This is part five of the example about how to calculate Capital Cost Allowance (CCA). Click here for part four.
ABC Inc. had only one transaction related to its assets in class 8 in 2014. The equipment purchased in 2012 (see part three) was sold for $8,000 on June 17, 2014.
What is the maximum CCA for its equipment that ABC Inc. could deduct for taxation year 2014?
We assume ABC Inc. deducted the maximum CCA in 2013.
From part four, we know undepreciated capital cost (UCC) of class 8 as at December 31, 2013 = $52,060 + $6,000 – $50,000 – $1,612 = $6,448
Capital cost (CC) of equipment disposed = $12,000 (see part three)
Proceeds of disposition (POD) of equipment disposed = $8,000
Lesser of CC and POD = $8,000
UCC before CCA = $6,448 – $8,000 = – $1,552 (negative UCC. Recapture of capital cost allowance (CCA) occurred)
Recapture of $1,552 has to be included in income. undepreciated capital cost (UCC) was reduced to zero.
Maximum allowable CCA = 0
Key points in part five:
- Recapture of capital cost allowance (CCA) occurs upon negative UCC
- Recapture represents excess claim of CCA and is included in full as income.
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