Capital Cost Allowance (CCA)

Question 1

Capital Cost Allowance (CCA)

Answer 1

• CCA may be claimed on all tangible capital property other than land, must be available for use
• Inducements (such as leasehold improvements) may be included in income or used to reduce capital cost
• Most classes subject to Accelerated Investment Incentive of 1.5 × CCA on net additions (except 53, 43.1, and 43.2, which are subject to 100% CCA in the year of purchase)
• Dispositions are credited to UCC at lesser of cost and proceeds (excess of proceeds over original cost result in a capital gain)
• Terminal loss – when there is a balance of UCC in the class but there are no assets remaining, the UCC can be claimed as a terminal loss (capital loss cannot arise on the disposition of depreciable property)
• Recapture – arises when the balance in the class is negative (i.e. when the adjustment re: disposal is in excess of the UCC) and is taken into income
• Recapture / Terminal loss calculated as: Lesser of a) proceeds and b) cost; less UCC. If positive, then recapture. If negative, then terminal loss.

Reference: ITA 20(1)(a), ITR Schedule II

Question 2

“Luxury” automobile costs

Answer 2

• There are various limitations on the costs that may be deducted by a business in the determination of net business income:
  o CCA is calculated on a maximum vehicle value of $30,000 (before PST, GST, HST).
  o Interest on financing the purchase of the vehicle is limited to a maximum of $10 per day.
  o Vehicle lease payments are limited to $800 per 30 day period.
• Note that any taxable benefits that might arise where the business provides a “luxury” automobile to an employee or shareholder are calculated on the full value of the vehicle.

Reference: ITA 13(7)(g), 67.2, 67.3
 

Question 3

Class 14.1

Answer 3

• Starting January 1, 2017, goodwill and other intangible assets (such as patents, trademarks, and licenses) with an unlimited useful life are included in Class 14.1 (previously they were included in cumulative eligible capital (CEC) as eligible capital property).
• Amounts are added to Class 14.1 at a 100% inclusion rate with a declining balance CCA rate of 5%, and the half year rule or accelerated investment incentive applies in the year of acquisition, depending on the acquisition date.
• For amounts included in Class 14.1 that were acquired before January 1, 2017, and were transitioned from CEC to Class 14.1, the CCA rate is 7% for the first 10 years.
  o Taxpayers can deduct the greater of $500 per year or the amount otherwise deductible, for the first 10 years.

Reference: ITA 20(1)(a), ITR Schedule II