Ch.8 Bus income CCA

Question 1

concept

Answer 1

CCA is a discretionary deduction. A taxpayer may claim, in any year, any amount from $0 to the maximum allowable CCA.
CCA may not be claimed on an asset until it is available for use. The general rule is that an asset is considered to be available for use at the earlier of the time it is first used by the taxpayer and the second taxation year following the year of acquisition.

Question 2

UCC

Answer 2

UCC balance, beginning of year

+Additions in the year (1)

–Disposals in the year (2) - lessor or proceeds and original cost

+50% of net additions (3) - if additions > disposals

=Base amount for CCA

–CCA claimed in the year

–50% of net additions (per above)

=UCC balance, end of year

Ending UCC may also be determined as follows: UCC at the beginning of the year, plus additions, less disposals, less the CCA claim for the year.

Question 3

Recapture and terminal losses

Answer 3

taxpayer should be allowed a deduction for the full out-of-pocket cost of a depreciable asset.
Recapture and terminal losses are tax adjustments to ensure that over time, the taxpayer deducts no more or less than the taxpayer’s net out-of-pocket cost for the asset.
Recapture= adding the cost of all additions and deducting all disposals, the UCC balance is negative
A terminal= after adding the cost of all additions and deducting all disposals, a positive balance remains in the class and the taxpayer owns no other assets in that CCA class (that is, the taxpayer has sold the last asset in the class).

Question 4

Sale of land and building

Answer 4

• Terminal loss > capital gain: Reduce the terminal loss by the amount of the capital gain and deduct the remaining terminal loss from net income for tax purposes.
• Capital gain > terminal loss: Reduce the capital gain by the amount of the terminal loss and include one-half of the remaining capital gain in net income for tax purposes.