3520-8- updated 2009-jfth

3520-8- updated 2009-jfth - 3520-8 last updated on 1-7 1...

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3520-8: last updated on 9/17/09 1-7 1 Lecture 8: Depreciable Property and Eligible Capital Property 1.1 Coverage Use the lecture note for studying; if you think you need more materials please search for relevant materials in CTP Chapter 4 Exercises 4-2 to 4-11 Self-study problems 4-1, 4-3 (A only), 4-4, 4-5 2 Capital Property [ITA 54] ITA differentiates between capital property and items that can be deducted in the year they are purchased Capital property has an economic life longer than one year According to the case law, it has an “enduring benefit” There are three types of capital property: Depreciable property, Eligible capital property, and non-depreciable capital property 2.1 Depreciable property [ITA 13(21)] tangible property that goes down in value over time or as they are used, e.g. buildings and equipment intangible property with a fixed life that goes down in value over time, e.g. limited life franchises and licenses, patents 2.2 Eligible capital property [ITA 54] intangible property with an indefinite life that goes down in value over time, e.g. incorporation costs, purchased goodwill and unlimited life licenses or franchises 2.3 Non-depreciable capital property e.g. land or shares 3 No deduction can be claimed for capital property Unless it is specifically allowed by the ITA due to ITA 18(1)(b) ITA 20(1)(a) and 20(1)(b) allows a deduction (discussed below) 3.1 Capital cost allowance (CCA) = Capital cost allowance on depreciable property = ITA 20(1)(a) deduction: the CCA rate varies and is set by the Regulations can be claimed on
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3520-8: last updated on 9/17/09 2-7 tangible property that goes down in value over time or as they are used e.g. buildings and equipment intangible property with a fixed life that goes down in value over time e.g. franchises, licenses, patents The Income Tax Act and Regulations set maximum rates but taxpayer can take less than the maximum amount each year (including $0) CCA is the tax equivalent of what accountants call depreciation or amortization 3.2 Cumulative eligible capital amount (CECA) = ITA 20(1)(b) deduction @ 7% on cumulative eligible capital (CEC) balance CEC = ¾ of cost of intangibles that do not have a limited life e.g. incorporation costs, purchased goodwill and unlimited life licenses or franchises the ITA sets the maximum 7% rate but taxpayer can take less than the maximum amount each year (including $0) 4 CCA: Details Assets are grouped in classes as set out in Schedule II of the Regulations When an asset is purchased its cost is added to the Class it belongs to The cost of the asset includes GST and PST and installation costs The cost of the assets must be reduced by GST input tax credits (GST registrants only) Government grants (if any) For example, if a taxpayer purchased computer equipment in 2009 for use in a business the taxpayer would add the cost of the computer equipment to CCA Class 52. Class 52 has a 100% (maximum) CCA rate (and no half-net rule).
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