Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: In a situation where there are several assets in Class 14, will a taxpayer be entitled to claim more than the normal apportionment of the capital cost for a taxation year of a particular asset of the Class that is disposed of in the taxation year.
Position: No.
Reasons: The maximum capital cost allowance permitted by paragraph 1100(1)(c) of the Regulations is the amount obtained by apportioning the capital cost of the asset over the life of the asset at the time the cost was incurred.
February 27, 2002
Montreal Tax Services Office HEADQUARTERS
Pierre Leduc Jacques E. Grisé
Large Case Files 957-2059
2002-012120
Class 14 - Capital Cost Allowance
This is in reply to your memorandum of January 29, 2002, concerning the determination of the maximum capital cost allowance (CCA) for purposes of paragraph 20(1)(a) of the Income Tax Act in respect of a property described in class 14 (the class 14 asset) of Schedule II of the Income Tax Regulations (the Regulations).
For purposes of your example, the class 14 asset is one of many properties included in a taxpayer's class 14. The class 14 asset was purchased at a cost of $100,000 and had a term of 10 years. The taxpayer was entitled to, and claimed, $10,000 CCA in respect of the class 14 asset in each applicable year. At the end of the fourth year, the proportion of the undepreciated capital cost (UCC) of the taxpayer's class 14 applicable to the class 14 asset is $60,000 (the cost amount). You wish us to consider the implications if in the fifth year the class 14 asset is disposed of for proceeds of disposition of $46,000 (the first situation) or $66,000 (the second situation).
In the first situation, the UCC of the taxpayer's class 14 is reduced by the $46,000 proceeds of disposition. In our view, there is no basis for the taxpayer to claim a $14,000 (i.e. the cost amount less the proceeds of disposition) CCA in the fifth year in respect of the class 14 asset since there are other properties in the taxpayer's class 14 at the end of the year. The CCA for the fifth year would be restricted to $10,000. In our view, the taxpayer would also be entitled to claim a CCA of $10,000 in the sixth, seventh, eighth, ninth and tenth years in respect of the class 14 asset providing the UCC of the taxpayer's class 14, before any CCA claims for the particular taxation year but after taking into consideration the dispositions in the year, exceeds the aggregate of the CCA that can be claimed for each property of the class. In this respect, please refer to paragraph 1100(1)(c) of the Regulations. A depreciable property of a particular class of Schedule II of the Regulations remains in that particular class even after it has been disposed of.
In the second situation, the taxpayer's class 14 would be reduced by the $66,000 proceeds of disposition. Pursuant to paragraph 1100(1)(c) of the Regulations, the proceeds would only effect the claim for the remaining property in the taxpayer's class 14 if the UCC of the class, before any CCA claims for the particular taxation year but after taking into consideration the dispositions of the class in the year, would be less than the aggregate of the CCA that may otherwise be claimed for each property of the class. If at the end of a particular taxation year the UCC is greater than the aggregate of the CCA that may otherwise be claimed for each property of the class for that year, the taxpayer would be entitled to a CCA of $10,000 for the class 14 asset up to the tenth year.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to
Mrs. Jackie Page at (819)994-2898. A copy will be sent to you for delivery to the client.
We hope our comments are helpful.
John Oulton, CA
Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
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