Practice problem — Answer

Recapture
Opening Half-year (terminal UCC for Ending
UCC Additions Disposals UCC rule loss) CCA Rate CCA UCC

Class 1 740,000 - (700,000) 40,000 - (40,000) - 4% - -

Class 1 - 850,000 - 850,000 (425,000) - 425,000 10% 42,500 807,500
Class 8 64,000 14,000 (5,000) 73,000 (4,500) - 68,500 20% 13,700 59,300
Class 10 153,000 113,200 (16,000) 250,200 (48,600) - 201,600 30% 60,480 189,720
Class 10.1 12,495 - - 12,495 (6,248) - 6,248 30% 1,874 -
Class 10.1 - 30,000 - 30,000 (15,000) - 15,000 30% 4,500 25,500
Class 12 - 2,500 - 2,500 (1,250) - 1,250 100% 1,250 1,250
Class 13 - 70,000 - 70,000 - - 70,000 Below 4,375 65,625
Class 14 - 20,000 - 20,000 - - 20,000 Below 2,016 17,984
Class 29 90,000 - - 90,000 - - 90,000 Below 90,000 -
Class 50 - 40,000 - 40,000 (20,000) - 20,000 55% 11,000 29,000
Class 52 - - (3,000) (3,000) - 3,000 - 100% - -
Class 53 - 120,000 - 120,000 (60,000) - 60,000 50% 30,000 90,000

261,696
Notes:

Sale of old building

Terminal loss on old building: 700,000 – 740,000 (40,000)
Selling price of land: 1,620,000 – 700,000 920,000
Original cost of land 896,000
Capital gain on land 24,000 24,000
Reduced terminal loss (16,000)

There is a terminal loss on the building and a capital gain on the land; $24,000 of the proceeds are reallocated to the
building, and the proceeds on the land are reduced by the same amount. This reduces the capital gain on the land to
nil and reduces the terminal loss on the building by $24,000.

New building
The new building is used at least 90% for manufacturing purposes, and it's assumed that an election was made to
include it in a separate Class 1, so the CCA rate is 4% + 6% = 10%.

Class 10 additions
Full cost of delivery trucks before trade-in: 68,000 + 16,000 84,000
New vehicle for controller — cost less than $30,000 29,200
113,200

Class 10.1
There is no terminal loss or recapture for Class 10.1. Instead, in the year of disposal, a CCA claim equal to one-half of
the CCA claim otherwise available is allowed. Remaining UCC is adjusted to 0.
CEO's new vehicle
This vehicle cost $42,800 (more than $30,000), so it goes into a separate Class 10.1 at $30,000.

Applications software
Applications software is included in Class 12, and the half-year rule applies — that is, it is not one of the Class 12
exceptions to which the half-year rule does not apply.

Class 13 leasehold improvements

The lease was entered into on October 1, 2016. The number of months from the beginning of the 2016 taxation year to
the end of the lease term, plus one renewal period, is 93 months [(7 × 12) + 9]. The number of 12-month periods in 93
months is 7.75, which is rounded to 8 for the purposes of this calculation.

The CCA claim before considering the half-year rule is the lesser of:
70,000 / 5 14,000
70,000 / 8 8,750
The CCA claim after applying the half-year rule is: 8,750 × 1/2 4,375

Class 14 limited-life intangibles

The licence is a limited-life intangible asset, so it goes into Class 14, and the CCA claim in the year of acquisition is:
(20,000 / 5 years) × 184/365 2,016

Class 29 manufacturing equipment

The manufacturing equipment was purchased in 2014. CCA is claimed on Class 29 manufacturing equipment on a
straight-line basis at a rate of 25% in the first year, 50% in the second year, and the remaining 25% in the third year.
The original cost of the manufacturing equipment was 90,000 / 0.25 = 360,000, and CCA would be claimed as follows:
2014: 360,000 × 25% 90,000
2015: 360,000 × 50% 180,000
2016: 360,000 × 25% 90,000
360,000

Computers
The old computers were purchased after January 27, 2009, and before February 1, 2011, so they would have been
included in Class 52. The CCA rate for Class 52 was 100%, and the half-year rule did not apply, so the balance in
Class 52 was nil at the beginning of 2016. Computers purchased after January 31, 2011, go into Class 50 with a CCA
rate of 55%.

Impact on net income

Reduced terminal loss on sale of old building (16,000)
Recapture on sale of computers 3,000
CCA claim (261,696)
Net impact (274,696)