The calculation of amortization expense under generally accepted accounting principles and the determination of CCA to be deducted for tax purposes can be viewed as somewhat similar procedures. However, there are some differences that arise in the application of these procedures. Describe the similarities and differences between the procedures used to calculate amortization expense for accounting records and those procedures used to establish the amount of CCA to be deducted in tax returns.

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The Answer is The basic similarity between amortization and CCA procedures is that both are directed towards allocating the cost of a depreciable asset to periods of time subsequent to the year in which the asset is acquired. Even here, however, we find a difference. Amortization procedures require that this allocation period be the useful life of the asset. In contrast, CCA procedures often use periods that are longer or shorter than the life of the asset. For example, CCA procedures allocate the cost of some Class 12 assets to one year, even though the assets last considerably longer. Alternatively, the period of write-off for assets subject to declining balance procedures have an unlimited write off period.
The objectives of amortization and CCA procedures are different in that amortization procedures attempt to match amortization expense with the related revenues in order to present fairly the results of operations of the enterprise. In contrast, CCA is usually calculated in such a fashion as to minimize Tax Payable.
As far as methods are concerned, CCA procedures are limited to the use of straight line or declining balance methods with the added complications required to apply the Accelerated Investment Incentive provisions and the short fiscal period rules. Which of these methods is to be used is specified for various types of assets in the Income Tax Regulations. In contrast, amortization calculations can use a much wider range of methods and, in addition, the accountant has discretion as to the choice of methods for particular types of assets.
A final difference is in the application of the methods chosen. The CCA rules determine the maximum amount that will be allowed as a deduction for each class. If an enterprise wishes to minimize a business loss by taking less or no CCA in a particular period, there is no prohibition against deducting less than the maximum CCA. In contrast, accounting amortization must determine the amount to be deducted on a consistent basis from year to year, without being influenced by the level of income being experienced by the enterprise.

The Calculation of Amortization Expense Under Generally Accepted Accounting Principles