Self-Study Problems, Byrd & Chen’s Canadian Tax Principles 2024/25 Edition
Chapter 5 Self-Study Problems (SSPs)
NOTE ON IMMEDIATE EXPENSING: It is important to remember that these rules were initially added on
a temporary basis only. The initial legislation only applies in 2024 for purchases of certain depreciable
property made by individuals and certain partnerships. The 2024 federal budget proposed to extend the
immediate expensing rules on a limited basis to purchases of depreciable property made after April 15,
2024, that became available for use by December 31, 2026, that would fall within Classes 44, 46, or 50.
The AccII rules, on the other hand, apply for a much longer period to December 31, 2027. Given this
situation the exercises, self-study problems, and assignment problems do not cover the immediate
expense rules and focus on the AccII instead, which is generally neutral in 2024.
Solutions are available in the Study Guide.
SSP 5–1 CCA and Income Tax Planning
For its taxation year ending December 31, 2024, Northcote Inc., a CCPC, has determined that
its net income, after deducting all expenses except CCA, is equal to $328,000. The company
does not have any taxable income deductions, so whatever amount is determined as net
income will also be the amount of its taxable income for the year.
On January 1, 2024, the company has the following UCC balances:
Class 1 (Building purchased new in 2006) $2,597,000
Class 8 718,000
Class 10 524,000
In 2024, the capital cost of additions to Class 10 amounted to $374,000, while the proceeds
from dispositions in this class totalled $234,000. In no case did the POD exceed the ACB
(capital cost) of the property sold and property remained in the class on the last day of the 2024
taxation year.
There were no purchases or dispositions in either Class 1 or Class 8 in 2024.
Required:
A. Calculate the maximum CCA that could be claimed by Northcote for its 2024 taxation
year. Your answer should include the maximum CCA that can be claimed for each class.
B. As Northcote’s tax advisor, indicate how much CCA you would advise the company to
claim for the 2024 taxation year, and the specific classes from which it should be
deducted. Provide a brief explanation of the reasons for your recommendation. In
providing this advice, disregard the possibility that losses can be carried either forward
or back.
C. Comment on whether immediate expensing could have been used. Calculations are not
necessary.
SSP 5–2 CCA Calculations
Mr. Marker has been the sole proprietor of Marker Enterprises since its establishment 10 years
ago. The business uses a calendar-based fiscal period ending December 31 and, on January 1,
2024, the following depreciable property information is available:
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Type of Depreciable Undepreciated CCA
Property Capital Cost (UCC) Capital Cost Rate
New Building (Class 1) $115,000 $190,000 4%
Equipment (Class 8) 96,000 130,000 20%
Vehicles (Class 10) 6,700 30,000 30%
Equipment (Class 53)* 75,000 100,000 50%
*The manufacturing and processing equipment was acquired in 2023 and the business
did not claim the maximum CCA in that year.
Other Information:
1. In the 2024 fiscal period, Mr. Marker’s business purchased additional Class 8 equipment
at a total cost of $52,000. This new equipment replaced equipment that had a capital
cost of $75,000, which was sold during the same year for $35,000.
2. In the 2024 fiscal period, Mr. Marker purchased a used automobile to be used in the
business for $8,000. Mr. Marker also sold one of the trucks that was used in the
business for $25,000. This truck, which had a capital cost of $20,000, was sold above its
cost as the result of its extra features, which were no longer available on newer models.
None of the vehicles are zero-emission.
3. As the result of a decision to lease its premises in future years, Mr. Marker sold the
building for $260,000 with $150,000 representing the value of the land on which the
building is situated and the remaining $110,000 representing the value of the building.
The ACB of the land was also $150,000.
Required: Calculate the total effect of all the preceding information on Mr. Marker’s 2024
business income. Assume that all the properties acquired in 2024 would qualify for the AccII.
