Gabriela H. Schneider, CMA; Grant MacEwan College INTERMEDIATE ACCOUNTING Sixth Canadian Edition KIESO, WEYGANDT, WARFIELD, IRVINE, SILVESTER, YOUNG, WIECEK Prepared by: Gabriela H. Schneider, CMA; Grant MacEwan College 2

Amortization and Income Tax— The Capital Cost Allowance Method C H A P T E R 12 Appendix 12A Amortization and Income Tax— The Capital Cost Allowance Method

Learning Objectives Describe the income tax method of determining Capital Cost Allowance (CCA).

Capital Cost Allowance (CCA) Amortization, depreciation and depletion are not tax deductible amounts CCA is the tax equivalent of these CCA may be used as a method of amortization, particularly by smaller companies CCA follows same procedures as the declining balance method Uses rates as prescribed by Canada Customs and Revenue Agency (CCRA)

Capital Cost Allowance (CCA) Assets are grouped into classes Each class has a CCA rate prescribed by CCRA In the year of acquisition, the half-year rule applies Half-rule rule applied to each class on net additions CCA may be claimed below the assets residual or salvage value

Capital Cost Allowance (CCA) When an asset is disposed of, the lower of its original cost or the proceeds from disposition are 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)

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