CHAPTER FIVE SOLUTIONS

CHAPTER FIVE SOLUTIONS - CHAPTER FIVE SOLUTIONS Solution to...

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CHAPTER FIVE SOLUTIONS Solution to Assignment Problem Five - 1 Part A As the manufacturing and processing equipment was purchased after March 18, 2007, it would be allocated to Class 29. CCA for this Class is determined on a 50 percent straight line basis. This results in a 25%/50%/25% straight line write-off after consideration of the half-year rule. The maximum CCA for 2009, 2010 and 2011 would be calculated as follows: $500,000 2009 CCA [(50%)(1/2)($500,000)] ( 125,000) UCC January 1, 2010 $375,000 2010 CCA [(50%)($500,000 Original Cost)] ( 250,000) UCC January 1, 2011 $125,000 2011 CCA (Balance In Class) ( 125,000) UCC January 1, 2012 Nil Part B If the new building is placed in the existing Class 1 and is not put into a separate Class 1, the applicable CCA rate will be 4 percent. Assuming the building is put into a separate Class 1, the applicable CCA rates will be as follows: Alternative 1 - 100 percent for manufacturing Since the building will be used more than 90 percent for manufacturing, the CCA rate is 10 percent. Alternative 2 - 60 percent for manufacturing and 40 percent for office space
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Since the building will not be used more than 90 percent for manufacturing, but will be used more than 90 percent for non-residential purposes, the CCA rate is 6 percent. Alternative 3 - 40 percent for manufacturing, 30 percent for office space and 30 percent for long- term residential rentals Since the building will not be used more than 90 percent for non-residential purposes, the CCA rate is 4 percent. This is the same rate as would apply if the building was added to the existing Class 1.
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Solution to Assignment Problem Five - 2 2009 The 2009 net rental income before CCA is $15,100 ($26,000 - $10,900). As a result, the maximum CCA for 2009 would be calculated as follows: Class 1 Class 8 Addition $255,000 $12,800 One-Half Net Additions ( 127,500) ( 6,400) CCA Base $127,500 $ 6,400 Maximum CCA: [(4%)($127,500)] ( 5,100) [(20%)($6,400)] ( 1,280) Add: One-Half Net Additions 127,500 6,400 January 1, 2010 UCC $249,900 $11,520 As the maximum 2009 CCA of $6,380 ($5,100 + $1,280) is less than the 2009 net rental income before CCA of $15,100, the full amount can be deducted. Note that when an individual uses assets to produce property income (e.g., rental income), the full calendar year is considered to be the taxation year of the individual. This means that the short fiscal period rules are not applicable to Mr. Taylor. 2010 The terminal loss for Class 8 would be calculated as follows: January 1, 2010 UCC $11,520 Disposition - Lesser Of: Proceeds Of Disposition = $10,400 Cost = $12,800 ( 10,400)
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Terminal Loss $ 1,120 The terminal loss will be deducted from the Class 8 UCC leaving a January 1, 2011 balance of nil. The 2010 net rental income before CCA is $9,100 ($28,400 - $18,180 - $1,120) and includes the Class 8 terminal
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CHAPTER FIVE SOLUTIONS - CHAPTER FIVE SOLUTIONS Solution to...

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