Your answer should include the maximum CCA that can be claimed by Mr. Marker for each
class. In addition, calculate the January 1, 2025, UCC balance for each class. Ignore any
GST/HST and PST considerations as well as the immediate expensing rules. Comment on
whether Mr. Marker could have designated the property for immediate expensing. Calculations
are not required.
SSP 5–3 CCA Calculations over Four Years
NOTE TO STUDENTS This problem looks to CCA calculations for a partnership made
up of individual partners. While partnerships are not discussed until Chapter 19,
determining CCA, recapture, terminal losses, and UCC for depreciable property follows
the same rules as would be the case for any other business, whether carried on as a
sole proprietorship or by a corporation.
After several years of hard work at the Shawarma Palace Lebanese restaurant, the Haddad
brothers decided to form a partnership to carry on a business that was registered as Shawarma
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On Wheels. The business offered quick delivery of freshly made Lebanese food. The
partnership began carrying on business September 1, 2021, and chose a calendar-based fiscal
period ending December 31. The partnership claimed maximum CCA in every year.
On September 1, 2021, the partnership purchased 20 compact automobiles to use for deliveries
at a cost of $21,500 each. None of the automobiles are zero-emission. The brothers ran a very
successful advertising campaign using online coupons and social media that was directed at
downtown condo owners.
In the 2022 fiscal period, six additional compact automobiles were purchased at a cost of
$22,800 each. These new vehicles replaced six of the original automobiles, which were sold for
$11,400 each. None of the new automobiles were zero-emission.
In the 2023 fiscal period, 18 additional compact automobiles were purchased at a cost of
$24,300 each. In 2023 the remaining 14 compact cars purchased in 2021 were sold. As all the
automobiles had high mileage, the total proceeds from this sale were only $137,200, an
average of $9,800 each [$137,200/14] which is far below their capital cost.
In talking to their drivers, the Haddad brothers were told that delivering high quality Lebanese
food was a great way to meet people, make important business contacts, and further promote
the business. As a result, the brothers decided to take over some of the deliveries themselves.
In 2023 the partnership purchased two luxury automobiles. One cost $135,000 and was diesel
powered and the second cost $160,000 and was a zero-emission vehicle (ZEV). The two
automobiles were used exclusively for making deliveries.
Early in 2024 larger competitors moved into the area causing the brothers to reconsider their
business strategy. After careful consideration the brothers decided to terminate the business.
The last day of the fiscal period was September 30, 2024. The 24 remaining compact
automobiles were sold for $8,300 each. The diesel-powered luxury automobile was sold for
$85,000 and the zero-emission automobile was sold for $100,000. None of the automobiles
were sold to non-arm’s-length persons.
Required: For each of the 2021 to 2024 fiscal periods, calculate the maximum CCA. In addition,
determine the amount of any capital gain, recapture, or terminal loss that arises on any of the
transactions that occurred in these fiscal periods. Ignore GST/HST & PST considerations.
Assume that all the properties would have met the conditions to qualify for the AccII and that
none of the depreciable properties were used for personal purposes. Ignore the immediate
expensing rules.
SSP 5–4 CCA Calculations over Three Years
All Night Service Ltd. was incorporated on April 1, 2022, to provide computer services 24 hours
per day, 7 days per week. At the time of incorporation, the company chose December 31 as its
taxation year end for both income tax and accounting purposes.
On April 1, 2022, the company purchased a new building to be used as an office and
communications centre at a cost of $650,000. This total cost was allocated $580,000 to the
building and $70,000 to the land. The building is used 100% for non-residential purposes and
the company has filed a timely election to have it included in a separate Class 1. Also on April 1,
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2022, the company purchased six automobiles to be used by the service technicians at a cost of
$25,000 each. None of the automobiles are zero-emission.
On May 1, 2022, the company purchased a variety of computer repair and maintenance
equipment at a cost of $48,000. The company owns no computers as it leases all of its
computer hardware and software.
In 2023, the company traded in three of its old automobiles for three new minivans. The list
price of the new minivans was $24,000 each, and the company received a trade-in allowance
toward this list price of $14,000 for each trade-in. None of the new automobiles are zero-
emission vehicles.
On September 20, 2024, a zero-emission automobile was purchased at a cost of $98,000 for
use by the president of the company. In addition, the following two unusual events occurred in
2024:
• Equipment that had a value of $12,000 was stolen by one of the service technicians and
is not expected to be recovered. The company insurance policy does not cover theft by
employees.
• In December of 2024 one of the service technicians offered to purchase one of the
original six automobiles for $27,000. The company accepted the offer. The transaction
was finalized in January of 2025.
Required:
A. Determine the maximum CCA that can be claimed for each of the years 2022 through
2024. In your calculations, include the January 1, 2023, January 1, 2024, and January 1,
2025, UCC balances in each class. Ignore GST/HST & PST considerations as well as
the immediate expensing rules. Assume that all purchases meet the conditions for the
AccII.
B. Explain the income tax consequences of the two unusual events that occurred in 2024.
SSP 5–5 Purchase and Sale of Goodwill
Traxit is a Canadian public corporation with a calendar-based taxation year that ends December
31. It is the policy of Traxit to claim maximum CCA for all classes each year. On January 1,
2024, Traxit had a nil balance in Class 14.1.
What follows are two independent cases involving the purchase and sale of goodwill. In each
case assume that Traxit has no other Class 14.1 transactions in 2024 or 2025.
Case One In 2024, Traxit purchased two businesses, paying $56,000 for goodwill as
part of the first business and $124,000 for goodwill as part of the second business. Both
businesses are integrated into Traxit’s single business.
In 2025, Traxit sells a segment of its business, which includes a sale of goodwill for
$97,000.
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Case Two In 2024, Traxit acquired two businesses, paying $34,000 for goodwill as part
of the first business and $47,000 for goodwill as part of the second business. Both
businesses are integrated into Traxit’s single business.
In 2025, Traxit sells a segment of its business, which includes a sale of goodwill for
$85,000.
Required: Determine the income tax consequences for the years 2024 and 2025 in each of
these two independent cases. Your answer should include the January 1, 2026, Class 14.1
UCC balance. Assume that all the requirements to qualify for the AccII have been met.
SSP 5–6 CCA Calculation
The following information relates to Bartel Ltd. for its 2024 taxation year ending December 31:
1. The company had UCC balances on January 1, 2024, for its depreciable property as
follows:
Class 1 (new buildings purchased in 2006) $590,000
Class 8 570,000
Class 10 61,000
2. In 2024, one of the company’s buildings was sold for $440,000, of which $150,000
represented the value of the land on which the building was situated with the remaining
$290,000 attributed to the building. The capital cost of the building was $475,000, of
which $175,000 represented the value of the land at the time of the acquisition with the
remaining $300,000 attributed to the building.
The building was replaced in 2024 with a new building that cost $625,000, of which
$125,000 represented the value of the land and the remaining $500,000 the value of the
building. 100% of the floor space of the building is used for business purposes. The
company is not in the business of manufacturing and processing. The company filed a
timely election to include the new building in a separate Class 1.
3. In 2024, the company purchased office furniture for $14,000.
4. In 2024, the company purchased a delivery truck from its majority controlling
shareholder for its FMV of $22,000. The shareholder had purchased the truck new four
years earlier for $34,000. The truck was the only Class 10 property for the shareholder,
and had a UCC balance of $26,000 at the time of the sale to Bartel.
5. Bartel has always claimed the maximum CCA in each year.
Required: Calculate the maximum CCA that Bartel can claim for 2024 for each CCA class.
Also calculate the income tax impact to the majority shareholder for the sale of the truck to
Bartel.
