AFM362 Lecture Notes - Lecture 8: Capital Cost Allowance, Capital Cost, Marvel Super Heroes Advanced Set
28 Jun 2018
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Department
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Asset acquired during the year is subject to the half year rule because some assets purchased later in the year
would otherwise be eligible for the maximum CCA during the year
•
There are a lot of exceptions to which types of assets are not subject to the half year rule. Listed out in the book.
•
The property was depreciable property of the transferor; and○
The property was owned continuously by the transferor from a day that was at least a year before the end
of the taxation year of the acquirer in which the property was acquired.
○
The half year rule doesn't apply to property acquired from a person not dealing at arm's length with the acquirer
if:
•
Additions and the half
-
year rule
Catch up mechanism for discrepancies when an asset is sold
•
Recapture and terminal loss
Automobiles used in employment or business
For sales/negotiating person's expenses
○
For travel expenses, or
○
For motor vehicle expenses○
Employees who use their own automobiles to earn employment income and who are entitled to a deduction:•
Are entitled to deduct CCA on the automobiles
Allowed deduct up to prescribed limit at $30,000
•
In either case, the capital cost used as the basis for CCA is limited to the lower of the actual cost paid and a
prescribed amount.
•
When an automobile's capital cost is greater than the prescribed limit, it must be placed in class 10.1 with the cost
base at $30,000
•
No recapture or terminal loss1)
Separate class 10.1 for each automobiles2)
Since no recapture or terminal, special CCA calculations applies in the year of disposition. One
-
half of
the CCA that would've been allowed in respect of the automobile, had it not been disposed of, may be
deducted.
To qualify for this, the taxpayer must have disposed of an automobile that was included in class 10.1
and was owned by them at the end of the preceding year
CCA in year of disposition
3)
Three additional rules relating to CCA for a class 10.1 asset•
Class 10.1 Automobiles
We must look at the type of taxpayer for this class•
Terminal loss on the disposition is not a allowed deduction though from employment income
○
Employees would be required to include in their employment income the amount of CCA claimed subject to
recapture for the automobile they own
•
If its owned by someone other than an employee, the usual rules for deducting CCA subject to the half year rule,
including recapture or deducting terminal loss apply
•
Class 10 automobiles
Exceptions to the declining balance method
1/5 of the capital cost of the leasehold interest; and
1)
The capital cost of the leasehold interest divided by the number of 12
-
month periods from the beginning of
the taxation year in which the cost was incurred to the end of the term of the lease plus the first renewal
term not to exceed 10 years. See example
2)
CCA that may be claimed for a leasehold interest (class 13) after the first year of ownership is the lesser of
•
The first year write off should be 1/2 of the above amount to provide the equivalent of the half year rule•
Leasehold improvements
A patent or the right to use patented information for a limited or unlimited period is a class 44 asset with 25% rate
•
This election might be used when the patent is purchased late in its legal life, such that the straight line
capital cost allowance of class 14 would exceed the 25% of class 44
○
There is an exception that allows a taxpayer to elect such property as class 14 instead (patents for a limited
period)
•
For class 14, the capital cost of each property is divided by the remaining legal life, at the acquisition date, of the
property to obtain the amount of CCA for the year.
•
Capital cost should be prorated over the number of days in the remaining life of the class 14 asset•
This is one of the classes not affected by the half
-
year rule
•
Class 14 limited
-
life intangibles
Advanced rules related to the depreciable property
Class 14 includes certain property that is a patent, franchise, concession, or license for a limited period.
•
Straight line method•
This type of property must have a limited life•
If the cost of a patent is added to class 14, it will be eligible for CCA on a straight line basis over its remaining legal
life of 20 years.
•
In lieu of immediate deduction, the taxpayer may elect in a prescribed manner to deduct 1/10 of the
amount otherwise eligible for deduction in each of the 10 consecutive years beginning with the year in
which the expenditure is made.
○
An immediate deduction of the cost;1)
A deduction of the cost over a 10
-
year period; and
2)
Capitalization of the cost in the appropriate CCA class (14 or 44) or in the eligible capital property pool
3)
Three possibilities for dealing with expenses of representation may be available:○
Any amount deducted immediately or over 10 years is subject to recapture
○
CRA suggests that expenditures incurred in making any representation for the purpose of obtaining a franchise or
a patent to a government body relating to a business of a taxpayer would be deductible immediately.
•
Certain property may have an indefinite life. For expenditures after 2016. The property is classified in class 14.1
with its declining balance rate of 5%.
•
Franchises and similar property
Class 14 not affected by half year rule but 14.1 does? Yes.
When to classify property as 14.1?
AFM 362 Page 2
Document Summary
Asset acquired during the year is subject to the half year rule because some assets purchased later in the year would otherwise be eligible for the maximum cca during the year. There are a lot of exceptions to which types of assets are not subject to the half year rule. The half year rule doesn"t apply to property acquired from a person not dealing at arm"s length with the acquirer if: The property was depreciable property of the transferor; and. The property was owned continuously by the transferor from a day that was at least a year before the end of the taxation year of the acquirer in which the property was acquired. Catch up mechanism for discrepancies when an asset is sold. Employees who use their own automobiles to earn employment income and who are entitled to a deduction: Are entitled to deduct cca on the automobiles. Allowed deduct up to prescribed limit at ,000.
