Capital Cost Allowance Flashcards

Questions and Answers

Which of the following types of costs are included in capital cost? (Select all that apply)

Legal and accounting fees related to the purchase or construction of the property (correct)

The cost of additions or improvements made after acquiring the property (correct)

Current expenses that have been claimed

The purchase price, excluding the cost of land (correct)

What is the difference between soft cost and hard cost?

Hard costs are expenses directly related to the physical construction of a building, while soft costs are expenses not directly related to construction.

What is a soft cost?

Soft costs are expenses not directly related to labor or physical materials, such as architecture and legal fees.

What is Capital Cost Allowance (CCA)?

CCA is a deduction claimed over several years for the cost of depreciable property used in business activities. Signup and view all the answers

What is the difference between current expenses and capital expenses?

Current expenses are ongoing necessary purchases, while capital expenses are long-term investments with useful lives over one year. Signup and view all the answers

Match the following criteria to Capital Expenses:

Lasting benefit = A capital expense generally gives a lasting benefit or advantage. Improvement repairs = Cost of repair that improves property beyond original condition. Separate asset replacement = Replacing a separate asset is a capital expense. Comparison with property value = If the cost is considerable in relation to property, it is capital. Signup and view all the answers

Match the following criteria to Current Expenses:

Recurring expense = A current expense usually recurs after a short period. Restoration = Expense that restores property to original condition is a current expense. Replacing parts = Cost of repairing a property by replacing parts is usually a current expense. Signup and view all the answers

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.