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Tax - Ch6 Solutions - CHAPTER 6 THE ACQUISITION USE AND...

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CHAPTER 6 THE ACQUISITION, USE, AND DISPOSAL OF DEPRECIABLE PROPERTY KC 6-1 [ITA: 13(21), 20(1)(a); Reg. 1100(1),(2) - Additions to the pool exceed Disposals] Class 8 UCC balance, beginning of year $10,000 Purchases $40,000 Disposals (3,500) 36,500 CCA: $10,000 x 20% $36,500 x 20% x ½ $(2,000) (3,650) 46,500 (5,650) UCC balance, end of year $40,850 KC 6-3 [ITA: 13(1) – Recapture] Class 12 UCC balance, beginning of year $1,300 Purchases $ 0 Disposals (2,000) (2,000) (700) Recapture of CCA 700 UCC balance, end of year $ 0 KC 6-5 [Reg. 1100(1)(a.2), (c); 1100(2) 1/2 year rule; Reg. 1100(3) - Short taxation year; Reg 1101(5b.1) – separate class election] Class 1: (20X6) Capital cost of building $100,000 CCA: $100,000 x 6% x ½ x 245/365 days (2,014) UCC 97,986 (20X7) CCA: $97,986 x 6% (5,879) UCC $ 92,107
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Class 14: (20X6) CCA: $60,000 x 245 (# of days owned in 20X6) = $4,025 3,652 (# of days in life of the franchise) (20X7) CCA: $60,000 x 365 (# of days owned in 20X7) = $6,000 3,652 (# of days in life of the franchise) [Note – the number of days in the life of the franchise includes 2 additional days for the two leap years that would occur in the 10 years]. The building is an addition to Class 1. Since the non-residential building was constructed after March 18, 2007, it has a 6% CCA rate based on the declining-balance [Reg. 1000(1)(a.2)] provided Kayla elects to place the building in a separate Class 1 [Reg 1101(5b.1)]. The solution assumes she did so. The election is made by attaching a letter to the tax return for the year In which the building is acquired. The franchise, having a limited legal life (10 years) is an addition to Class 14, a straight- line class. CCA on Class 14 is calculated by multiplying the cost by the number of days the franchise is owned in the year divided by the total number of days in its legal life [Reg. 1100(1)(c)].
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