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Chapter 5

BUS 329 Chapter Notes - Chapter 5: Car Dealership, Capital Cost, British Rail Class 53


Department
Business Administration
Course Code
BUS 329
Professor
Susan Bubra
Chapter
5

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Chapter 5
Capital Cost Allowances and Cumulative Eligible Capital
General System
- ITA 18(1)(b) prohibits deduction of capital costs
Cannot expense capital assets
- ITA 20(1)(a) permits deduction of CCA
Tax vs. Accounting
- CCA and amortization CCA helps to do the deductions
- Capital cost and cost
- Undepreciated capital cost (UCC) and net book value (NBV)
- Individual assets in accounting and aggregated classes for tax
- Write-offs
Accounting
Variety of methods straight line method, declining balance, etc.
Applied consistently
Tax
Declining balance, with some straight line
Maximum specified (consistency is not required)
- Dispositions
Accounting
Proceeds less NBV equals gains/losses
Individual assets
Tax
Subtract lesser of capital cost or proceeds of disposition (POD) from class
Recapture, terminal loss, capital gain, or no tax effect
Additions
- Can only amortize capital assets
- Usual accounting additions (installation and taxes, etc.)
- Capitalization of interest (optional)
Depreciate over a period of time
Usually it is for a business, which they rarely choose to include
- Government assistance
Deducted
Similar to accounting rules
- Non-ar’s legth trasactio
Transfer between related parties at a price lower than FMV
May alter the values used
- GST/PST/HST considerations
Have to be capitalized
Include if non-refundable
- Current expense vs. improvements
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Criteria
Does the expenditure provide a lasting benefit?
Does the expenditure improve the asset or only maintain it?
Does the expenditure add to an existing property or create a separate class?
- Available for use rules
General criteria
First used by taxpayer
At the second taxation year after year of acquisition, you have to start calculating CCA
Public companies first year amortization is taken
Vehicles leases acquisition
- Rules for buildings
Substantially all (90%) used
Second taxation year after year of acquisition
Proper Segregation into Classes
- Methods and rates
Declining balance classes ITR 1100(1)(a)
Straight-line classes
13
14
29
Class 1
- Buildings acquired after 1987
- 4% declining balance
- 10% if 90% or more for manufacturing and processing (M&P)
New buildings only
Separate class 1
- 6% if 90% or more for non-residential (commercial buildings)
New buildings only
Separate class 1
Class 3
- Buildings before 1988
- 5% declining balance
Class 8
- Miscellaneous tangible including communications equipment (ex. non-smart telephones)
- 20% declining balance
Class 10
- Passenger vehicles with cost of $30,000 or less
Vehicles that are given to sales, executives, and employees, etc.
- 30$ declining balance
- Company vehicles are always included (ex. delivery car)
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