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TAXX301 (ch.5)
Capital Cost Allowances
| Question | Answer |
|---|---|
| what are expenditures on account of income? | ordinary recurring expenses from carrying on a business, or earning employment/property income |
| what are expenditures on account of capital? | costs to purchase or improve property, or create/enhance preserve/improve a business structure |
| how is "property" defined in the ITA? | both tangible and intangible property plus capital expenditures that don't result in acquisition of property |
| what are the two categories of capital property? | depreciable and non-depreciable |
| what are the 7 items not included in capital property? | 1. capital expenditures allowed to be fully deducted 2. inventory 3. property not acquired for purpose of earning income 4. land 5. non-depreciable capital property 6. animals 7. tree, shrub, herb, or similar growing thing |
| what is the difference between depreciation in accounting vs income tax? | accounting: match costs over expected life of the property income tax: allowing write-offs that ignore useful life |
| ASPE uses the term "amortization" when IFRS uses the terms... | Depreciation for tangible assets and amortization for intangible assets |
| what is the most common application method for CCA | mostly declining balance (sometimes straight-line) |
| what does NBV mean? | net book value |
| what does ITR mean? | income tax regulations |
| what is capital cost? | full cost of acquiring property including freight, installation costs, duties, non-refundable provincial sales taxes, and legal/accounting/appraisal/engineering and other fees to acquire property |
| can interest be capitalized under capital cost? | yes, interest and other financing costs of money borrowed to acquire property can be capitalized as an elective option |
| how should amounts of government assistance be treated in terms of capital cost? | they should be deducted from capital cost |
| what does ITC mean? | input tax credit |
| how are GST/HST amounts on property refunded? | through ITC's |
| how should ITC's be treated in terms of capital cost | they should be initially included, then ultimately deducted as they are a form of government assistance |
| should PST be included in capital cost? | yes it should. It is also not refunded through an ITC |
| what is the half-year rule for CCA? | only 50% of maximum CCA is allowed in the year capital property is acquired |
| what does AccII mean? | accelerated investment initiative |
| what is the accelerated investment initiative? | (Nov 2018) temporarily replaced half year rule. allowed 150% of max CCA up to and including 2023 for depreciable property |
| what does DIEP mean? | designated immediate expensing property |
| what is the short taxation year rule | limits of amount of CCA claimed if tax year is less than 365 days |
| can CCA be claimed before depreciable property is available for use? | no it cannot. Must wait until property is available for use |
| when does depreciation start for property? | earliest of... 1. property first used for purpose of earning income 2. 2nd taxation year after property acquired 3. day property delivered/made available and capable of performing designated function 4. license acquisition (vehicles only) |
| when does depreciation start for buildings? | earliest of... 1. when substantially all (90%+) of building use for purpose acquired 2. second tax year after year property is acquired 3. time construction, alteration, renovation is complete |
| where can depreciable property classes and rates be found in ITR? | part XI and schedules II to VI |
| how should property be treated if they are described in the same class but used in separate business to earn income | they should be placed in a separate class |
| what is the definition of rental property in ITA? | buildings acquired after 1971 and cost $50,000 or more. Must be principally used for earning rent |
| what is the CCA for purpose built residential complex housing? | CCA rate increased from 4% to 10% for rental projects beginning construction after april 15/24 and before jan 31/23. and available for use by dec 31/35 |
| what are the items included and CCA rate for class 1? | buildings acquired after 1987 (includes bridges, canals, subways) - 4% declining balance |
| what can be done for class 1 if there is a new non-residential building used 90% or more for materials and production? | declining balance increased from 4% to 10% (elective and must use separate class 1. must also be acquireed after Mar 18, 2007) |
| what can be done for class 1 if there is a new building used 90% or more for non residential purposes | declining balance increased from 4% to 6% (elective and must use separate class 1. must be acquired after mar 18/2007) |
| what is the CCA increase for long-term residential complexes in class 1 (built between Apr 15/24 and Jan 1/31, and available for use by 2035 | 10% (increased from 4%). Must have at least 4 provate apartment units or 10 private rooms/suites. 90% or more of units must be held for long term residential rental |
| what are the items included and CCA rate for class 3? | most buildings acquired before 1988 (includes breakwaters, docks, trestles, windmills, wharfs, telephone poles) - 5% declining balance |
| what are the items included and CCA rate for class 8? | most machinery, equipment, structures (kilns, tanks, vats), electrical generating equipment, advertising posters, bulletin boards, and furniture not included in another class - 20% declining balance |
| what are the items included and CCA rate for class 10? | most vehicles, automotive equipment, trailers, movable equipment, TV channel converters, and decoders decoders acquired by a cable distribution system - 30% declining balance |
| what amounts are excluded from class 10? | - passenger vehicles allocated to class 10.1 - taxicabs allocated to class 16 - zero emission vehicles allocated to class 54 or 55 |
| what are the items included and CCA rate for class 10.1? | passenger vehicles with cost over $38,000 (luxury vehicles) - 30% declining balance (no terminal loss allowed in year of sale/disposition, 50% of normal CCA allowed in year of disposition, no recapture in year of sale/disposition) |
| what rules apply to class 10.1 that don't apply to class 10? | - no terminal loss allowed in year of sale/disposition - 50% of normal CCA allowed in year of disposition - no recapture in year of sale/disposition unless DIEP |
