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Unformatted text preview: WEEK 4 CAPITAL COST ALLOWANCE (CCA )- Chapter 5 1. General ITA 18(1)(b) prohibits a deduction for capital costs, however, I TA 20(1)(a) allows a deduction for the capital cost of property if it is permitted by an Income Tax Regulation (ITR) , See Part XI , Regulation 1100 and ITR Schedules II through VI . Note : Reg 1100 establishes rules , whilst, ITR Schedule II provides for a description of which assets are allocated to each class and relevant rates for the classes- see E&Ys 2010 Federal Income Tax Act- 8 th Edition - pages 2071-2092 SUMMARY I Acquisitions of Capital Assets added to the undepreciated capital cost (UCC) balance of the class (ie, a class is a particular category or pool of assets) that is best described and defined by the Regulations. II Disposals of Capital Assets proceeds of disposition (POD) are deducted from the UCC balance of the class which previously contained the disposed asset, which could cause tax consequences III Capital Cost Allowance (CCA ) maximum CCA is determined by applying the rate that is prescribed to a particular class of assets, to the UCC balance (ie, the pool) as at the year-end (ie, declining balance amortization) or in some cases, to the original cost of the assets (ie, straight line amortization). NOTE: CCA can be different from depreciation expense calculated on the same asset, under Generally Accepted Accounting Principles(GAAP) I. ACQUISTION OF CAPITAL COSTS 1. General Rules As at year-end, the asset must be owned (ie, title) by the taxpayer and used for the purpose of producing income from a business or property (ie, fixed assets) and not held only for resale (ie, inventory) or used in the manufacturing of goods for sale , or used in the repair of fixed assets ....
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- Fall '10