A firm has six vehicles; the make, age, and current BV of each are as follows: What depreciation deduction (CCA) is permitted at the end of the current year (Year 1)?

Question

A firm has six vehicles; the make, age, and current BV of each are as follows:

Age in Years	Description	Book Value (undepreclated. capital cost)
5	Chev Van	$22,465
1	Hyundai Sedan	31,620
3	Honda Accord	18,732
22	Ford Explore	2,419
7	Dodge 1/2 ton pick-up	11,563
	Total book value	$86,799

What depreciation deduction (CCA) is permitted at the end of the current year (Year 1)?

Accepted Answer

According to tax legislation (see Table ll-1), automotive equipment is a Class 10 asset and can be depreciated at a CCA rate of 30%. Therefore, all the vehicles would be grouped into a single CCA schedule as follows:

Age in Years	Description	Book Value (undepreclated. capital cost)
5	Chev Van	$22,465
1	Hyundai Sedan	31,620
3	Honda Accord	18,732
22	Ford Explore	2,419
7	Dodge 1/2 ton pick-up	11,563
	Total book value	$86,799

The Schedule 8 for Year 1
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year's CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	50% rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate %	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	$86,799	[latex]\$—[/latex]	[latex]\$—[/latex]	$86,799	$—	$86,799	30%	$26,040	$60,759

The Year 1 CCA = [latex]\$26,040[/latex].

Action. In Year 2 the company sells the Honda Accord for [latex]\$20,000[/latex]. what CCA is permitted at the end of Year 2?
Calculation. When the company disposes of an asset, the instructions in Schedule 8 state that the proceeds from the disposal are subtracted from the current total BV of the asset class. The sale of the Honda is treated as follows. The proceeds are entered in Column 5 and subtracted from the capital cost
in Column 2 to produce a reduced total for the class.

The Schedule 8 for Year 2
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year's CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	[latex]50\%[/latex] rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate [latex]\%[/latex]	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	[latex]\$60,759[/latex]	[latex]\$—[/latex]	[latex]\$20,000[/latex]	[latex]\$40,759[/latex]	[latex]\$—[/latex]	[latex]\$40,759[/latex]	[latex]30\%[/latex]	[latex]\$12,228[/latex]	[latex]\$28,532[/latex]

The Year 2 CCA = [latex]\$12,228[/latex].

Notice that the current BV of the Honda = [latex]\$18,732 ×(1 - 30\%) = \$13,112[/latex]. So the sale resulted in a recapture of [latex](\$20,000 - 13,112 = \$6,888)[/latex] capital cost allowance. However, recaptures and losses are not explicitly calculated for a particular asset: only the class total is adjusted. The result of the Schedule 8 worksheet is that the recaptures or losses are added to or subtracted back into income at the same CCA rate at which they were taken out. This is covered in more detail in Chapter 12 under Acquiring and Disposing of Assets.
Action. In Year 3 the company buys a Toyota Land Cruiser for [latex]\$26,000[/latex]. What CCA is permitted at the end of Year 3?
Calculation. In the year that a company acquires an asset, the [latex]50\%[/latex] rule permits only one-half the normal CCA. The full capital cost of acquisitions is added in Column 3, but then one-half of the net amount for the year (acquisitions minus proceeds) is taken in Column 7, and the account total is reduced by that amount to arrive at a reduced undepreciated capital cost (Column 8) from which to calculate the CCA.

The Schedule 8 for Year 3
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year's CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	[latex]50\%[/latex] rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate [latex]\%[/latex]	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	[latex]\$28,532[/latex]	[latex]\$26,000[/latex]	[latex]\$0[/latex]	[latex]\$54,532[/latex]	[latex]\$13,000[/latex]	[latex]\$41,532[/latex]	[latex]30\%[/latex]	[latex]\$12,459[/latex]	[latex]\$42,072 [/latex]

The Year 3 CCA = [latex]\$12,459[/latex].

The effect of the calculation method is that one-half the capital cost, [latex](\$26,000/2) = \$13,000[/latex], is added to the previous year's total of [latex]\$28,532[/latex] to arrive at the CCA for second and subsequent years. No further adjustment is necessary. This is because of the half-year rule.
Action. In Year 4 no capital assets were acquired or disposed of. What CCA is permitted at the end of the year?
Calculation. With no additions and no subtractions, the Year 4 CCA is just a multiplication of the beginning-of-year undepreciated amount by the CCA rate.

