Depreciation

Question 1

CCA Basics – Define OC, SP_net, UCC

Answer 1

OC original cost; SP_net = sale price − selling costs; UCC is the class pool balance = Opening UCC − Limited SP + additions − CCA claimed.

Question 2

CCA Basics – What is Limited SP and why use it?

Answer 2

Limited SP = min(SP_net, OC) per asset, summed for the class; used for recapture/terminal loss tests so over-depreciation isn’t masked by selling above cost.

Question 3

UCC Mechanics – Ending UCC formula

Answer 3

Ending UCC = [Opening UCC − Limited SP + additions] − CCA claimed.

Question 4

Half-Year Rule – What’s the rule and base?

Answer 4

In the acquisition year (most classes), only ½ of net additions enter the CCA base: CCA base ≈ (Opening UCC − Limited SP + additions) + ½ × max(0, additions − dispositions).

Question 5

Dispositions & Tests – When do you get a terminal loss?

Answer 5

Only if the class is empty and Opening UCC > Limited SP. Terminal loss = Opening UCC − Limited SP (deductible).

Question 6

Dispositions & Tests – When do you have recapture?

Answer 6

Only if the class is empty and Limited SP > Opening UCC. Recapture = Limited SP − Opening UCC (income inclusion).

Question 7

Dispositions & Tests – What if Limited SP = Opening UCC?

Answer 7

Neither recapture nor terminal loss.

Question 8

Dispositions & Tests – Class not empty at year-end?

Answer 8

No recapture or terminal loss; continue UCC, apply half-year rule if applicable, claim CCA up to max.

Question 9

Capital Gains – How are gains on depreciable property determined?

Answer 9

Asset-by-asset: if SP_net > OC, capital gain = SP_net − OC; taxable capital gain = 50% × gain. This is separate from pool results.

Question 10

Capital Losses – Are capital losses on depreciable property allowed?

Answer 10

No. Capital losses on depreciable property are denied (become terminal loss only if class empties with UCC > Limited SP).

Question 11

Buildings & Land – Any special points?

Answer 11

Land is non-depreciable (no CCA). Buildings are in their class; sale above OC → capital gain; if the class empties, also check for recapture/terminal loss using Limited SP vs Opening UCC.

Question 12

Class 10.1 – Key exam rules

Answer 12

Each car is a notional one-asset class; on disposition no recapture/terminal loss; ½-CCA allowed in year of sale; capital gain still possible if SP_net > OC.

Question 13

Available-for-Use – When can CCA start?

Answer 13

Only once the asset is available for use (installed and ready). Before that, no CCA.

Question 14

Short Fiscal Period – How is CCA affected?

Answer 14

Maximum CCA must be prorated for year-ends shorter than 365 days.

Question 15

Order of Operations – Sale year steps

Answer 15

1) Start Opening UCC → 2) Subtract Limited SP → 3) If class empty, compute recapture/terminal loss and stop → 4) Else add additions → 5) Apply half-year rule → 6) Compute/claim CCA → 7) Ending UCC.

Question 16

Pool vs Asset – What determines what?

Answer 16

Pool (class) decides recapture/terminal loss via Opening UCC vs Limited SP; asset decides capital gain via SP_net vs OC.

Question 17

Planner Trap – Using SP_net vs OC in the wrong place

Answer 17

For gains, use SP_net − OC (don’t cap). For pool tests, use Limited SP = min(SP_net, OC).

Question 18

Numeric Drill – Empty class with loss

Answer 18

Opening UCC 60,000; OC 100,000; SP 50,000; costs 0 ⇒ SP_net 50,000; Limited SP 50,000. Class empty ⇒ Terminal loss = 10,000; no recapture; no capital gain.

Question 19

Numeric Drill – Empty class with recapture and gain

Answer 19

Opening UCC 6,000; OC 10,000; SP 12,000, costs 500 ⇒ SP_net 11,500; Limited SP 10,000. Class empty: Recapture = 10,000 − 6,000 = 4,000 (income). Capital gain = 11,500 − 10,000 = 1,500 (taxable 750).

Question 20

Numeric Drill – Class not empty after sale

Answer 20

Opening UCC 50,000; sell an asset (OC 20,000) for SP_net 22,000 ⇒ Limited SP 20,000. Another asset remains; therefore no recapture/terminal loss; continue pool: UCC before CCA = 50,000 − 20,000 = 30,000 (+ any additions), then apply half-year rule and claim CCA.

Question 21

Planning – How to manage recapture risk near a sale?

Answer 21

Consider claiming less CCA (it’s optional) before a known disposition, or timing additions/dispositions to manage pool balances and half-year effects.

Question 22

Planning – Selling costs placement

Answer 22

Deduct selling costs in SP_net for gains and for Limited SP; never add them to OC.