Chapter 3

CPP disadvantageous for self-employed because they must pay both employee and employer
share but get some deferral for payments.

EI premiums are advantageous for self-employed individuals because they do not have to pay
both employee and employee shares and can defer payments.

CPP maximum for employers: $2,749 (5.1% of 57,400)

In EI calculation:
First calculate salary multiply 0.0162% for employee share
Then calculate employee share multiply by 1.4% with a maximum of ($1,204)
EI for employee: 2.268% (maximum of 1,204)

Advantages of contracting out:

 Avoid fringe costs
 Freed from on-going commitments
 Business is not legally responsible for their work

Making the distinction

Control of work
Ownership of tools
Ability to hire
Financial risk
Responsibility for investment
 Opportunity for profit

Three main reasons for Fringe benefits:

1. Tax considerations
2. Employee motivation
3. Employee Retention

This is the formula to calculate the basic standby charge:

(2%)(cost of car)(period of availability)

-cost of car including tax

- periods availability is roughly equal to months amount of availability. However, it is
determined by dividing the number of days the automobile is made available by 30 a rounding
down to the nearest whole number. Oddly, of .5 is rounded down rather than rounded up
In situations where employer leases vehicles:

(2/3) (Lease payment (monthly) excluding insurance) (availability factor)

Lease payments: include tax but subtract any insurance costs for insuring the vehicle monthly
Availability factor: the numerator is the number of days during the year the vehicle is available
to the employee and the denominator is the number of days during the year for which the least
payments were made

Regarding personal use of company vehicle:

Non-employment kilometres (cannot exceed denominator) / 1667 kilometres per month of
availability (the number of months is calculated by the number of days the car is available
divided by 30 and then round to nearest whole number *.06 and higher)
Automobile Benefts When an employee can make personal use of an automobile that is
provided by his or her employer, a taxable beneft must be recorded. The determination of
these benefts is complex and will be covered in a separate section of this Chapter beginning at
Paragraph 3-79.

Board and Lodging If an employer provides an employee with free board or lodging, its fair
market value must, in general, be treated as a taxable beneft. If the board or lodging is
subsidized rather than free, the fair market value will be reduced by any amounts paid by the
employee.The major exceptions to this general rule are as follows:
• Board or lodging provided at a special work site. A special work site is defned as an area
where temporary duties are performed by an employee who keeps a self-contained domestic
establishment at another location as his or her principal place of residence. Because of the
distance between the two areas, the employee is not expected to return daily from the work
site to his or her principal place of residence.

• Board or lodging provided at a remote work site. A remote work site is defined as remote
when it is 80 kilometres or more from the nearest established community with a population of
at least 1,000 people.Board or lodging provided at these sites is not considered to be a taxable
beneft.Cell

Phone And Internet Benefits If an employee makes some personal use of an employer provided
cell phone or employer provided internet services, a pro rata share of the cost is considered a
taxable beneft.employer

Provided Child Care If an employer provides, at his or her place of business, childcare that is not
available to the general public, it is not considered to be a taxable benefit.

Gifts, Awards and Long-Service Awards Cash and near cash gifts and rewards
are always taxable benefits. Non-cash gifts and non-cash awards to an arm’s length
employee, regardless of number, will not be taxable to the extent that the total aggregate
value of all non-cash gifts and awards to that employee is less than $500 annually. The
total value more than $500 annually will be taxable.

Gift certificates are considered near cash awards and taxable. Further, gifts with an
immaterial value, such as a coffee mug, can be ignored.

A separate non-cash long service/anniversary award, to the extent its total value is $500
or less, will not be considered a taxable benefit. The value more than $500 will be taxable.
To qualify, the anniversary award cannot be for less than five years of service, or
for five years since the last long service award had been provided to the employee.
In contrast, a performance related award is a reward and a taxable
benefit. Insurance Because of the many issues involved with various types of insurance,
coverage of insurance requires a separate section in this Chapter, which begins at
Paragraph 3-143.Employee Loans The complications associated with employee loans requires a
separate section in this Chapter, which begins at Paragraph 3-149.

Loyalty and Other Points Programs Loyalty points (e.g., Aeroplan points) that were
earned through employment activity are not considered to be a taxable benefit provided:
• the points are not converted to cash.
• the plan is not an alternative form of remuneration; and
• the plan is not for tax avoidance purposes.
Meals In general, reimbursing employees for meals consumed when they are required
to work overtime does not create a taxable benefit. If an employer provides subsidized meals to
employees, their value is not considered to be a taxable benefit, provided the employee pays a
reasonable amount for the benefit.

Medical Expenses When an employer pays for an employee’s medical expenses, it is

considered to be a taxable benefit.
Chapter 4:

if an individual moves to Ontario from Nova Scotia on December 30 of the current year, any
income for the entire year, other than business income, will be taxed in Ontario

Ordinary Income: This would include employment income, business income, property
income other than dividends, and other sources of income. In general, the effective tax
rates on this category are those presented in the preceding tables. For example, the
marginal rate for an individual living in Alberta and earning more than $350,000, would
be 48 percent (33 percent federal plus 15 percent provincial).

Capital: arise on the disposition of capital property. Only one-half of such gains are included in
Net Income for Tax Purposes and Taxable Income. This means that the effective tax rate on this
category of income is only one-half of the rates presented in the preceding tables. Returning to
our Alberta resident who is earning more than $350,000, her effective marginal rate on capital
gains would be 24 percent [(1/2) (33% + 15%)].
Dividends: dividends from taxable Canadian companies are subject to a gross up and tax credit
procedure that reduces the effective tax rate on this type of income. Also in that Chapter, we
explain the difference between eligible dividends and non-eligible dividends. Continuing with
our Alberta example, maximum federal/provincial tax rates on dividends are as follows:
Eligible Dividends 31.71%
Non-Eligible Dividends 42.31%

Income that is not subject to provincial or territorial tax is subject to additional taxation at the
federal level. This additional tax is a surtax of 48 percent on federal Tax Payable. This gives a
maxi-mum rate of 48.84 percent [(33%) (148%)]. This additional tax is paid to the federal
government.

The BPA for individuals with Net Income For Tax Purposes equal to or less than $150,473
will be $13,229; and
The BPA for individuals Net Income For Tax Purposes in excess of $214,368 will be $12,298.

$13,229 - [$931] [(The lesser of the individual’s Net Income and $214,368 - $150,473)
÷ $63,895]

A simple example will illustrate the application of this formula:

EXAMPLE John Basic has Net Income of $180,000 for the 2020 taxation year. What is
the amount of his 2020 BPA?
ANALYSIS John’s 2020 BPA would be calculated as follows:
$13,229 - [$931] [($180,000 - $150,473) ÷ $63,895] = $12,799
4-42. You should note that the BPA is the base for calculating the credit against Tax Payable.
The
relevant credit is based on this amount multiplied by the lowest tax rate for the year. For 2020
that rate is 15 percent. In this preceding example, the credit would be $1,920 [(15%) ($12,799)

Individuals with spouse or common law partner

The situation here is more complicated. However, in situations where an individual has a
healthy spouse who has no income of their own, it is equal to 15 percent of the BPA

EXAMPLE Marjory Frank has Net Income For Tax Purposes of $100,000. Her spouse
has Net Income For Tax Purposes of $5,200. Her spouse does not have a disability.
ANALYSIS Ms. Frank’s spousal credit would be equal to $1,204 [(15%)($13,229 -
$5,200)]

The second complication involves situations where the spouse or common-law partner is
dependent on the individual by reason of a mental or physical infrmity. In this situation,
ITA 118(1)(a)(ii) adds an additional amount of $2,273 to the base for the spousal credit, bringing
the available total to $15,502 ($13,229 + $2,273).
a mental or physical infirmity
ITA 118(1)(a)(ii) adds an additional amount of $2,273 to the base for the spousal credit, bringing
the available total to $15,502 ($13,229 + $2,273)

Caregiver Amount for Child

EXAMPLE Mr. and Mrs. Barton have a 13 year old child who has a physical infirmity.
The child has Net Income For Tax Purposes of $1,000.
ANALYSIS Either Mr. Barton or Mrs. Barton can claim a credit against Tax Payable of
$341 [(15%)($2,273)

Calculation Of The Canada Caregiver Credit

4-70. The 2020 base amount for this credit is $7,276, reduced by eligible individual’s Net
Income
For Tax Purposes in excess of $17,085. This produces a maximum credit of $1,091 [(15%)
($7,276)].
EXAMPLE Jake Nicholsen’s spouse has a mental infrmity. Her 2020 Net Income For
Tax Purposes is $21,785.
ANALYSIS Jake’s caregiver credit would be equal to $386 {[(15%][$7,276 - ($17,085 -
$21,785)]}

Age tax credit

EXAMPLE A 67 year old individual has 2020 Net Income For Tax Purposes of $40,000.
ANALYSIS An age credit of $1,112 {[15%][$7,637 - (15%)($40,000 - $38,508)]} will be
available to this individual.

The pension income credit is equal to 15 percent of the first $2,000 of eligible pension
income. This results in a maximum value of $300 [(15%)($2,000)

Charity
The formula for calculating the credit is found in ITA 118(3). Stated in a somewhat more
understandable fashion, it is as follows:
[(15%)(A)] + [(33%)(B)] + [(29%)(C)], where

A = The first $200 of eligible gifts.

B = The lesser of:
• The amount by which total eligible gifts exceed $200; and
• The amount, if any, by which the individual’s Taxable Income for the year
exceeds $214,368 (i.e., the amount of income taxed at 33 percent)
C = The amount, if any, by which the individual’s total gifts exceed the sum of
$200 plus the amount determined in B.

EXAMPLE For 2020, Doyle McLaughlin has Net Income For Tax Purposes of $620,000
and Taxable Income of $600,000. During the year, Doyle makes eligible gifts of $300,000.
ANALYSIS The maximum base for his charitable donations credit would be $465,000
[(75%) ($620,000)]. Doyle’s charitable donations tax credit would be calculated as follows
(note that Taxable Income is used in the following calculation):
A = $200
B = The Lesser Of:
• $300,000 - $200 = $299,800
• $600,000 - $214,368 = $385,632 = the income taxed at 33 percent
C = Nil [$300,000 - ($200 + $299,800)]
The charitable donation credit would be equal to $98,964, calculated as [(15%)($200)] +
[(33%) ($299,800)] + [(29%)(Nil)]. As you would expect with Doyle’s Taxable Income
exceeding $214,368 by more than the amount of his eligible gifts, none of his credit is
based on 29 percent

Medical tax credit

The medical expense tax credit is determined by the following formula:
A [(B - C) + D], where:
A is the appropriate percentage for the taxation year (15 percent).
B is the total of an individual’s medical expenses for him- or herself, his or her spouse
or common-law partner, and any of his or her children who have not reached 18 years of
age at the end of the year.
C is the lesser of 3 percent of the individual’s Net Income For Tax Purposes and $2,397
(2020 fgure). Note that the B - C total cannot be negative.
D is the total of all amounts each of which is, in respect of a dependant of the individual
(other than a child of the individual who has not attained the age of 18 years before the
end of the taxation year), the amount determined by the formula
E - F, where:
E is the total of the dependant’s medical expenses
F is the lesser of 3 percent of the dependant’s Net Income For Tax Purposes and $2,397
(2020 fgure).

EXAMPLE Sam Jonas and his dependent family members had the following Net
Income For Tax Purposes and medical expenses for 2020. Sam paid for all of the medical
expenses.
Individual Net Income Medical Expenses
Sam Jonas $100,000 $ 5,000
Kelly (Sam’s Wife) 12,000 4,400
Sue (Sam’s 16 Year Old Daughter) 8,500 4,100
Sharon (Sam’s 69 Year Old Mother) 6,000 16,500
Martin (Sam’s 70 Year Old Father) 12,000 200
Total Medical Expenses $30,20

Amount B Qualifying Expenses ($5,000 + $4,400 + $4,100) $13,500

Amount C - Lesser Of:
• [(3%)($100,000)] = $3,000
• 2020 Threshold Amount = $2,397 ( 2,397)
Subtotal $11,103

Amount D
Sharon’s Medical Expenses
Reduced By The Lesser Of:
$16,500
• $2,352
• [(3%)($6,000)] = $180 (180) 16,320

Martin’s Medical Expenses

Reduced By The Lesser Of:
$ 200
• $2,352
• [(3%)($12,000)] = $360 (360) Nil*

Allowable Amount Of Medical Expenses $27,423

Amount A The Appropriate Rate (Minimum Rate) 15%
Medical Expense Tax Credit $ 4,113

*Medical expenses can only be reduced to nil; the net result cannot be negative in this
calculation.

The disability tax credit is available under ITA 118.3 and, for 2020, it is equal to $1,286
[(15%)( $8,576)]. The base for the supplement is $5,003, providing a total maximum credit for a
disabled minor of $2,037 [(15%)($8,576 + $5,003)
University credit
The credit for the student is equal to 15 percent of interest paid in the year
or in any of the five preceding years

The maximum transfer for an individual student is the lesser of the available credit and
$5,000, multiplied by the tax rate for the minimum tax bracket (referred to as the “appropriate
percentage”). This amount is $750 [(15%)($5,000)].

EXAMPLE Megan Doxy has 2020 Taxable Income of $14,000, all of which is rental
income. She attends university full time during 2020, paying a total amount for tuition of
$8,000. Other than her tuition credit, her only other tax credit is her personal amount of
$1,984 [(15%)($13,229)]. She would like to transfer the maximum credits to her father.

ANALYSIS - Income Tax Act Approach Megan’s tuition credit is $1,200 [(15%)
($8,000)], well in excess of the maximum transfer of $750. However, this maximum
of $750 would have to be reduced by Megan’s Tax Payable after the deduction of her
personal amount. This amount would be $116 [(15%)($14,000 - $13,229)], leaving a
maximum transfer of $634 ($750 - $116). This would leave Megan with a remaining
unused credit of $450 ($1,200 - $116 - $634), which can be carried forward to future
years, but only for her own use. These calculations are the result of using the approach
presented in the Income Tax Act

ER and CPP tax credits:

For 2020, an employee’s CPP contributions are based on maximum pensionable earn-ings of
$58,700, less a basic exemption of $3,500. The maximum contribution for this year is
$2,898 [(5.25%)($58,700 - $3,500)]. The base for the ITA 118.7 credit is calculated using a rate
of
4.95 percent, and for 2020 it equals $2,732 [(4.95%)($58,700 - $3,500)], resulting in a credit of
$410. The difference of $166 ($2,898 - $2,732) is used as a deduction in determining the tax-
payer’s Net Income For Tax Purpose

EXAMPLE Jerry Weist changed employers during 2019 and, as a consequence, the total
amount of EI premiums withheld during the year was $957. In a similar fashion, the total
amount of CPP contributions withheld by the two employers was $2,930. His employment
income was well in excess of the maximum insurable and pensionable earnings.
ANALYSIS In fling his 2020 tax return, Jerry will claim a refund of $146, calculated as follows:

Political contributions

Income Tax Rules

4-172. A federal tax credit is available on monetary political contributions made to a registered
federal political party or to candidates at the time of a federal general election or by-election.
The maximum value is $650 and it is available to both individuals and corporations.
4-173. However, as discussed in the preceding Paragraph, the Canada Elections Act totally
bans contributions by corporations. The credit is calculated as follows:

Labour sponsored venture

There is a 15 percent federal tax credit for provincially registered LSVCCs prescribed
under the ITA. The maximum credit available is $750 [(15%)($5,000 net cost of shares)]. To be
eligible for the federal credit, the provincially registered LSVCC would need to:
• be eligible for a provincial tax credit of at least 15 percent of the cost of an individual’s
shares;
• be sponsored by an eligible labour body; and
• mandate that at least 60 percent of the LSVCC’s shareholders’ equity be investments in
small and medium-sized enterprises.

Canada training credit

the Canada Training Credit. In some-what simplifed terms, this proposal allows one-half of
amounts that would normally be eligible
for the 15 percent tuition tax credit to be eligible for a refund.

EXAMPLE Michael is eligible to accumulate an amount in his Canada Training account

in each of the years 2020 through 2022. This means that his preceding year balance for
2023 is $750 [(3)($250)]. During 2023 he pays $1,500 in eligible tuition fees.
ANALYSIS For 2023, Michael can claim a refundable tax credit equal to $750. This
is both one-half of the training costs of $1,500, as well as the balance in his Canada
Training account for 2022. The other $750 of the tuition fees can be used to claim a non-
refundable tuition tax credit of $112.50 [(15%)($750)].
At the end of 2023, the balance in his Canada Training account will be $250 ($750
opening balance + $250 for 2023 - $750 claimed in 2023). For 2024 and subsequent
years, he can accumulate an additional $4,000 in his Canada Training account. This is
the accumulation limit of $5,000, less the $250 per year that was added during the four
years 2020 through 2023.

Old age security benefit:

The OAS clawback is the lesser of the OAS payments included in income and 15 per-cent of the
taxpayer’s income in excess of the $79,054 income threshold.

EXAMPLE In her tax returns for both 2018 and 2019, Sally Leung has reported Taxable
Income in excess of $200,000 per year. Despite the fact that Sally is 70 years of age, she
would receive no OAS payments in 2020

Chapter 5:
both Undepreciated Capital Cost (UCC) and Net Book Value refer to the original cost of a
depreciable asset, less amounts that have been deducted in the calculation of income

EXAMPLE An enterprise acquires a depreciable asset in Manitoba at a cost of $11,200.

The cost is determined as follows:
ANALYSIS Provided the enterprise is a GST registrant and the asset is used in
delivering GST taxable supplies, the $500 federal GST will be refunded as an input tax
credit. However, there will be no refund of the $700 paid to Manitoba. This means that
the CCA base for this asset is the amount of $10,700 ($10,000 + $700)

Calulate CCA
EXAMPLE A particular CCA class contains assets with a capital cost of $780,000 and
a beginning of the period UCC balance of $460,000. There have been no additions to the
class during the year. The rate for the class is 10 percent.

Declining Balance Class If we assume that this is a declining balance class, the rate
would be applied to the $460,000 ending of the period UCC balance. This would result
in a maximum CCA for this class of $46,000 [(10%)($460,000)].

