This is part six of the example about how to calculate Capital Cost Allowance (CCA).
ABC Inc. purchased a piece of equipment for $20,000 on November 15, 2015. All assets in class 8 were sold for $6,000 on October 30, 2016.
What is the maximum CCA for its equipment that ABC Inc. could deduct for taxation year 2015? How about 2016?
Taxation year 2015:
From part five, we know undepreciated capital cost (UCC) of class 8 as at December 31, 2014 = 0
Addition of class 8 = $20,000
UCC before CCA = $0 + $20,000
50% of addition = $20,000 * 50% = $10,000 (Half-year rule)
UCC for CCA = $20,000 – $10,000 = $10,000
Maximum allowable CCA = $10,000 * 20% = 2,000
Maximum allowable CCA for year 2015 = $10,000 * 20% = $2,000
Undepreciated capital cost (UCC) as at December 31, 2015 = $20,000 – $2,000 = $18,000
Taxation year 2016
Proceeds of disposition (POD) of equipment disposed = $6,000
Equipment sold includes:
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- the one purchased for $12,000 on March 26, 2011 (see part two);
- the one purchased for $6,000 on February 25, 2013 (see part four); and
- the one purchased for $20,000 on November 15, 2015.
We can see no asset was sold for a price higher than its original cost (no capital gain), so
Lessor of POD and capital cost (CC) = $6,000
Remaining undepreciated capital cost (UCC) after all assets were disposed = $18,000 – $6,000 = $12,000.
$12,000 is terminal loss, which was allowed to be deducted from business income for 2016. ABC Inc. does not have the choice of deducting this loss in determining business income of a future year. If it is not claimed in 2016, it is lost forever.
Maximum allowable CCA for year 2016 = $0
Key points in part six:
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- Terminal loss occurs when there is remaining UCC after all assets in a class are disposed of.