Prepared by

Ken Hartviksen

INTRODUCTION TO
CORPORATE FINANCE
Laurence Booth W. Sean Cleary

Capital Cost Allowance
Capital Cost Allowance
Capital Cost Allowance A - 3
Lecture Agenda
Learning Objectives
Important Terms
What is Capital Cost Allowance?
Importance of CCA
CCA versus Accounting Depreciation
CCA rules
Use of CRAs CCA Form
Recapture, Terminal loss and Capital gain on Disposal
Summary and Conclusions

Capital Cost Allowance A - 4
Learning Objectives

How the capital cost allowance (CCA) system works
The differences between accounting depreciation and CCA
How to use the CRA CCA schedule
How to identify recapture, terminal loss and capital gains when
assets are sold
The tax treatment of capital gains, terminal losses and recapture.

Capital Cost Allowance A - 5
Important Terms
Capital Cost Allowance
(CCA)
Capital gain
Capital loss
Cash flow from operations
Cash flow statement
CCA recapture
Depreciation

Generally accepted accounting
principles (GAAP)
Half-year rule
Operating loss
Terminal loss
Undepreciated capital cost
(UCC)
Capital Cost Allowance A - 6
CCA
Capital Cost Allowance (CCA) is the depreciation
method used by taxpayers in Canada when
reporting business income to CRA Canada Revenue
Agency for tax purposes.

Capital Cost Allowance A - 7
Importance of CCA to Financial
Decisions
Taxation issues must be explicitly addressed in each
financial decision you make.
Since CCA affects the net income from a business
(and especially affects net cash flow), knowledge of
the CCA system is essential for all business
decision-makers.
Capital Cost Allowance A - 8
CCA gives rise to a Tax Shield Benefit to
the Company
CCA is a non-cash deduction from income that would otherwise be
subject to income taxation.
As a result of the CCA deduction, taxable income is reduced.
This results in a savings in tax payable.
The tax shield benefits is equal to: T(CCA)
t = corporate tax rate
CCA = the dollar amount of CCA claimed
A firm with a 40% corporate tax rate and a $2,000 CCA deduction will
save $800 in taxes.
$800 $2,000 40%
CCA Rate Tax Corporate CCA on Savings Tax

= =
=
Capital Cost Allowance A - 9
Example:
Consider two firms that report $10,000 in earnings before CCA and taxes, face a 40% tax rate. One
firm has no CCA to claim, the other can claim $2,000 in CCA
Company A Company B
Earnings Before CCA & Tax $10,000 $10,000
CCA 2,000 0
Taxable Income $ 8,000 $ 10,000
Taxes @ 40% 3,200 4,000
Net Income $ 4,800 $ 6,000
Add back non-cash expense 2,000 0
Cash flow from Operations $ 6,800 $ 6,000
Note that company A is better off by $800 because of the $2,000 non-cash
deduction of CCA. That is the amount of taxes saved.
If you look at net income, Company A appears to be worse off, however, that is
only an accounting illusion!!
Capital Cost Allowance A - 10
CCA vs. Accounting Depreciation
CCA
like assets are grouped into
pools or classes
the CCA rate used in each
asset class is setout in the
regulations to the Income Tax
Act and may or may not reflect
economic wastage of the
asset
no estimate of useful life or of
salvage value
as long as the firm remains in
existence, and assets remain
in the pool, residual UCC
values will remain in the pool.
Accounting Depreciation
choose the method that will
best represent the economic
wastage of the asset
(declining balance, sum-of-
the-years digits, straight-line,
etc.)
individual assets are
depreciated
estimate of useful life and
salvage value is included
Capital Cost Allowance A - 11
CCA Rules
1/2 of the regular CCA rate for the class applies to
the net additions to the pool for that year.
CCA cannot be used to create a tax loss.
Capital Cost Allowance A - 12
CCA Over Time - A Simple Example
Assume you acquire a depreciable asset with a cost base of $100,000 and there are no
other assets in this pool. The CCA rate for the pool is 10%. Note you are allowed only
1/2 the regular CCA rate on the net additions to the pool in the year of acquisition.
Year UCC of pool Addition CCA @ 10%
1 0 100000 5000
2 95000 0 9500
3 85500 0 8550
4 76950 0 7695
etc.
Capital Cost Allowance A - 13
CCA Tax Shield Over Time
(Assume a corporate Tax Rate T of 40%)
Year UCC of pool Addition CCA @ 10% T(CCA)
1 0 100,000 5,000 2,000
2 95,000 0 9,500 3,800
3 85,500 0 8,550 3,420
4 76,950 0 7,695 3,078
5 69,255 0 6,926 2,770
6 62,330 0 6,233 2,493
7 56,097 0 5,610 2,244
8 50,487 0 5,049 2,019
9 45,438 0 4,544 1,818
Capital Cost Allowance A - 14
Tax Shield Over Time
(A Graphical Representation)
0
500
1000
1500
2000
2500
3000
3500
4000
Tax Shield
1 3 5 7 9 11 13 15 17 19
Year
T(CCA) at 10% on $100,000
Asymptotic
Curve
Capital Cost Allowance A - 15
Observations
In the foregoing you can now readily see:
CCA provides large tax shields in the early years of the assets
life
residual values remain in the pool long after the asset was
acquiredthis means that the firm will never fully recoup the
original cost of the asset as the firms asset base ages,
cash flows generated from CCA will not enable the firm to
replace the original asset.

If a capital intensive firm were to pay out all of its earnings in the
form of dividends, there would not be sufficient cash flow left to
replenish the asset base that is wearing out eventually the
firm would go out of business its physical assets would be
worthless and UCC would remain on its books!

Capital Cost Allowance A - 16
Disposition of Assets and CCA
A taxable capital gain would occur if the firm sold a
depreciable asset for greater than its original cost.


Capital Gain = Original Cost Base - Salvage Value
Capital Cost Allowance A - 17
Disposition of Assets and CCA
If the salvage value of the asset exceeds the UCC of the pool
there is a recapture of depreciation
recaptured depreciation is subject to tax

Recaptured Depreciation = UCC
pool
- Salvage Value
Capital Cost Allowance A - 18
Disposition of Assets and CCA
When the last physical asset in the pool is sold and not
replaced, the pool will be closed out.
If there is a positive balance remaining in the pool after
disposition, that balance is called a terminal loss and is
deductible from income in that year.it is a non-cash
deduction just like CCA.
Capital Cost Allowance A - 19
CRA Form
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions
in the year
5
UCC
after additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments for
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
for capital
cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
for the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the
end of the
year (col. 5
minus 9)
6 91,874.00 32,880.00 25,000.00 99,754.00 3,940.00 95,814.00 0.1 9,581.40 90,172.60
6 90,172.60 11,900.00 54,008.00 48,064.60 0.00 48,064.60 0.1 4,806.46 43,258.14
TOTAL CCA = 14,387.86
TAX SAVINGS = 3,596.97
Capital Cost Allowance A - 20
Capital Cost Allowance - Depreciation for
tax purposes

Class Rate Assets
1 4% Buildings acquired after 1987
8 20% Furniture, photocopiers
10 30% Vans, trucks, tractors and computers
13 Straight-line Leasehold improvements
16 40% Taxicabs and rental cars
22 50% Pollution control equipment
43 30% Manufacturing equipment
Capital Cost Allowance A - 21
CCA Schedule (simple)
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
after additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments for
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
for capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
for the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the
end of the
year (col. 5
minus 9)
6 10,000.00 0.00 0.00 10,000.00 0.00 10,000.00 0.1 1,000.00 9,000.00

Capital Cost Allowance A - 22
CCA Schedule (simple over time)
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the
end of the
year (col. 5
minus 9)
6 10,000.00 0.00 0.00 10,000.00 0.00 10,000.00 0.1 1,000.00 9,000.00
9,000.00 0.00 0.00 9,000.00 0.00 9,000.00 0.1 900.00 8,100.00
8,100.00 0.00 0.00 8,100.00 0.00 8,100.00 0.1 810.00 7,290.00
7,290.00 0.00 0.00 7,290.00 0.00 7,290.00 0.1 729.00 6,561.00

Capital Cost Allowance A - 23
CCA Schedule (simple net additions
rule)
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 0.00 20,000.00 0.00 20,000.00 10,000.00 10,000.00 0.1 1,000.00 19,000.00
20X1 6 19,000.00 0.00 0.00 19,000.00 0.00 19,000.00 0.1 1,900.00 17,100.00
20X2 6 17,100.00 0.00 0.00 17,100.00 0.00 17,100.00 0.1 1,710.00 15,390.00


The bottom line here is that you are allowed only half
the regular CCA on additions to the pool in the year of
acquisition.
Capital Cost Allowance A - 24
CCA Schedule (simple net additions
rule)
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 0.00 20,000.00 10,000.00 10,000.00 5,000.00 5,000.00 0.1 500.00 9,500.00
20X1 6 9,500.00 0.00 0.00 9,500.00 0.00 9,500.00 0.1 950.00 8,550.00
20X2 6 8,550.00 0.00 0.00 8,550.00 0.00 8,550.00 0.1 855.00 7,695.00


A net addition to the pool is equal to additions minus
disposals.
Capital Cost Allowance A - 25
CCA Schedule (simple changes over
time)
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 10,000.00 0.00 0.00 10,000.00 0.00 10,000.00 0.1 1,000.00 9,000.00
20X1 6 9,000.00 0.00 0.00 9,000.00 0.00 9,000.00 0.1 900.00 8,100.00
20X2 6 8,100.00 0.00 0.00 8,100.00 0.00 8,100.00 0.1 810.00 7,290.00