Straight-Line Class If we assume that this is a straight-line class, the rate would be
applied to the $780,000 original cost of the assets. This would result in a maximum CCA
for this class of $78,000 [(10%)($780,00

Things to consider in CCA

Half-Year (a.k.a. First Year) Rules Prior to the November 21, 2018, economic
statement, this rule applied to the majority of CCA calculations. It required that one-half
of any excess of additions for acquisitions, over deductions for dispositions to a class for
the year, must be subtracted prior to the application of the appropriate CCA rate. While
an equivalent rule is still applicable to some acquisitions, for most depreciable assets
the Accelerated Investment Incentive (AccII) provisions are applicable.

Accelerated Investment Incentive (AccII) On November 21, 2018, the Federal

government announced provisions that would signifcantly increase the amount of CCA
that could be deducted in the frst year that most capital assets become available for use.
While these provisions do not change the total amount of CCA that will be available for
a given asset, they are intended to encourage investment in capital assets by speeding
up the rate at which their cost can be deducted. Detailed consideration will be given to
these provisions later in this Chapter.
Short Fiscal Periods There are several situations in which a business will have a
short fscal period (e.g., a new unincorporated business that starts in July and has a
December 31 year end). In these situations, maximum CCA must be reduced to an
appropriate fraction of a full year

Rates commonly used for CCA Classes

Class 1 - Buildings (4%, 6%, or 10%)

• to 10 percent if it is used 90 percent or more for manufacturing and processing,
• to 6 percent if it does not qualify for the manufacturing and processing rate but is
used 90 percent or more for non-residential purposes

Class 3: Buildings pre-1988 (5%)

Class 8: Various Machinery, Equipment and Furniture (20%)

Class 10: Vehicles (30%)

-Note that after March 18, 2019, zero emission vehicles that would normally be
allocated to this class are allocated to Class 54, a class that provides a 100 percent write-off in
the year of acquisition

EXAMPLE Joan Stream acquires an automobile for $25,000. It will be used for both
business and personal activities. During 2020, business mileage is 40 percent of the
total driven. In 2021, business usage increases to 60 percent of the total usage.

ANALYSIS Maximum CCA for 2020 would be $11,250 [(1.5)(30%)($25,000)]. This

amount would be deducted from the UCC without regard to personal usage. The CCA
deductible from 2020 business income for Joan would be $4,500 [(40%)($11,250)].
In calculating CCA for 2021, the 100 percent fgure would be $4,125 [(30%)($25,000 -
$11,250)] and the deductible amount would be $2,475 [(60%)($4,125)]

Class 10.1: Luxury Cars (30%)

-value is greater than 30,000

Class 12: Computer Software and Small Assets (100%)

- as long as they are less than $500

Class 13: Leasehold Improvements (straight-line)

-the Regulations specify that CCA must be calculated on a straight-line basis for each
capital expenditure incurred. The maximum deduction will be the lesser of:
• one-fifth of the capital cost of the improvement; and
• the capital cost of the lease improvement divided by the lease term (including the
first renewal option, if any)

Class 14: Limited life intangible Assets (straight line)

Class 14.1: Goodwill and Other Intangible Assets (5%)

-The rate for any post-2016 additions to this Class is 5 percent applied to a declining
balance. In general terms, the items that are added to Class 14.1 are:
• goodwill;
• intangible assets that do not belong in any other class. While this is something of a
simplifcation, this category will largely be intangible assets that do not have a lim-ited life.
Intangible assets with limited lives are allocated to Class 14 or 44.

The CCA rate for Class 14.1 is 5 percent, applied to a declining balance. The AccII provi-sions
generally apply to this class.

EXAMPLE During 2020, Brasco Ltd. acquires two businesses. The acquisition
of Business 1 includes a payment for goodwill of $125,000, while the acquisition of
Business 2 includes a payment for goodwill of $180,000. Both of these businesses will
be operated as separately managed businesses within the Brasco organization. Given
this, there will be a separate Class 14.1 balance for each business.

In December 2021, Business 1 is sold at a price that includes goodwill of $140,000. Brasco
had no Class 14.1 balance as of January 1, 2020, and there were no other Class 14.1
transactions during 2020 or 2021.

ANALYSIS CCA on Class 14.1 for 2020 would be calculated as follows:

Class 44: Patents (25%)
Class 50: Computer Hardware and Systems Software (55%)
-Basic cell phones (that are not smart enough to be smartphones) would be Class 8
assets as they are communications equipment.

