VISUALIZATION TO INTRODUCE MODULE 2 - ADM 4344

CORE CONCEPTS ASSOCIATED WITH THE TAX IMPLICATIONS FROM CASH OUTFLOWS

$$ is spent
Item is not
deductible
Item is a (e.g. personal
capital asset Deduct as Item is added or disallowed
OR current OR to inventory OR
item)
expense (the tax OR
treatement of Item is
inventory is partially
Determine usually the deductible
which CCA same as the (e.g. home
Class accounting office
treatment) expense)

- Rules for year of acquisition vs. rules for years

Determine
subsequent to acquisition
maximum CCA
- Special rules (e.g. CCA cannot create or increase a
per ITA
loss against income from property

For each CCA class, taxpayer can take anywhere

between 0 and maximum CCA allowed per ITA.
Determine
If taxpayer was in low bracket and expected to be
optimal CCA
in higher bracket in subsequent years, it may be
deduction for
good tax planning to take $0 deduction for CCA in
specific
current year
situation

Copyright – Rick Musselman

Not for duplication, reproduction or sharing
VISUALIZATION TO INTRODUCE MODULE 2 - ADM 4344 (Continued)
CORE CONCEPTS ASSOCIATED WITH THE TAX IMPLICATIONS FROM CASH OUTFLOWS

Typical disposition of asset

Calculation 1: Proceeds of disposition (POD) - AcB = Capital gain (loss)***

depreciable
XXXX assets
*** Important *** Capital loss is denied on disposition of capital

NOTE: AcB = capital cost = adjusted cost base

Calculation 2 (only for dispositions of depreciable capital assets):

UCC - Lesser (POD vs. AcB) = Terminal loss or recapture or reduction of UCC balance with
no immediate effect on taxable income

Other notes
AccII rules allow larger CCA deductions in the year of acquisition for
most capital asset purchases

Record keeping = taxpayer must keep records that have the capital cost of each
individual item in a class

Record keeping = taxpayer must keep records showing individual asset's AcB
for 7 years after disposition

Net additions for the year = additions to the class - reduction of UCC
for dispositions in the class

Dispostions of goodwill have some differences vs. dispositions of other assets

Disposition of certain types of expenditures (called Eligible capital expenditures (ECE) (one
example = goodwill)) is very different if the ECE was purchased prior to 2017. ECE / CEC are
not in scope for the purposes of our course. (CEC was ~ CCA for ECE items)

Copyright – Rick Musselman

Not for duplication, reproduction or sharing