T777 – Capital Cost Allowance

To qualify as accelerated investment incentive property, property must be acquired by a taxpayer after November 20, 2018, and become available for use before 2028. In addition, certain properties are excluded from the definition, in particular:

• property acquired on a rollover basis (section 85 ITA), or following an amalgamation (section 87 ITA) or the wind-up of a subsidiary (section 88 ITA);
• property previously owned or acquired by the taxpayer or by a person or partnership with which the taxpayer did not deal at arm’s length at any time when the property was owned or acquired by the person or partnership.

Qualified property acquired after November 20, 2018, will not be subject to the half-year rule, but will benefit from an increased CCA in the year of acquisition. The modified subsection 1100(2) ITR incorporates the existing half-year rule and provides for the new increased first-year allowance according to the CCA class:

• The general rule that applies for all CCA classes subject to subsection 1100(2) ITR (except classes 12, 13, 14, 15, 43.1, 43.2 and 53) allows for an increase in the UCC balance before CCA equal to 50% of the net additions (these is no addition for property acquired and available for use after 2023 and before 2028).
• Specific rules that apply to classes 43.1, 43.2 and 53, benefit from a 100% CCA of the cost of acquisition for property in these classes acquired after November 20, 2018, and before 2024. A phase-out of the increased CCA is defined for each CCA class for property available for use after 2023 and before 2028.
• The half-year rule, which always apply to property that do not meet the definition of “accelerated investment incentive property” from subsection 1104(4) ITR as well as property acquired and available for use before November 21, 2018, and after 2027.

In addition, specific rules are provided for CCA classes 13 and 14 in paragraph 1100(1)(b) and (c) ITR. Therefore, for accelerated investment incentive property, the CCA will be equal to 150% of the regular calculated CCA in the year of acquisition of the property.

For more information, consult the Canada Department of finances Web page, 2018 Fall Economic Statement: Investing in Middle Class Jobs

For a CCA class 10.1,10 and 9, when the acquisition date of the property is after November 20, 2018, and this date is part of the fiscal year end of the business, the new measures will be taken into account in the calculation of the amounts on the lines Base amount for CCA and CCA.

The calculation of capital cost allowance must be made taking into account the rules with respect to "passenger vehicles", which are:

• Passenger vehicles costing $30,000 or less (before taxes) are part of class 10.
• Passenger vehicles costing more than $30,000 (before taxes) are part of class 10.1.
• Only the first $30,000 may be subject to capital cost allowance. Unrecovered federal and provincial taxes are added to this amount.
• A separate class 10.1 must be created for each eligible vehicle. Each new acquisition is subject to the half-year rule.
• No recapture or terminal loss may result from the disposition of a vehicle included in class 10.1. However, in the year of disposition of the vehicle, a capital cost allowance representing half the deduction normally claimed is granted.
• No terminal loss can result from the disposition of a vehicle included in class 10. However, if the disposition generates a recapture, the amount of this recapture must be included in income.
• No capital cost allowance is permitted when a class 10.1 vehicle has been acquired and disposed of in the same year.

For CCA class 8, when an amount is entered on the new custom line Cost of acquisitions made after November 20, 2018, the new measures will be taken into account in the calculation of the amounts on the lines Base amount for CCA and CCA.

An employed musician can claim CCA of 20% (class 8) on a musical instrument if he has to provide the musical instrument as a term of employment.

“No terminal loss may result from the disposal of a musical instrument. However, if this disposal generates a recapture of appreciation, this recapture must be included in the income.”

Note: When equipment such as computer, photocopy machine, telephone or any other similar piece of equipment is purchased rather than leased, deduction for capital cost allowance or interest paid are not allowed.