Classes 53, 29 and 43 - Manufacturing and Processing Assets

The situation here has been complicated by changes in the designated class for manufacturing
and processing assets. Unfortunately, at this point in time, there may be balances in all of
the classes that have been used. The relevant information is as follows:

• Class 53 Beginning in 2016, manufacturing and processing assets are allocated to

Class 53. This class has a 50 percent rate applied to a declining balance.

• Class 29 This class applied to assets acquired before 2016. It was a 50 percent
straight-line class and, while there may be some Class 29 balances remaining, such
balances would be unusual. Given this, we will not include any Class 29 calculations
in our examples or problems.

• Class 43 Manufacturing and processing assets acquired before March 19,

2007, are included in Class 43 where the rate is 30 percent applied to a declining
balance. As this is a declining balance class, there will be balances in this class
for many years to come.

Class 54 This is a temporary class created by the March 19, 2019, federal budget. It
contains zero emission vehicles that otherwise would be included in either Class 10 or
Class 10.1. Vehicles allocated to this class are eligible for a 100 percent write-off in their
year of acquisition.

EXAMPLE In December 2020, Green Ltd. acquires a Class 54 vehicle at a cost of

$150,000. Because of the limitation on Class 54 assets, the 2020 CCA on this vehicle is
limited to $55,000 [(100%)($55,000)]. The January 1, 2021, UCC is nil and there are no
other assets in Class 54.

The vehicle is sold in July 2021 for $110,000. There are no Class 54 acquisitions
during 2021.

ANALYSIS In the absence of a special provision covering this type of situation, the
company would have to deduct the $110,000 from a nil UCC balance, resulting in
recapture of $110,000. In effect, as a consequence of acquiring this vehicle, Green Ltd.
experienced a $110,000 income inclusion after only being able to deduct $55,000. This
is obviously not an equitable situation.
Fortunately, there is a relieving provision. ITA 13(7)(i)(ii) provides for using a deemed
proceeds of disposition calculated as follows:

Half Rules:
This old half-year rule applied to most asset classes. However, a few classes were exempt.
Of the classes that we have described in Paragraph 5-36, there were two exemptions:
• All assets included in Class 14 (limited life intangible assets).
• Some Class 12 assets such as medical or dental instruments and tools costing less than
$500, uniforms, and chinaware. Other Class 12 assets, such as computer software and
certifed Canadian flms, were subject to the half-year rules

Accelerated Investment Incentive

To be eligible for the AccII, depreciable assets must be acquired and made available for
use after November 20, 2018, and before 2028. In general, all classes of depreciable assets
can be eligible for the AccII. However, the manner in which the asset is acquired can cause it
to be non-eligible for this incentive. Assets acquired in the following situations are not
eligible:

Previous CCA Or Terminal Loss Deduction If, before the property was acquired, any
person or partnership has deducted CCA or a terminal loss, it is not eligible for the AccII
provisions.

Assets Previously Owned By The Taxpayer Or A Non-Arm’s Length Person If a

taxpayer or a person related to the taxpayer owned the property prior to its acquisition,
it is not eligible for the AccII provisions.

Assets Acquired On A Rollover Basis While we do not cover rollovers until Chapters
16 and 17, the basic idea is property that is transferred from a non-arm’s length person
at an elected value, usually in order to defer taxes. An example of this would be the use
of ITA 85 to transfer an unincorporated business to a corporation

EXAMPLE A business acquires a Class 8 asset with a capital cost of $100,000.

ANALYSIS The relevant calculations, both pre- and post-AccII, would be as follows
EXAMPLE Pohx Inc. has a taxation year that ends on December 31. On January 1, 2020,
the UCC balance in Class 8 is $250,000. During 2020, the company acquires additional
Class 8 assets at a cost of $40,000. There are no additional Class 8 acquisitions in 2021, and
there are no Class 8 disposals in either 2020 or 2021. Determine the 2020 and 2021 CCA and
the January 1, 2021, and January 1, 2022, UCC under each of the following assumptions:

1. The acquired assets are not eligible for the AccII.

2. The acquired assets are eligible for the AccII.

ANALYSIS The required information can be calculated as follows:

Accll Application – Class 12

-Class 12 assets qualify for a 100 percent write-off in the year of acquisition. Given
this, the Federal government decided that including this class in the AccII program would not be
necessary. With respect to medical and dental instruments, uniforms, chinaware, and tools
costing less than $500, their cost could be completely written off in their year of acquisition
AccII Application - Class 13
Class 13 is a straight-line class and was subject to the half-year rule. As with declining
balance classes, the AccII removes the old half-year rule. However, instead of adding 50 percent
to the base for calculating CCA, ITR 1100(1)(b)(i) allows the taxpayer to deduct 150 percent of
the regular straight-line amount.