The Schedule 8 for Year 4
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year's CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	[latex]50\%[/latex] rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate [latex]\%[/latex]	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	[latex]\$42,072[/latex]	[latex]\$0[/latex]	[latex]\$0[/latex]	[latex]\$42,072[/latex]	[latex]\$—[/latex]	[latex]\$42,072[/latex]	[latex]30\%[/latex]	[latex]\$12,622[/latex]	[latex]\$29,450[/latex]

The Year 4 CCA = [latex]\$12,622[/latex].

Action. In Year 5 the company sells the Ford Explorer for [latex]\$850[/latex] and buys process control equipment for [latex]\$25,000[/latex]. What CCA is permitted at the end of Year 5?
Calculation. The Income Tax Act lists process control equipment in Class 10, and so the capital cost is lumped in with the automobiles. In this year there is both an acquisition (Column 3) and a disposal (Column 5), and it is the net amount that is subject to the [latex]50\%[/latex] rule.

The Schedule 8 for Year 5
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year's CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	[latex]50\%[/latex] rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate [latex]\%[/latex]	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	[latex]\$29,450[/latex]	[latex]\$25,000 [/latex]	[latex]\$850[/latex]	[latex]\$53,600[/latex]	[latex]\$12,075[/latex]	[latex]\$41,525 [/latex]	[latex]30\%[/latex]	[latex]\$12,458[/latex]	[latex]\$41,143 [/latex]

The Year 5 CCA = [latex]\$12,458[/latex].

Action. In Year 6 the company sells all the remaining vehicles for [latex]\$9,000[/latex]. What CCA is permitted at the end of Year 6?
Calculation. The proceeds from the sale are entered in Column 5 and serve to reduce the total undepreciated capital cost of the Class 10 assets owned to [latex]\$32,143[/latex]. From this amount the annual CCA is calculated.

The Schedule 8 for Year 6
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year's CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	[latex]50\%[/latex] rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate [latex]\%[/latex]	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	[latex]\$41,143 [/latex]	[latex]\$0[/latex]	[latex]\$9,000[/latex]	[latex]\$32,143 [/latex]	[latex]\$—[/latex]	[latex]\$32,143[/latex]	[latex]30\%[/latex]	[latex]\$9,643 [/latex]	[latex]\$22,500 [/latex]

The Year 6 CCA = [latex]\$9,643[/latex].
Observe that at this time the only Class 10 asset that the company has is one-year-old process control equipment that, if we were to consider it alone, has an undepreciated capital cost or book value of

Book value = Original capital cost minus Accumulated depreciation

=[latex]\$25,000 - \left( \frac{\$25,000}{2}×30\%\right)[/latex]

= [latex]\$21,250[/latex]

However, the amount on which the CCA is calculated is [latex]\$32,143[/latex]. This illustrates the difference between the asset class account totals and actual book values. The account totals reflect the transactions for the asset class and are a result of assets that are no longer possessed. Generally, as long as the company possesses at least a single asset in any one class, the account remains open and the CCA is calculated annually. If the last asset in a class is sold, then the account books for that asset class are closed and the remaining balance (loss or recapture) is added to that year's income.

