Capital Cost Allowance (CCA) Depreciation is not a tax deductible expense CCA is the tax equivalent of depreciation CCA may be used as a method of amortization, particularly by smaller companies CCA follows procedures similar to those for the declining-balance method Uses rates (the CCA rate) prescribed by the Canada Revenue Agency (CRA) L01

Capital Cost Allowance (CCA) Assets are grouped into classes Each class has a CCA rate prescribed by the CRA In the year of acquisition, the half-year rule applies Half-year rule is applied to each class on net additions CCA may be claimed even if it results in a UCC (Undepreciated Capital Cost) that is less than estimated residual value Not required to take the maximum rate of CCA or even any CCA in a given year L01

Selected Examples of CCA Classes Automotive equipment, processing equipment 30% 10 Machinery or equipment not in another class 20% 8 Bridge, canal, or building 4% 1 Examples Rate Class L01

Capital Cost Allowance (CCA) When an asset is disposed of, the lower of its original cost or the proceeds from disposition is deducted from its CCA class If no assets remain in a particular class: any remaining undepreciated balance is deducted from taxable income (terminal loss) if a credit (negative) balance results, that credit is added to taxable income (recapture of CCA) L01

CCA – An Example On March 28, 2013, equipment is acquired; this is the only asset in the CCA class Cost: $500,000 CCA Class: 8 Useful Life: 10 years CCA Rate: 20% Residual Value: $30,000 L01

CCA – An Example 360,000 450,000 500,000 $288,000 $360,000 $450,000 UCC – Dec. 31st 72,000 90,000 50,000 CCA $500,000 x ½ x 20% $450,000 x 20% $360,000 x 20% Disposals Addition $ 0 UCC – January 1st 2015 2014 2013 Description L01

CCA – An Example Continuation of example above: In 2016, additional equipment was purchased for $700,000 In 2017, equipment purchased in 2013 is sold for $300,000 3. In 2018, remaining Class 8 assets sold for $500,000 -No other assets remain in the class L01

CCA – An Example (51,680) 560,400 988,000 $ 0 $448,320 $860,400 UCC – Dec. 31st 51,680 112,080 127,600 CCA (288,000 x 20%) + (700,000 x ½ x 20%) 560,400 x 20% Recaptured CCA 500,000 300,000 Disposals (lower of cost or proceeds) 700,000 Addition $288,000 UCC - January 1st 2018 2017 2016 Description L01

COPYRIGHT Copyright © 2013 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein.