Capital Cost Allowance Flashcards

Study Notes

Capital Cost Overview

Capital cost is the total amount for claiming Capital Cost Allowance (CCA), usually excluding land costs.
Components of capital cost include:
- Purchase price of rental property, excluding land.
- Fees (legal, accounting, engineering, installation) related to purchase or construction, excluding land fees.
- Cost of additions/improvements after acquisition, assuming they weren't claimed as current expenses.
- Soft costs incurred during construction, renovation, or alteration, if not previously deducted.

Soft Costs vs. Hard Costs

Hard costs encompass direct construction expenses, such as materials and labor.
Soft costs are expenses not directly tied to construction, including fees for project management, permits, inspections, and other overhead costs.

Definition of Soft Cost

Soft costs include:
- Architectural and engineering fees, inspection costs, accounting, legal fees.
- Expenses for movable assets like furniture, computers, and telephone systems.
- Ongoing costs post-project completion, including maintenance, insurance, and security.

Capital Cost Allowance (CCA)

CCA allows for depreciation deductions over several years for assets that wear out or become obsolete.
Qualifying assets can include buildings, furniture, and equipment used in business operations.

Current Expenses vs. Capital Expenses

Current expenses involve everyday operational costs like rent, utilities, and supplies; these are deductible in the year incurred.
Capital expenses are investments in assets with a useful life of over one year; costs are amortized over several years.

Criteria for Capital Expenses

Provide lasting benefits, elevating property value (e.g., adding vinyl siding).
Repairs making property better than original condition qualify as capital expenses (e.g., replacing wooden steps with concrete).
Replacing a component of a property (e.g., buying a compressor) counts as a capital expense due to ownership of a separate asset.
Significant costs compared to property value usually classify as capital expenses.
Costs incurred to prepare used property for business suitability or as a condition of sale are capital expenses.

Criteria for Current Expenses

Current expenses recur frequently, typically within a short timeframe (e.g., painting the exterior).
Costs restoring property to original condition, such as repairing wooden steps, are treated as current expenses.
Expenses for part replacements within a property (e.g., rewiring) are generally current expenses unless they enhance the property beyond its original state.

Description

Test your knowledge about Capital Cost Allowance (CCA) with these flashcards. Learn the various components included in capital cost and understand how they impact your CCA claims. Perfect for students and professionals dealing with rental properties.