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SSP 5–7 CCA Calculations
The taxation year of Atlantic Manufacturing Company, a Canadian public corporation, ends on
December 31. On January 1, 2024, the UCC balances for the various classes of depreciable
property owned by the corporation are as follows:
Class 1 - Building (Note 1) $625,000
Class 8 - Office Furniture and Equipment 155,000
Class 10 - Vehicles 118,000
Class 13 - Leasehold Improvements 61,750
Class 14.1 - Intangible Property Nil
Class 53 - Manufacturing Equipment 217,000
Note 1 The Class 1 building was acquired, used, in 2012.
In the taxation year ending December 31, 2024, the following purchases of depreciable property
were made:
Class 8 - Office Furniture and Equipment $ 27,000
Class 10 - Vehicles (Note 2) 33,000
Class 12 - Tools (Note 3) 34,000
Class 13 - Leasehold Improvements 45,000
Class 50 - Computer Hardware 28,000
Note 2 The purchased vehicle was a delivery truck.
Note 3 None of the tools that were acquired during the year cost more than $500.
In this same period, the following dispositions occurred:
Class 8 - Used office furniture and equipment was sold for $35,000. The capital cost of
the property was $22,000.
Class 10 - A delivery truck with a capital cost of $23,000 was sold for $8,500.
Class 53 - Since the manufacturing operations will be completed by subcontractors in
the future, all the manufacturing equipment was sold for $188,000. Its capital cost was
$752,000.
Other Information:
1. The corporation leases a building for $27,000 per year that houses a portion of its
manufacturing operations. The lease was negotiated on January 1, 2021, and has an
original lease term of eight years. There are two renewal options on the lease, each for
four years. The company made $78,000 of leasehold improvements in 2021 immediately
after signing the lease. No further leasehold improvements were made until the current
year (2024).
2. On February 24, 2024, one of the company’s automobiles was totally destroyed in an
accident. At the time of the accident, the FMV of the automobile was $12,300. The
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proceeds from the company’s insurance policy were only $8,000. The capital cost of the
automobile was $17,000.
3. In March 2024, the company granted a manufacturing licence for one of its products to a
company in southern Ontario. This licensee paid $87,000 for the right to manufacture the
product for an unlimited period of time.
4. It is the policy of the company to claim maximum CCA in all years.
Required: Calculate the maximum 2024 CCA that can be claimed on each class of property,
the January 1, 2025, UCC balance for each class, and any other 2024 income tax
consequences from the information provided in the problem. Assume that none of the
depreciable property purchases involved non-arm’s-length persons nor were they acquired on a
rollover basis. In each case the company did not previously own any of the property acquired.
The corporation has not always claimed maximum CCA on all classes.
SSP 5–8 CCA and Tax Planning
On January 1, 2024, Kars Ltd. has the following UCC balances:
Class 8 $163,000
Class 10 112,000
Class 12 42,000
Class 13 180,000
Class 14.1 132,330
For the 2024 taxation year ending December 31, Kars has determined that its net income,
before any deduction for CCA, amounts to $43,000. As the company does not have any taxable
income deductions, taxable income, before any deduction for CCA, would also be $43,000.
Other information related to the company’s depreciable property is as follows:
1. All the Class 12 property was purchased in 2023.
2. The leasehold improvements were made in September 2022 at a capital cost of
$240,000.
3. In 2024, the capital cost of additions to Class 10 was $52,000, while the proceeds from
dispositions in this class totalled $29,000. In no case did the POD exceed the capital
cost of the properties sold, and there was still property in the class as of December 31,
2024.
4. There were no 2024 additions or dispositions to Classes 8, 12, 13, or 14.1.
5. The company has always deducted the maximum amount of CCA.
Required:
A. Calculate the maximum CCA claim by Kars for the 2024 taxation year.
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B. As Kars’ tax advisor, indicate how much CCA you would advise the company to claim for
the 2024 taxation year and the specific classes from which it should be claimed. Provide
a brief explanation of the reason for your recommendation. In providing this advice,
ignore the possibility that losses can be carried either back or forward. The goal is simply
to reduce taxable income, and therefore income tax payable, to nil for the 2024 taxation
year.
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