1. Depreciable Property and Eligible Capital Property
Chapter 5
Depreciable Property and Eligible Capital Property

2. CCA System Expenses deductible if incurred to earn income
capital property usually provides future benefit over several periods
Amortization (GAAP) versus CCA (Tax)
Amortization is mandatory and uses useful life
CCA and CECA is optional but specific and leaves few, if any, alternative choices in calculation

3. CCA System Types of capital property Other considerations
Non-depreciable capital property
Depreciable Property
Eligible Capital Property
Other considerations
CCA and neutrality
CCA and tax planning

4. CCA System Eligibility for CCA Depreciable property – exclusions
Property, the cost of which is deductible in computing income;
Property that is described as inventory;
Property not acquired for the purpose of gaining or producing income;
Property that is a yacht, camp, lodge, golf course, or facility for which expenses are not deductible by reason of par. 18(1)(f);
Land; and
Property situated outside Canada that is owned by non-residents.

5. CCA System Eligibility for CCA Employees – generally prohibited
Businesses – generally allowed

6. Basic Rules of CCA UCC of the class at the beginning of the year $ xxx
Add: purchases during the year
xxx
Deduct: dispositions during the year at lesser of:
(a) Capital Cost
(b) Proceeds of disposition
(xxx)
UCC before adjustment
Deduct: ½ net amount
UCC before CCA
Deduct: CCA for the year
Add: ½ net amount
UCC at the end of the year

7. Basic Rules of CCA Half-year rule
Attempt by the Act to adjust for length of time in the year that an asset is owned in year of purchase/disposition
“1/2 net amount” in calculation
Purchases during the year $ xxx
Deduct: less of capital cost
and proceeds of disposition (xxx)
Net amount (positive only) $ xxx

8. Common Property not Affected by the Half-Year Rule
Basic Rules of CCA
Exhibit 5-2
Common Property not Affected by the Half-Year Rule
Class
Paragraph
Property 12
(a)
A book that is a part of a lending library
(b)
Chinaware, cutlery, or other tableware
(c)
Kitchen utensil costing less than $500
(e)
Medical or dental instrument costing less than $500
(g)
Linen
(h)
Tool costing less than $500
(i)
Uniform
(k)
Rental apparel or costume, including accessories 14
Patent, franchise, concession or licence for a limited period

9. Recapture on disposition:
Basic Rules of CCA
Recapture on disposition:
Capital Cost
$10,000
Proceeds on disposition
8,000
UCC
7,000
Previously
claimed
as CCA
Recapture of
CCA claimed
Recapture will be an inclusion in income reflecting a
disposition in excess of UCC, which resulted in a negative
UCC balance.

10. Terminal loss on disposition:
Basic Rules of CCA
Terminal loss on disposition:
Previously
claimed
as CCA
Capital Cost
$10,000
UCC
7,000
Proceeds of Disposition
5,000
Terminal loss
Terminal loss reflects additional decline in value over $3,000
of CCA previously claimed. A terminal loss is deducted from
net income if no assets remain in the class. If assets remain in
the class, continue to claim CCA on UCC balance.

12. Basic Rules of CCA “Available-for-use” rule
Cost of depreciable property with trade-in
CCA as a permissive deduction
Taxation year less than 12 months
Ownership of property

13. Automobiles used in employment or business
Used in Business
Used for Employment
Class 10.1
Automobiles
For automobiles where primary purpose is to transport passengers and cost is greater than $30,000 + GST and PST/HST
Maximum $30,000 + GST and PST/HST
Separate class for each automobile
Recapture and terminal loss rules do not apply if cost is in excess of prescribed limit
Same rules apply as for business

14. Automobiles used in employment or business
Used in Business
Used for Employment
Class 10
Automobiles
For passenger vehicles that cost < $30,000 + GST and PST/HST
Vehicles whose primary purpose is not passengers
Basic rules apply including both recapture and terminal losses
Recapture applies; however, terminal losses are not allowed

15. Electronic Office Equipment
May elect to place one or more specified properties ordinarily in class 8 or 10 in a separate class
Specified properties (must be at least $1,000):
General purpose electronic data processing equipment and systems software (Cl. 10);
Computer software (Cl. 8);
A photocopier (Cl. 8); and
Electronic communications equipment (Cl. 8).

