Question

Prime Real Estate Ltd. has determined that its Net Income for Tax Purposes, before any CCA deductions, was $ 95,000, for the taxation year ending December 31, 2019. As Prime Real Estate Ltd. does not have any Division C deductions, Taxable Income before any deductions for CCA would also amount to $ 95,000.

On January 1, 2019, Prime Real Estate Ltd. had the following UCC balances:

Class 1 (Two Buildings)                                           $ 600,000

Class 8                                                                         230,000

Class 10                                                                       120,000

Class 10.1 (BMW - Cost $ 195,000)                             33,000

Class 10.1 (Mercedes - Cost $ 240,000)                       30,000

Class 12                                                                         70,000

Class 13*                                                                       94,500

Class14.1 (Pre January 01, 2017 Acquisition)            195,300

* This balance reflects leasehold improvements made on January 1, 2017 at a total cost of $ 126,000. The original term of the lease was 4 years. However, there are two available renewal options, each allowing Prime Real Estate Ltd. to renew for a period of two years.

• During 2019, the cost of additions to Class 8 amount to $ 70,000, while the proceeds from dispositions in this class totaled $ 30,000. In no case did the proceeds of disposition exceed the capital cost of the assets retired, and there were still assets in the class as of December 31, 2019.
• During 2019, the cost of additions to Class 10 amounted to $ 80,000, while the proceeds from dispositions in this class totalled $ 60,000. In no case did the proceeds of disposition exceed the capital cost of the assets disposed of, and there were still assets in the class as of December 31, 2019.
• The company plans to sell the BMW in January, 2020, and expects to receive about

$ 110,000.

• All of the Class 12 assets were acquired in 2018.
• There were no acquisitions or dispositions in either Class 1 or Class 12 during 2019.
• Prime Real Estate Ltd. has received an unsolicited offer to purchase one of its buildings which it is considering.

During the preceding 3 years, Prime Real Estate Ltd. reported the following Taxable Income:

$ 40,000 re 2018

$      Nil re 2017

$ 10,000 re 2016

Required:

A. Calculate the maximum CCA that could be taken by Prime Real Estate Ltd. for the taxation year ending December 31, 2019. Your answer should include the maximum that can be deducted for each CCA class.

B. As Prime Real Estate Ltd.’s tax advisor, indicate how much CCA you would advise the company to take for the 2019 taxation year, and the specific classes from which it should be deducted. Provide a brief explanation of the reasons for your recommendations. In determining your solution, ignore the possibility that 2019 losses can be carried forward to subsequent taxation years.

Answer 1

A)	Capital cost allowance is one way to reduce the business taxable income.According to CRA it's a tax deduction allow a business to claim for the loss in value of capital assets due to wear and tear or obsolescence.
	Caluculate Capital Cost Allowance
	CCA Class	Asset	CCA Rate	UCC Balnce ($)	CCA ($)	Remarks
	1	Buildings	4%	600000	24000
	8	-	20%	230000	86000	Proceeds from disposition-$30000,Cost of addition .so loss $40000 is allowed as CCA additionally (40000+46000)
	10	-	30%	120000	56000	Proceeds from disposition-$60000,Cost of addition .so loss $80000 is allowed as CCA additionally (20000+36000)
	10.1	BMW	30%	33000	9900	30 % on depreciated value or $30000 which ever is lower
	10.1	Mercedes	30%	30000	9000	30 % on depreciated value or $30000 which ever is lower
	12	-	100%	70000	35000	Half year rule -70000*50%=35000 CCA is allowed in 2018 balnce allowed now
	13	Leasehold Improvements	-	94500	31500	Total Cost - $126000 lease term -4 years CCA=$126000/4
	14.1		5%	195300	9765
					261165
B)	Maximum allowable CCA is $ 261165 but taxable income in this year is $95000 so balance can transfer to next years.
	Businesses can claim from 0 to the maximum amount of CCA in any year and carry over any amount less than the maximum to claim for the next year.
	So this year maximum claim is $ 95000 balance $ 166165 CCA maximum $ 95000 can be carry over to next year.