Capital Cost Allowance A - 26
CCA Schedule (simple changes over
time)
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 0.00 10,000.00 0.00 10,000.00 5,000.00 5,000.00 0.1 500.00 9,500.00
20X1 6 9,500.00 0.00 0.00 9,500.00 0.00 9,500.00 0.1 950.00 8,550.00
20X2 6 8,550.00 0.00 0.00 8,550.00 0.00 8,550.00 0.1 855.00 7,695.00


Compare this slide with the last onenote that the
CCA in the first year is half as great as in the last
slidebecause there was a net addition to the pool
of $10,000 and no beginning UCC.
Capital Cost Allowance A - 27
CCA Schedule (Disposals)
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 0.00 10,000.00 0.00 10,000.00 5,000.00 5,000.00 0.1 500.00 9,500.00
20X1 6 9,500.00 0.00 0.00 9,500.00 0.00 9,500.00 0.1 950.00 8,550.00
20X2 6 8,550.00 0.00 5,000.00 3,550.00 0.00 3,550.00 0.1 355.00 3,195.00


When you dispose of assets from the pool rememberthat
you are not allowed ANY CCA on the asset that has been
disposed of even though you might have used the asset for
the greater part of the fiscal year.
Capital Cost Allowance A - 28
CCA Schedule changes over time
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 0.00 25,500.00 0.00 25,500.00 12,750.00 12,750.00 0.1 1,275.00 24,225.00
20X1 6 24,225.00 10,000.00 4,000.00 30,225.00 3,000.00 27,225.00 0.1 2,722.50 27,502.50
20X2 6 27,502.50 0.00 2,000.00 25,502.50 0.00 25,502.50 0.1 2,550.25 22,952.25


Capital Cost Allowance A - 29
CCA Schedule Recapture
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 0.00 25,500.00 0.00 25,500.00 12,750.00 12,750.00 0.1 1,275.00 24,225.00
20X1 6 24,225.00 10,000.00 4,000.00 30,225.00 3,000.00 27,225.00 0.1 2,722.50 27,502.50
20X2 6 27,502.50 0.00 30,000.00 -2,497.50 0.00 0.00 0.1 0.00 -2,497.50


If the proceeds on the sale of an asset in the pool cause the
balance in the pool to become negativethat negative
amount is a recapture of depreciation.
Capital Cost Allowance A - 30
Recapture of Depreciation
A recapture is realized on the disposal of an asset in a CCA pool
where the remaining balance in the pool turns
negative.essentially this arises because the government has
allowed you to depreciate for tax purposes the equipment at too
great a rate.
When you sold the equipmentthe selling price did not reflect
the depreciated valuethe selling price exceeded not only the
depreciated value of the individual assetbut if other assets
remain in the pool, the selling price has exceeded the
depreciated (or UCC) of all of the assets remaining in the pool.
You will have to claim the recapture as income in the fiscal year
that it was realizedand pay income taxes on it.
Capital Cost Allowance A - 31
CCA Schedule Terminal Loss
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 10,000.00 0.00 5,000.00 5,000.00 0.00 5,000.00 0.1 500.00 4,500.00
20X1 6 0.00 0.00 0.00 0.00 0.00 0.00 0.1 0.00 0.00
20X2 6 0.00 0.00 0.00 0.00 0.00 0.00 0.1 0.00 0.00


If the LAST physical asset in the asset class was
finally sold for $5,000, and $4,250 was left in the
poolthe $4,250 is a terminal loss.
Capital Cost Allowance A - 32
Terminal Losses are Rare
These are usually pretty rare in practicebecause,
generally when old assets are worn outthey are
replacedand therefore, there remain physical
assets in the pool.
Only if a firm is getting out of a line of
businessand disposing of all of their assets (or
perhaps deciding to lease them all instead of owning
them)can you imagine a firm disposing of all of the
assets in an asset pool.
Capital Cost Allowance A - 33
Tax Treatment of Terminal Losses
In essence, a residual value left in the pool after the sale of the
last physical assetcan only occur if the sale value of the assets
(disposal values) were less than the UCC of the assetsthis
means that over time, the governments CCA rate did not reflect
the true wastage of the assets.
Consequently, a terminal loss can be deducted from income (just
like regular CCA)
Since a terminal loss is a non-cash deduction (like CCA) it will
give rise to a tax shield (Tax shield = terminal loss times the
corporate tax rate)
Capital Cost Allowance A - 34
CCA Schedule Capital Gain
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 40,000.00 0.00 0.00 40,000.00 0.00 40,000.00 0.1 4,000.00 36,000.00
20X1 6 36,000.00 0.00 0.00 36,000.00 0.00 36,000.00 0.1 3,600.00 32,400.00
20X2 6 32,400.00 0.00 16,500.00 15,900.00 0.00 15,900.00 0.1 1,590.00 14,310.00