16. Electronic Office Equipment
Computer equipment acquired on or after March 19, 2007
Added to class 50 with a CCA rate of 55%

17. Basic Rules Transfers to another class – avoiding recapture
Interest expense
Capital cost reduction for cost assistance
Inducement payments

18. Exceptions to Declining Balance Method
Leasehold improvements
CCA is least of:
1/5 of the capital cost of the leasehold interest; and
Capital cost of leasehold interest divided by the number of 12-month periods from the beginning of the year in which the cost was incurred to the end of the term of the lease plus the first renewal term (not to exceed 40 such 12-month periods).

19. Leasehold Interest Example
If a $16,000 leasehold improvement is made on a rental building. Details of lease: Lease term 5 years Renewal options 2 options to renew of 3 years and 2 years What is the CCA for each year?

20. Leasehold Interest Example
CCA would be lesser of:
1/5 * Capital cost ($16,000) $3,200
$16,000 / [ 5 + 3] $2,000
CCA would be $1,000 in first year, $2,000 in
each of the next seven years, and remaining
$1,000 in the ninth year.

21. Exceptions to the Declining Balance Method
Class 14 Limited Life Intangibles
Based on remaining legal life of asset
Includes patents, franchises, concessions, or licences
Patents included in Class 44 unless elected not to be included in Class 44 but Class 14

22. Exceptions to the Declining Balance Method
Manufacturing and processing machinery and equipment
If property used in manufacturing and processing acquired after March 19, 2007 and before 2014, asset is added to Class 29 (50% rate)
NOTE: The March 21, 2013 federal Budget proposes to extend the time period to acquire this equipment from “before 2014” to “before 2016”.

23. Involuntary and Voluntary Disposition
Involuntary Dispositions
Taxpayer may elect in the replacement of property to offset any recapture caused by proceeds for the loss
Replacement must be made the later of
24 months after the initial taxation year; or
By the end of the second taxation year following the year in which the proceeds are considered receivable.

24. Involuntary and Voluntary Disposition
Same rules to offset recapture available for certain voluntary disposition of depreciable “former business property” but replacement must be made the later of:
12 months after the initial taxation year; or
By the end of the first taxation year following the year of disposition.

25. Change in Use and Part Disposition Rules
Change from income-producing to other purpose
Change from non-income-producing to income-producing purpose
Property acquired for multiple purposes
Non-arm’s length transfer of depreciable property

26. Franchises and Similar Property
Expenses for representation for obtaining franchises or patents can be:
An immediate deduction of the cost;
A deduction of the cost over a 10-year period; and
Capitalization of the cost in the appropriate CCA class or eligible capital property pool.
Franchises with unlimited lives would be eligible capital property

27. Eligible Capital Property
Intangible property known as “nothings”
Includes purchased goodwill, franchises with unlimited lives, incorporation costs
¾ of each eligible expenditure add to cumulative eligible capital (CEC) account
Amortized on a declining balance using a maximum rate of 7%

28. Eligible Capital Property
Election re: Capital Gain
Allows taxpayer to treat a gain on the disposition of eligible capital property as a capital gain.
Conditions:
Property disposed must be eligible capital property of a business, but not goodwill.
The cost of the property must be determinable.
Proceeds of disposition must exceed the cost.
Taxpayer’s exempt gains balance in respect of the business must be NIL.
The taxpayer must elect in the taxpayer’s return of income for the year.

29. Capital Personal Property and the Input Tax Credit System under GST/HST
Basic Rules
Input tax credit available on purchase of property or service acquired for commercial activity
Special rules for capital property depending on type
Capital personal property
Capital real property

30. Capital Personal Property and the Input Tax Credit System under GST/HST
Passenger Vehicles
Owned by registrants other than individuals or partnerships
Input tax credit may only be claimed on cost of vehicle up to $30,000 if primary-use test met.
Owned by registrants who are individuals or partnerships
May claim input tax credit if vehicle used exclusively (90% or more) in commercial activity
May claim input tax credit on cost up to $30,000