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Unformatted text preview: 3520-8: last updated on 9/17/091-71Lecture 8: Depreciable Property and Eligible Capital Property 1.1CoverageUse the lecture note for studying; if you think you need more materials please search for relevant materials in CTP Chapter 4Exercises 4-2 to 4-11Self-study problems 4-1, 4-3 (A only), 4-4, 4-52Capital Property [ITA 54]ITA differentiates between capital property and items that can be deducted in the year they are purchasedCapital property has an economic life longer than one yearAccording to the case law, it has an enduring benefitThere are three types of capital property: Depreciable property, Eligible capital property, and non-depreciable capital property2.1Depreciable property [ITA 13(21)] tangible property that goes down in value over time or as they are used, e.g. buildings and equipmentintangible property with a fixed life that goes down in value over time, e.g. limited life franchises and licenses, patents2.2Eligible 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 franchises2.3Non-depreciable capital property e.g. land or shares 3No deduction can be claimed for capital propertyUnless 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)3.1Capital 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 onJason Fleming [firstname.lastname@example.org]3520-8: last updated on 9/17/092-7tangible property that goes down in value over time or as they are usede.g. buildings and equipmentintangible property with a fixed life that goes down in value over timee.g. franchises, licenses, patents The Income Tax Act and Regulations set maximum ratesbut taxpayer can take less than the maximum amount each year (including $0)CCA is the tax equivalent of what accountants call depreciation or amortization3.2Cumulative eligible capital amount (CECA) = ITA 20(1)(b) deduction @ 7% on cumulative eligible capital (CEC) balanceCEC = of cost of intangibles that do not have a limited lifee.g. incorporation costs, purchased goodwill and unlimited life licenses or franchisesthe ITA sets the maximum 7% ratebut taxpayer can take less than the maximum amount each year (including $0)4CCA: DetailsAssets are grouped in classes as set out in Schedule II of the RegulationsWhen an asset is purchased its cost is added to the Class it belongs toThe cost of the asset includes GST and PST and installation costs The cost of the assets must be reduced byGST 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). Class 52 has a 100% (maximum) CCA rate (and no half-net rule)....
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- Spring '11