You sell an asset for $20,000 that originally cost you
$16,500, you would use the lower of the two values
to record this disposal for CCA purposes.
Capital Cost Allowance A - 35
CCA Schedule Capital Gain and a
Recapture
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX 6 16,500.00 0.00 0.00 16,500.00 0.00 16,500.00 0.1 1,650.00 14,850.00
20X1 6 14,850.00 0.00 0.00 14,850.00 0.00 14,850.00 0.1 1,485.00 13,365.00
20X2 6 13,365.00 0.00 16,500.00 -3,135.00 0.00 0.00 0.1 0.00 -3,135.00


You sell an asset for $20,000 that originally cost you $16,500,
you would use the lower of the two values to record this
disposal for CCA purposes. If the sale causes the UCC to
become negativea recapture of depreciation will also be
triggered by the transaction.
Capital Cost Allowance A - 36
CCA Schedule template
Year
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3
Cost of
additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7
Base amount
f or capital cost
allowance
(col. 5 minus
6)
8
Rate
%
9
CCA
f or the year
(col. 7 times
8 or an
adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus
9)
20XX
20X1
20X2


Capital Cost Allowance A - 37
Capital Gains and CCA
If you sell a depreciable asset for more than its
original costthen the difference is a realized
capital gain:

Capital Gain = Selling Price Original Cost
$3,500 = $20,000 - $16,500

You would use the lower of the Original cost or the
selling price when recording the asset disposal for
CCA purposes. (in this case $16,500)
Capital Cost Allowance A - 38
Finding Ending UCC
You can always do a detailed table to finding ending UCC given
the assumption of maximum use of available CCA in each
year
However, you can also use a formula:


50 . 329 , 62 $
) 6561 )(. 95 (. 000 , 100 $
) 9 )(. 95 (. 000 , 100 $
) 1 . 1 )(
2
1 .
1 ( 000 , 100 $
) 1 )(
2
1 (
5
5
4
5
1 5
5
1
0
=
=
=
=
=

UCC
UCC
UCC
UCC
r
r
C UCC
n
n
Capital Cost Allowance A - 39
Finding ending CCA using a full CCA
Schedule
1
Class
number
2
Undepreciated
capital cost
(UCC) at the
start of the
year
3 Cost
of additions in
the year
4
Proceeds of
dispositions in
the year (Use
the lower of
Original cost
or selling
price)
5
UCC
af ter additions
and
dispositions
(col. 2 plus 3
minus 4)
6
Adjustments f or
current year
additions (1/2
times (col. 3
minues 4)) If
negative, enter
"0"
7 Base
amount f or
capital cost
allowance (col.
5 minus 6)
8
Rate
%
9 CCA
f or the year
(col. 7 times 8
or an adjusted
amount)
10
UCC at the end
of the year
(col. 5 minus 9)
6 0.00 100,000.00 0.00 100,000.00 50,000.00 50,000.00 0.1 5,000.00 95,000.00
95,000.00 0.00 0.00 95,000.00 0.00 95,000.00 0.1 9,500.00 85,500.00
85,500.00 0.00 0.00 85,500.00 0.00 85,500.00 0.1 8,550.00 76,950.00
76,950.00 0.00 0.00 76,950.00 0.00 76,950.00 0.1 7,695.00 69,255.00
69,255.00 0.00 0.00 69,255.00 0.00 69,255.00 0.1 6,925.50 62,329.50
Capital Cost Allowance A - 40
CCA and Capital Budgeting
Since the tax shield on CCA varies over time and the
stream of tax shield benefits can go on forever, it is
necessary to develop an equation for the tax shield on
CCA





This equation assumes the asset is purchased and held
forever (there is no salvage value)that the maximum
CCA is claimed each year
(

+
+

+
=
k
k
d k
Td
1
5 . 1 C
: CCA on Savings Tax of Value Present
0
Capital Cost Allowance A - 41
Summary and Conclusions
In this chapter you have developed:
A thorough understanding of the capital cost allowance
system used by CRA
An understanding of the differences between accounting
depreciation and CCA
An understanding of the financial statement impacts of
CCA versus accounting depreciation
An understanding of the cash flow implications of CCA
How to calculate the tax shield benefits of CCA and the
sum of the present value of tax shield benefits.
How various disposition assumptions can be incorporated
into a tax shield estimate.

Capital Cost Allowance A - 42
Internet Links
Canada Revenue Agency CCA Classes
Canada Revenue Agency CCA Depreciable Property Described
Canada Revenue Agency Tax Forms
Canada Revenue Agency CCA Form 2006 and later years
About Capital Cost Allowance (Small Business Canada)




Capital Cost Allowance A - 43
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