EXAMPLE In 2020, a business makes leasehold improvements of $50,000 that will be

written off over the fve year term of the lease.

ANALYSIS The 2020 CCA would be calculated as follows:

[(150%)($50,000 ÷ 5)] = $15,000

As this is a straight-line class, this increased CCA deduction in the frst year would not alter
the 2021, 2022, and 2023 CCA, which revert to the regular straight-line amount of $10,000
($50,000 ÷ 5). However, the $10,000 amount could not be deducted in 2024, as only $5,000
[$50,000 - $15,000 - (3)($10,000)] remains as a UCC balance. Because of this, the Regulation
limits the CCA to the balance in the UCC. For the year 2024, the CCA would be $5,000.

Accll Application- Class 14

- ITR 1100(1)(c)(ii) provides a 50 percent addition to the CCA base

AccII Application - Class 53 (100% Write-Off)

Class 53 is a 50 percent declining balance class that was subject to the old half-year
rules. Reflecting the importance, the Federal government attaches to investment in
manufacturing and processing

EXAMPLE A taxpayer acquires a Class 53 asset with a capital cost of $200,000.

ANALYSIS The relevant calculations, both pre and post-AccII, would

be as follows
Short Fiscal Periods:

EXAMPLE Laing Ltd. begins operations on November 1, 2020, and has a December 31
year end. On November 11, it acquires Class 8 assets with a capital cost of $300,000.
Determine the 2020 CCA under each of the following assumptions:

1. The acquired assets are not eligible for the AccII.

2. The acquired assets are eligible for the AccII.

ANALYSIS The required information can be calculated as

follows:

Tax Planning Considerations for CCA

EXAMPLE A taxpayer has a $100,000 loss he would like to eliminate by reducing his
CCA by $100,000. The UCC of Class 1 (4 percent) is $2,500,000 and the UCC of Class 10
(30 percent) is $333,333. Both classes would have maximum CCA of $100,000.

ANALYSIS If $100,000 in CCA is taken on Class 1, the following year’s maximum CCA
will be reduced by only $4,000, from $100,000 [(4%)($2,500,000)] to $96,000 [(4%)
($2,400,000)].

In contrast, taking the $100,000 CCA on Class 10 would reduce the following year’s
maximum CCA by $30,000, from $100,000 [(30%)($333,333)] to $70,000 [(30%)
($233,333)]. It would clearly be preferable to take the CCA on Class 1, so that the
taxpayer has the option of taking higher CCA in the following year

Basic Rule For Dispositions When there is a disposition of a depreciable property, an

amount will be deducted from the UCC balance in the relevant CCA class. The deduction
will be equal to the lesser of:
• The proceeds of disposition.
• The capital cost of the individual asset.

Dispositions with no tax consequence:

The proceeds of disposition are less than the capital cost of the asset.
• There are additional assets in the CCA class.
• There is a positive balance in the CCA class at the end of the taxation year. Even if the
balance is negative at the time of the disposition, there will still be no tax consequences,
provided additions to the class prior to the end of the year leave a positive balance

EXAMPLE A business owns 20 vehicles, each with a cost of $25,000. All of these
vehicles are in Class 10. On January 1, 2020, this class has a UCC balance of $297,500.
During 2020, one of these vehicles is sold for $15,000. The business has a December
31 year end. There are no further acquisitions or dispositions during the year ending
December 31, 2020.

ANALYSIS The lesser of the vehicle’s capital cost ($25,000) and the proceeds of
disposition ($15,000) would be $15,000. This amount would be subtracted from the
January 1, 2020, UCC, leaving a balance of $282,500 ($297,500 - $15,000). As there are
additional assets in the class and the end of year balance is positive, the disposition
would have no immediate tax consequences. Maximum Class 10 CCA for the year
would be $84,750 [(30%)($282,500)], leaving a January 1, 2021, UCC of $197,750.
CCA Schedule

EXAMPLE The fscal year end of Blue Sky Rentals Ltd. is December 31. On January 1,
2020, the UCC balance for Class 8 is $155,000. During the year ending December 31,
2020, $27,000 was spent to acquire Class 8 assets. During the same period, a used Class
8 asset was sold for $35,000. The capital cost of this asset was $22,000
Chapter 6:
Subdivision a Income Or Loss From An Offce Or Employment
Subdivision b Income Or Loss From A Business Or Property
Subdivision c Taxable Capital Gains And Allowable Capital Losses

Various types of Income:

Property Acquired for use in a business
-factory and store buildings, the land underlying such buildings, furniture and fixtures in
a retail store, and equipment used in manufacturing.