Table 11-1 CCA Asset Classes
CCA classes of commonly used business assets
Class	Rate %	Description
1	4	Most buildings you bought after 1987 and the cost of certain additions or alterations made after 1987. The rate for eligible non-residential buildings acquired after March 18, 2007, and used in Canada to manufacture and process goods for sale or lease includes an additional allowance of 6% ( total 10% ). For all other eligible non-residential buildings in this class, the rate includes an additional allowance of
1	4	2% (total 6%). To be eligible for the additional allowances, elections have to be filed. For more information, see Class 1 (4%).
3	5	Most buildings acquired before 1988 (or 1990, under certain conditions). Also includes the cost of additions or alterations made after 1987. For more information, see Class 3 (5%).
6	10	Frame, log. stucco on frame, galvanized iron, or corrugated metal buildings that meet certain conditions. Class 6 also includes certain fences and greenhouses. For more information, see Class 6 (10%).
8	20	Property that you use in your business that is not included in another class. Also included are data network infrastructure equipment and systems software for that equipment acquired before March 23, 2004. For more information, see Class 8 (20%) and Class 46 (30%).
10	30	General-purpose electronic data-processing equipment (commonly called computer hardware) and systems software for that equipment acquired before March 23, 2004, or after March 22, 2004, and before 2005 if you made an election.
10	30	Motor vehicles and some passenger vehicles. For more information, see Class 10 (30%) and Class 10.1 (30%).
10.1	30	A passenger vehicle not included in Class 10. For more information, see Class 10.1 (30%).
12	100	The cost limit for access to Class 12 $(100\%)$ treatment is $500 for tools acquired on or after May 2, 2006, and medical and dental instruments and kitchen utensils acquired on or after May 2, 2006. For more information, see Class 12 (100%).
13	Varies	Leasehold interest. You can claim CCA on a leasehold interest, but the maximum rate depends on the type of leasehold interest and the terms of the lease.
14	Varies	Patents, franchises, concessions, or licences for a limited period. Your CCA is the lesser of the total of the capital cost of each property spread out over the life of the property, or the undepreciated capital cost to the taxpayer as of the end of the tax year of property of that class
16	40	Taxis, vehicles you use in a daily car-rental business, coin-operated video games or pinball machines acquired after February 15, 1984, and freight trucks acquired after December 6, 1991, that are rated higher than 11,788 kilograms.
17	8	Roads, parking lots, sidewalks, airplane runways, storage areas, or similar surface construction.
29	Varies	Eligible machinery and equipment used in Canada to manufacture and process goods for sale or lease, acquired after March 18, 2007, and before 2016, that would otherwise be included in Class 43.
38	30	Most power-operated, movable equipment you bought after 1987 that was used for excavating. moving, placing, or compacting earth, rock, concrete, or asphalt.1
43	30	Eligible machinery and equipment, used in Canada to manufacture and process goods for sale or lease, that are not included in Class 29. For more information, see Class 43 (30%).
46	30	Data network infrastructure equipment and systems software for that equipment acquired after March 22, 2004. If acquired before March 23, 2004, include them in Class 8 (20%). For more information, see Class 46 (30%).
50	55	General-purpose electronic data-processing equipment (commonly called computer hardware) and systems software for that equipment, including ancillary data-processing equipment acquired after March 18, 2007, and not included in Class 29. For more information, see Class 50 (55%).
Source: Canada Revenue Agency. Reproduced with permission of the Minister of Public Works and Government Services Canada, 2016.

The Schedule 8 for Year 2
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year’s CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	$50\%$ rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate $\%$	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	$\$60,759$	$\$—$	$\$20,000$	$\$40,759$	$\$—$	$\$40,759$	$30\%$	$\$12,228$	$\$28,532$

The Schedule 8 for Year 3
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year’s CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	$50\%$ rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate $\%$	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	$\$28,532$	$\$26,000$	$\$0$	$\$54,532$	$\$13,000$	$\$41,532$	$30\%$	$\$12,459$	$\$42,072$

The Schedule 8 for Year 4
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year’s CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	$50\%$ rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate $\%$	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	$\$42,072$	$\$0$	$\$0$	$\$42,072$	$\$—$	$\$42,072$	$30\%$	$\$12,622$	$\$29,450$

The Schedule 8 for Year 5
1	2	3	5	6	7	8	9	12	13
Class number	Undepreciated capital cost at the beginning of the year ( un-depreciated capital cost at the end of the year from last year’s CCA schedule)	Cost of acquisitions during the year (new property must be available for use)	Proceeds of dis- positions during the year (amount not to exceed the capital cost)	Undepreciated capital cost (Column 2 plus Column 3 plus or minus Column 4 minus Column 5)	$50\%$ rule (1/2 of the amount, if any, by which the net cost of acquisitions exceeds Column 5)	Reduced undepreciated capital cost (Column 6 minus Column 7)	CCA rate $\%$	Capital cost allowance (Column s multi- plied by Column 9; or a lower amount)	Undepreciated capital cost at the end of the year (Column 6 minus Column 12)










10	$\$29,450$	$\$25,000$	$\$850$	$\$53,600$	$\$12,075$	$\$41,525$	$30\%$	$\$12,458$	$\$41,143$

Question 11.6: A firm has six vehicles; the make, age, and current BV of ea...

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