CCA Lesson 1 - Capital Cost Allowances and Cumulative...

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Capital Cost Allowances and Cumulative Eligible Capital How Tax Addresses Depreciable Property
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Concepts of Depreciation: Tax Versus Accounting There is a wide range of generally accepted amortization methods in accounting, with ambiguous estimates of an asset’s useful life and salvage value As a result, accounting measures of depreciation are too subjective for tax purposes Furthermore, there is too much potential for abuse if a taxpayer is permitted to self- assess depreciation
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As a result ... Par. 18(1)(b) prohibits the deduction of any amounts related to capital costs, including depreciation, and Par. 20(1)(a) specifically permits the deduction of Capital Cost Allowance (CCA) The CCA system is strict, leaving no alternative choices for the computation of the economic decline in the value of an asset
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Accounting Term Tax Term Acquisition Cost Capital Cost Amortization Capital Cost Allowance (CCA) Net Book Value Undepreciated Capital Cost (UCC)
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Capital Cost Allowance (CCA) CCA is the tax term for a concept analogous to accounting’s depreciation and amortization CCA establishes specified rates using either diminishing balance or straight line depreciation – this eliminates the subjectivity and the potential for CCA provides the maximum deduction available to the taxpayer, but the taxpayer has discretion in selecting any amount within that range from zero to the maximum
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Three General Categories The CCA system separates capital property into three general categories: 1. Non-depreciable property 2. Depreciable property 3. Eligible Capital Property
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Non-Depreciable Property Generally, this property is not used up or worn out over time, and therefore, is not eligible for capital cost allowance, e.g. inventory receivables land investments
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Eligible Capital Property This category includes intangibles such as: goodwill patents unlimited franchises incorporation costs Par. 20(1)(b) specifically permits a deduction for eligible capital property This category will be discussed later
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Depreciable Property S.13(21) defines depreciable property as property acquired by the taxpayer where CCA has been or will be allowed Par. 20(1)(a) permits a deduction from net income to reflect the wear and tear on assets used in the income-earning process Upon disposition of depreciable property, a capital gain may arise, however, a capital loss can never occur, as we will see later
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Treatment of Assets In accounting, assets are generally depreciated on an individual basis, except in a few cases In tax, assets are broadly defined as belonging to a group or ‘class of assets’ Similar assets are pooled into the same class The total balance in the class is depreciated at the rate prescribed for that class There are over 50 classes of assets, each with its own rate of CCA Total Cost X 30% = Max. CCA
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This note was uploaded on 02/18/2011 for the course ECON 101 taught by Professor Professor during the Spring '11 term at American University of Antigua.

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CCA Lesson 1 - Capital Cost Allowances and Cumulative...

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