An asset just purchased qualifies for a 20% CCA rate and qualifies for a 5% ITC. If the asset cost $60,000 what is the amortization base (UCC) for tax purposes?

Question

Quizplus · Accepted Answer

The UCC (undepreciated capital cost) is calculated as follows:

UCC at the end of the year = (UCC at the beginning of the year + additions – disposals) x CCA rate

In this case, since the asset was just purchased, the UCC at the beginning of the year is 0. The addition is the cost of the asset, which is $60,000. The disposal is 0 since the asset was just purchased.

Therefore, the UCC at the end of the year is:

(0 + $60,000 - 0) x 20% = $12,000

The amortization base (UCC) for tax purposes is the UCC at the end of the year, which is $12,000. However, since there is an ITC (investment tax credit) of 5%, this can be deducted from the UCC:

$12,000 - ($60,000 x 5%) = $9,000

Therefore, the amortization base (UCC) for tax purposes is $60,000 - $9,000 = $51,000. However, this is only for the first year. The UCC will change in subsequent years depending on the additions and disposals, and the 20% CCA rate will be applied to the new UCC each year.

An Asset Just Purchased Qualifies for a 20% CCA Rate