ACC 742 Lecture 5 Capital Cost Allowance Fall 2010

ACC 742 Lecture 5 Capital Cost Allowance Fall 2010 -...

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1 Capital Cost Allowance Chapter 5 Chapter 5
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2 Capital Cost Allowance Remember p.18(1)(a) - prohibits deduction of Capital  Costs p. 20(1)(a) - permits deduction of Capital  Cost Allowance or CCA as stipulated in  Regulations and Schedules
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3 Types of Property Three categories of capital property Non-depreciable property (land,  investments, etc.) Depreciable property (buildings, cars,   machinery, etc.) Eligible Capital property (goodwill, patents  and other intangibles)
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Excluded Property Property excluded from CCA: Property, cost of which deductible in computing income Property that is inventory Property not acquired for purposes of producing income Property that is a yacht, camp, lodge, golf course or any  facility for which expenses not deductible under 18(1)(l) Property situated outside Canada owned by non-residents Land 4
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5 Capital Cost Allowance Terms you should  be familiar with: CCA Capital cost Undepreciated  capital cost or UCC Proceeds of  disposition See definitions in  13(21)
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6 CCA Basic Rules 1. Most assets are pooled 2. Most pools use declining balance   amortization. 3. CCA is computed on the pool balance at the  end of the year. 4. CCA rate gives the maximum  amount that  can be claimed (zero or any amount less  than max can be claimed).  
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7 CCA Basic Rules (cont’d) 5. Proceeds of disposition ( up to  original cost ) are subtracted from  the pool. 6. If pool balance is  negative  at end of  year, the negative amount is added  to income in the year balance  becomes negative. This is called  recapture s. 13(1)
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8 CCA Basic Rules (cont’d) 7. If pool balance is positive at end of  year  but there are no assets left in  pool , amount is terminal loss and  deducted from income in that year.  S. 20(16) 8. If additions made during year, CCA  computed on ½ (the  amount of  purchases  >  dispositions ) on almost  all declining balance classes. Reg. 
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Recapture and Terminal Loss To see rules graphically please look at  pg. 275 of textbook 9
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10 Capital Cost Allowance Example of recapture Three assets are in Class 10.  Each had a  cost of $15,000.  The UCC in the class is  $9,000.  One of the assets is sold for  $10,000. Result?
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11 Capital Cost Allowance Example of recapture UCC $ 9,000 Lesser of cost or proceeds  (10,000) Balance  (  1,000)  Recapture            1,000 Ending UCC 0
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Capital Cost Allowance Example of recapture (cont’d) Three assets are in Class 10.  Each had a  cost of $15,000.  The UCC in the class is  $9,000.  One of the assets is sold for  $18,000. Result?
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This note was uploaded on 12/14/2010 for the course ACC 742 taught by Professor Sydor during the Fall '10 term at Ryerson.

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ACC 742 Lecture 5 Capital Cost Allowance Fall 2010 -...

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