CCA and CEC Lesson 2 - Capital Cost Allowance and Eligible...

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Capital Cost Allowance and Eligible Capital Property Lesson 2
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Capital Cost Allowance and Dispositions of Assets
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Disposition (Sale) of Property A disposition of property, defined in ssec. 248(1), can include any situation, including sale, theft, destruction, confiscation or expropriation CCA can only be claimed when property in a class continues to exist In accounting, the difference between the proceeds received and the net book value is a gain or loss In tax, the consequences of disposal is more complicated, and can result in: CCA recapture ( ACB > Proceeds > UCC) Capital Gains (Proceeds > Capital Cost) Terminal Loss (Proceeds < UCC) No Effect (Proceeds = UCC)
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Disposals of Assets Upon sale, the lesser of proceeds or cost is deducted from the UCC balance of the class (often the class holds multiple assets) If proceeds are less than capital cost, deduct proceeds from UCC If proceeds exceed capital cost, CCA must be recaptured as income, the capital cost deducted from UCC, and the excess taken as capital gain
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Tax Implications of a Sale of A Depreciable Asset: A Graph $$ Time ACB UCC FMV Recapture the CCA Capital Gain FMV Terminal Loss
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Example An asset with a cost of $50,000 is alone in a class with a UCC of $36,864. A. If the asset is sold for $40,000: $36,864 UCC - $40,000 Proceeds = ($3,136) which must be recaptured into income as CCA Recapture A. If the asset is sold for $60,000: $36,864 UCC - $50,000 Capital Cost = ($13,136) which must be recaptured into income as CCA Recapture, and = $10,000 is a Capital Gain A. If the asset is sold for $20,000: $36,864 UCC - $20,000 Proceeds = $16,846 which must written off as a terminal loss
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Special Situations There are special situations that affect how the taxpayer must treat CCA: Sale of Real Property (Land and Buildings) Replacement of Property Changes in the Use of Property These topics will be discussed when Capital Gains/Losses are covered
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Eligible Capital Property
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Definition Interpretation Bulletin IT-143R2 states eligible capital property includes:
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CCA and CEC Lesson 2 - Capital Cost Allowance and Eligible...

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