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ADMS 3520 Chapter Notes -Capital Cost Allowance, Income Tax

Administrative Studies
Course Code
ADMS 3520
Thaddeus Hwong

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Chapter 7 – Capital Cost Allowance
- amortization expense for Income tax purposes
- it is different from accounting rules
- the amount calculated is the maximum CCA
- it does not need to be deducted if taxpayer does not
want to deduct it
Capital Cost Allowance
Important Rules
1) Different Classes & Rates
2) ½ year rule
3) Recaptured CCA
4) Terminal Loss
5) Prorate CCA for short years
6) Capital Gain if asset sold for more than original cost
½ Year Rule
- in year of purchase, ½ of regular CCA is deducted
- ½ year adjustment is made in column 7 of CCA
½ (Additions – Disposals)
(use NIL if amount is negative)
Terminal Loss
- when an asset is sold for an amount less than its
undepreciated capital cost, and all the assets of the
class are disposed of
- a terminal loss is fully deductible in year of disposal
- the difference between the proceeds and UCC is the
amount of the terminal loss
Recaptured CCA
- when an asset is sold for an amount greater than the
UCC in the class
- the difference between the proceeds and the UCC is
taxable income called “recaptured CCA”
- it is not necessary to sell all assets in the class