This is part four of the example about how to calculate Capital Cost Allowance (CCA).
ABC Inc. purchased one piece of equipment for $6,000 on February 25, 2013. The equipment purchased in 2010 (see part one) was sold for $51,000 on July 20, 2013.
What is the maximum CCA for its equipment that ABC Inc. could deduct for taxation year 2013?
We assume ABC Inc. deducted the maximum CCA in 2012.
From part three, we know undepreciated capital cost (UCC) of class 8 as at December 31, 2012 = $57,200 + $12,000 – $5,000 – $12,140 = $52,060
Capital cost (CC) of equipment disposed = $50,000 (see part one)
Proceeds of disposition (POD) of equipment disposed = $51,000
Lesser of CC and POD = $50,000
Because the POD exceeds CC by 1,000 ($51,000 – $50,000), this amount is considered a capital gain. 50% of the gain has to be included in income.
UCC before CCA = $52,060 + $6,000 – $50,000 = $8,060
Because the asset additions ($6,000) is less than disposals (lesser of CC and POD: $50,000), half-year rule does not apply.
Maximum allowable CCA = $8,060 x 20% = $1,612
Key points in part four:
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- Capital gains result from disposal of an asset – proceeds of disposition (POD) is higher than capital cost (CC)
- Half-year rule only apply if there are positive net additions