Question

A proprietorship commenced operations on May​ 1,2020 and will have a calendar fiscal year. On June​ 1, 2020​, the proprietorship acquired goodwill for $60,000.

What is the maximum CCA deduction of the goodwill for the year 2020​?

Answer 1

Capital Cost Allowance (CCA) is an annual deduction in the Canadian income tax code that can be claimed on depreciable assets when figuring taxable income under the umbrella of the Income Tax Act. Claimed as a percentage of the asset's cost for a number of years, the CCA is typically allowed for purchases that are expected to last for several years, such as buildings. However, the deduction is not allowed in full for a single year; rather, the full cost is spread out over a number of years on tax returns.

Class 14.1 property acquired after 2017 is allowed to be depreciated at a rate of 5% per annum, subject to the half-year rule that restricts CCA on net additions to the class in the year to one-half of the normal claim. A taxpayer is not required to claim the maximum allowable deduction in a taxation year but rather can defer the claim, or any portion of it, to a subsequent year.

Since Goodwill is covered under Class 14- a CCA rate of 5% is applicable on $60,000. However after applying half year rule

Max CCA for 2020 = 5% *60,000/2 = $1500