends
Does Not Apply To Class 14
29
Tax planning considerations:

Loser company has net income before the deduction of CCA of $10,000.
It has UCC of $300,000 in Class 1 and $300,000 in Class 10.
Max CCA @ 4% = $12,000
Max CCA @ 30% = $90,000
Take $10,000 on Class 1
30
Dispositions Of Capital Assets
General Rules
1. POD < Capital Cost
Deduct POD from UCC
2. POD > Capital Cost
Deduct capital cost from UCC
Excess of POD over capital
cost is capital gain
31
Capital Gains
If POD > Capital Cost

Will generally be accompanied by recapture
No capital losses on depreciable assets
32
Recapture
Example: Two assets in class with a cost of $50,000 each.
CCA for five years equals $63,136, leaving a UCC of $36,864.
Sell One Asset For $40,000
$36,864 - $40,000 = ($3,136)
The $3,136 is recapture of CCA and will be added to income
and added back to the class to restore a nil balance
33
Recapture
CCA for five years equals $63,136, leaving a UCC of
$36,864.
Sell One Asset For $60,000
$36,864 - $50,000 = ($13,136) recapture
$60,000 - $50,000 = $10,000 Capital Gain
34
Terminal Loss
CCA for five years equals $63,136, leaving a UCC of
$36,864.
Sell Both Assets For A Total Of $20,000
$36,864 - $20,000 = $16,864
A fully deductible terminal loss
Only if no assets left in Class at end of year
35
Separate Class Election
Eligible Assets
Photocopiers
Electronic communications
equipment
Some computer software
36
Separate Class Example

Purchase a $25,000 photocopier which is added to Class 8 which
has a balance of $225,000
UCC after two years in Class 8 = $18,000
Sell for $5,000
Replace for $25,000
37
No separate class
Subtract $5,000 POD from Class 8
No immediate tax effects
38
Separate class
Terminal loss of $13,000 ($18,000 - $5,000)
39
Cumulative Eligible Capital
Eligible Capital Expenditures Defined: IT-143R2

Goodwill
Trademarks
Unlimited Life Franchises
Appraisal Costs On Assets To Be Used
Corporate Organization Costs
40
Additions
Additions
Limited To 3/4 Of Cost
41
Amortization
Amortization
ITA 20(1)(b) Specifies 7 Percent
Declining Balance
No First Year Rules
42
Dispositions
Dispositions
Deduct 3/4 Of POD (Ignore Cost)
Recapture to the extent of previous CEC deductions
Capital Gain
43
Disposal Election
Problem
If large CEC pool, could not recognize capital gains (cost
ignored on dispositions)
Prevented recognition of capital losses
ITA 14(1.01) allows separate treatment of individual items and
recognition of capital gains
44
Special Situations
Special Situations
Business Terminations
Death Of A Taxpayer
45
46

CTP12 Chapter 05

Încărcat de

Informații document

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

CTP12 Chapter 05

Încărcat de

Drepturi de autor:

Formate disponibile

Canadian Tax Principles

Capital Cost Allowances And

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Prohibits Deduction Of Capital Costs

Permits Deduction Of CCA

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Tax Vs. Accounting

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Tax Vs. Accounting

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Tax Vs. Accounting

Proceeds Less NBV = Gain (Loss)

Subtract Lesser of Capital Cost or

Recapture, Terminal Loss,

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Available For Use Rules

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Segregation Into Classes

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Capital Cost Allowances

Methods And Rates

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Separate Classes - ITR 1101

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Rental properties with cost > $50,000

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Class 13 (straight line)

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.

Canadian Tax Principles

Copyright 2013, Clarence Byrd Inc.