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CHAPTER FIVE - DEPRECIABLE CAPITAL PROPERTY & ELIGIBLE CAPITAL PROPERY S13,S14,S18(1)(b),S20(1)(a), (b), Reg. 1100, Reg. 7307(1), Reg. Sch II-IV What is a capital asset and what deductions are allowed? A capital expenditure is one which has “enduring” benefit, or benefits more than one tax year. (In accounting we refer to these as capital assets or fixed assets.) Consistent with accounting rules, no tax deduction is allowed for the capital cost of land. Unlike accounting, no deductions are required for other tangible or intangible capital assets used in income earning activities. However, there are various provisions which allow limited deductions (similar to amortization in accounting) for such expenditures where they are incurred to earn income. Employment income : S8(1)(j) allows a deduction by employees for capital cost allowance (amortization) on motor vehicles or aircraft to the extent they are used (and required to be used by contract) in employment related duties. (No other deductions related to capital expenditures are allowed for employees.) The deduction is restricted by Regulation. (7307,1100,Schedule II) Business income and income from property : Section 18(1)(b) denies any deduction for capital expenditures, while Section 20(1)(a) over-rides this restriction and allows a capital cost allowance (amortization) as permitted by Regulation. (Regulations 1100 and Schedule II) These regulations deal with tangible capital assets and intangible capital assets with restricted legal lives. (Class 44 also includes rights to use patented information with unrestricted legal life.) S20(1)(b) allows a limited deduction for eligible capital expenditures (intangibles of unrestricted legal life) but only when incurred to earn income from business. Capital cost allowance system : Depreciable capital assets (property for which a deduction may be made under S8(1)(j) or S20(1)(a)) are pooled for tax purposes into different classes, which establish the method and rate of CCA. Declining balance is the most common method, although straight line method is also used for some classes. Common CCA classes include: Class 1 - 4% DB - most buildings acquired after 1987. Class 1MB – 10% DB- buildings acquired after March 18, 2007 used at least 90% for manufacturing & processing purposes. Class 1NRB – 6% DB- other, non-residential buildings acquired after March 18, 2007. (Can have buildings in more than one of these classes.) Class 8 - 20% DB - miscellaneous capital property including furniture & fixtures, office equipment such as photocopiers, fax machines & telephones, outdoor advertising signs, tools costing >$500, etc. (default class) Class 9 - 25% DB - aircraft.
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Class 10 - 30% DB - automotive equipment (autos, vans, trucks, tractors, trailers) & computer hardware plus systems software acquired before Mar 23, 2004. Class 10.1 - 30% DB - passenger vehicles with cost in excess of prescribed limit.
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This note was uploaded on 09/30/2009 for the course BUS 357 taught by Professor Thomas during the Spring '09 term at Western Washington.

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