ch6so - Chapter 6 Capital Cost Allowance Questions 6-1 The...

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Unformatted text preview: Chapter 6 Capital Cost Allowance Questions 6-1 The department has allowed for changes to CCA rates of specific assets by creating a class system in the Income Tax Regulations. These regulations are enforceable through section 221 of the Income Tax Act (see Chapter 3 of the text), and allow the Minister of Finance to delegate to the Cabinet Ministers the right to approve or change regulations. Each of the 46 separate CCA classes (currently in REG 1100 and Schedules II and III of the Act) has a specific capital cost allowance rate. The government can change the rate for an asset by changing the class that a particular asset is in. For example, buildings acquired before 1978 are class 6 assets. Buildings acquired after 1978 but before 1988 are class 3, and most buildings acquired after 1988 are class 1. Since each of these three separate classes has a different capital cost allowance rate, the Department has effectively changed rates by redefining which class the asset should be put in. 6-2 Employees cannot claim capital cost allowance on the purchase of either a computer or a printer. This would definitely be a consideration when negotiating the contract with MB Associates Ltd. Assuming that you are the employee, there are two possible alternatives. (a) Purchase the equipment yourself and negotiate an increase in salary to compensate for the non-deductible cost. 65 66 TAXATION IN CANADA (b) Request that the company purchase the equipment and lease it back to you. CAPITAL COST ALLOWANCE 67 In both situations, the company would receive a deduction as a salary expense in (a), or as CCA on leased assets in (b). However, in the second situation you would be able to deduct the cost of leasing the asset as an employment expense. 6-3 A capital loss on depreciable property is impossible, as the loss has already been wholly or partially recognized by claiming CCA. If a depreciable asset is disposed of for less than its UCC and there are no other assets in the class, the difference is a terminal loss. A terminal loss is really just the residual of real depreciation over estimated depreciation under the CCA system. Multiple Choice 6-1 B Since manufacturing equipment may be placed in a new and separate class 43 account, the half-year rule would only apply to that manufacturing equipment....
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ch6so - Chapter 6 Capital Cost Allowance Questions 6-1 The...

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