Non-depreciable capital assets

-A disposition will result in a gain or loss

Depreciable capital assets

-A disposition may result in recapture, a capital gain and recapture, a terminal loss, or
no immediate tax consequence

Property Acquired and held as an investment

-These assets are acquired to be held
while they produce income. They are distinguished from business assets in that they produce
income with little or no effort on the part of the acquirer. Examples would be holdings of debt
securities, holdings of equity securities, and ownership of rental properties.

Property acquired for resale at a profit

-These assets are acquired with the
objective of reselling them at a profit. Examples would be the typical inventory balances
that are held by many businesses.

Property acquired by individuals for personal use

-These are assets acquired by individuals for personal use. Examples would be personal
use automobiles, personal use boats, and real property that is not held to produce income.
Business Income Vs. Employment Income For some individuals, it is not clear
whether they are working as an employee or, alternatively, as an independent contractor
earning business income (a.k.a., self-employed individual

Business Income Vs. Property Income While income producing assets are being
held, there may be a question as to whether they are producing business income or,
alternatively, property income.

Business Income Vs. Capital Gains On dispositions of property, it is sometimes

difficult to establish whether the resulting gain is business income or, alternatively, a
capital gain.
Calculations:

Chapter 4
Tax credits

Basic: 13229 or when income over 150,473, 13229 – (931)(lesser of net income and 214,368 –
150,473 / 63,895)
Spousal/eligible dependent no infirm: 13,229 – NI
Spousal/eligible dependent infirm: 13229 + 2273 – NI
Canada caregiver for child under 18 with infirm: 2273
Canada caregiver tax credit: 7,276 – (Net income over 17,085)
Age tax credit for those older than 65: 7,637 – (15% of NI over 38,508)

Charitable donations credit

15%A +33%B+29%C
A= first 200
B= lesser of amount by which gifts exceed 200 or amount taxable income exceeds 214,368
C= Amount by which gifts exceed sum of A and B

Medical expense
A(B-C +(E-F))
A = 15%
B= Total medical expenses for individual, spouse and children under 18
C= lesser of 3% of individuals of net income for tax purposes and 2,397
E = total of dependents medical expenses
F = lesser of 3% of individuals of net income for tax purposes and 2,397

Disability tax credit: 8,576

Disability credit for those under 18: 8,576 + (5,003 – total amounts paid for supervision over
2,930)

Education related tax credits: Tuition + maximum of 250 of ancillary fees + interest

Canada employment: lesser of 1,245 and net employment income

Pension income credit: 2,000
CPP: 2,732
EI: 856

Chapter 5
Accelerated Investment Incentive (Accll)
Add half of the addition amount
Apply CCA rate
Deduct the addition amount (reversal)
Class 1,3,8,10,10.1,14.1,44,50 all follows this standard procedure
Class 12: Qualify for 100% write off in year of acquisition
Class 13: Straight line class - Multiply regular amount by 150%. Total cost divided by years + one
renewal
Class 14: Straight line class – Acquisition amount divided by number of years and then multiply
by 150% for CCA
Class 53: 100% write off. Add entire acquisition amount to find CCA base
Short fiscal period: Take number of days in actual fiscal year divided by 365
Capital gain: Occurs when proceeds of disposition exceed capital cost of asset. Take 50% of
amount as the gain
Recapture of CCA: If there is a negative balance then the amount must be recaptured as
income
Terminal Loss: Occurs when there are no assets left in the class at the end of the year and there
is still a positive balance left
Disposition of class 14.1:
When proceeds are greater than cost, recognize a cap gain

Chapter 6
Reserve for doubtful debts
 Add previous years reserve
 Deduct actual write offs for the year
 Deduct reserve for current year
Reserve for undelivered goods and services
 Add previous years reserve
 Deduct current years reserve
Reserve for unpaid accounts
 Calculation is based off of gross profit
 Proceeds must not be received until 2 years after date of sale
 No reserve can be deducted if sale took place more than 36 months before end of that
year
Thin Capitalization
 Applied to specified shareholder who holds shares greater than 25%
 Disallowed interest: Total interest (interest rate times long term debt owned) – 1.5
times the sum of shareholder capital owned by shareholder and RE times interest rate
Deductibility of workspace in the home costs
 Different for employee with/without commissions and self employed
 See page 262 for details
Limits on CCA and interest for automobiles
 CCA: 30,000
 Interest: (A/30)(B), A= 300, B= number of days in period during which interest is
paid/payable
Reconciliation Schedule
 Start with accounting net income and make additions and deductions
 Page 274 of textbook
Sale of a business
 Vendor and Purchaser can make a joint election
o Vendor treats any loss on receivables as fully deductible business loss
o Purchaser includes the difference between face value of receivables acquired
and price paid in income. They can also deduct any amounts that prove to be
uncollectible