| what are the amounts included and CCA rate for class12? | computer software (not systems software), books in a lending library, dishes, cutlery, jigs, dies, patterns, uniforms/costumes, linen, motion picture files/videotapes, tools costing lass than $500 - 100% declining balance |
| what are the amounts included and CCA rate for class 14 | limited life intangibles (patents, franchises, concessions, licenses) - straight line over legal life |
| patents are usually classified in class 44, but what class can they be elected under by the taxpayer? | they can be elected to be classified under class 14 |
| what are the items included and CCA rate for class 14.1 | goodwill, incorporation costs, customer lists, other limited life intangibles - 5% declining balance |
| what are the items included and CCA rate for class 44? | patents with limited or unlimited life - 25% declining balance |
| what are the items included and CCA rate for class 50? | computer hardware and systems software acquired after Jan 31/2011, computers, laptops, smartphones, tablets, other devices, equipment that requires an internally stored computer program for operation - 55% declining balance |
| what are the items included and CCA rate for class 53? | manufacturing and processing property acquired from 2016-2025, used in Canada more than half the time for purpose of manufacturing or processing goods sold or leased - 50% declining balance |
| what are the items included and CCA rate for class 54? | new electric, hydrogen fuel, or plug-in hybrids purchased after Mar 18/2019 - 30% declining balance |
| property normally falling under class 54 can be elected by the taxpayer to be classified under classes... | 10 or 10.1 |
| what is the limit on 2025 capital cost for items in class 54? | $61,000 |
| how is the half-year rule applies (ITR1100(2))? | UCC base for each class is reduced by half of net additions made to the class during the year? |
| what is a net addition to a CCA class? | capital cost of property added to the class, less amounts that reduce the class for property sold |
| what are the three exceptions to the half-year rule? | 1. Class 14 2. tools <$500, uniforms, chinawear from class 12 3. depreciable property purchased from a non-arms length person who owned the property for at least 364 days before end of tax year of taxpayers purchase |
| what is an arms-length transaction? | a transaction where both parties are acting independently and in their own self-interest |
| what is a non-arms-length transaction? | a transaction where parties have a close relationship. In this case terms may not reflect FMV |
| what is the three possible alternatives for determining application of the half year rule when AccII may apply? | 1. verify if AccII applies 2. if AccII doesn't apply, determine if half-year rule applies 3. if neither applies, CCA is based on class rate |
| does the half-year rule or AccII apply when net additions are positive? | yes |
| does AccII or the half-year rule apply when net additions are negative? | no. no adjustments for AccII or half year rule when net additions are negative |
| what are the timeline conditions for AccII? | acquired between Nov 21/18 and Dec 31/27, and available for use before 2028 |
| what is the amount of AccII for property acquired between Nov 21/18 and Dec 31/23 | 150% of net additions to a class of depreciable property |
| what is the amount of AccII for property acquired from 2024 to 2027? | 100% of net additions to a class of depreciable property |
| is total CCA over life of the asset increase because of AccII? | no it does not |
| what is rollover basis in the ITA? | reference to very specific ITS rules that allow certain transactions to take place at other than FMV |
| what classes are excluded from AccII? | - class 12 (straight line class) - ZEV classes 54, 55, 56 |
| what is the maximum UCC based for property in class 54? | $61,000 (if purchased after Jan 1/25 |
| what are the items included and CCA rate for class 14.1? | - goodwill (excess of purchase price over FMV of identifiable net assets acquired on purchase of business) - other intangible properties (customer lists, limited life franchises, trademarks, patents, licenses, incorporation costs up to $3,000) - 5% DB |
| CCA deductions are discretionary, meaning... | taxpayer can claim maximum, no amount, or any amount in between |
| what entities is immediate expensing available to from Apr 19/21 to Dec 31/23? | CCPC's and certain Canadian partnerships |
| what entities is immediate expensing available to from Jan 1/22 to Dec 31/24? | canadian resident individuals, certain canadian partnerships |
| what are the classes excluded from immediate expensing? | 1-6, 14.1, 17, 47, 49, 51 |
| what is the limit for immediate expensing? | $1.5 Million each year |
| what are some examples of disposition of capital property (actual and deemed)? | sale, destruction of property, property stolen, foreclosed, repossessed, owner dies, owner severs residency with Canada, change in use of property (i.e. personal to income producing) |
| what is the tax consequence when property is disposed at the same price as it's UCC? | no tax consequence |
| what is the tax consequence when property is disposed above it's UCC but below it's capital cost? | extra CCA received must be included in business income (sale price - UCC) |
| what is the tax consequence when property is sold below UCC and capital cost? | if not last property in class - remaining UCC stays in class if last property in class - terminal loss can be deducted from business income |
| what is the tax consequence is property is sold above UCC and capital cost? | - CCA is fully recaptured and included in business income - amount above capital cost is included as a capital gain |
| how is the UCC of the class reduced upon disposition of property? | lesser of 1. proceeds of disposition 2. capital cost of property |
| can CCA be claimed if the UCC on the last day of the tax year is negative? | no, UCC must be positive to claim CCA |
| can CCA be claimed if no properties remain in the class | no, properties must remain in the class to claim CCA |
| what occurs if UCC is negative at year end | recapture of negative UCC amounts |
| can employees claim CCA on certain properties? | yes they can (i.e. automobiles, aircraft, musical instruments) |
| how is recaptured included when an employee claims it? | recapture is included as employment income, not business income |
| can a terminal loss be deducted by an employee? | no it cannot |
| how is recapture calculated for class 54 property? | recapture is capped at UCC - CCA limit (i.e. $61,000 |
Created by:
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