I have a question regarding CCA class. I got a new client whose Schedule 8 shows me an asset in Class 4 with CCA rate of 6%. What kind of class is this? I searched in ITA Regulations but couldn’t find any description for this class.
Secondly, what is the process if I want to move this asset from Class 4 to Class 8 in Schedule 8 (which in my view is the correct class because this asset is recorded as “Furniture & Fixtures” in Schedule 100).
Please reply. Your guidance is very much appreciated.
"CLASS 4 (6 per cent) Property that would otherwise be included in another class in this Schedule that is
(a) a railway system or a part thereof, except automotive equipment not designed to run on rails or tracks, that was acquired after the end of the taxpayer’s 1958 taxation year and before May 26, 1976; or
(b) a tramway or trolley bus system or a part thereof, except property included in Class 10, 13 or 14."
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Assets cannot arbitrarily be moved between classes. If it were me, I would suggest to myself that more and very detailed examination of the original purchase documents is recommended, as well as obtaining secondary direct evidence.
Are they Audited Financial Statements? Perhaps the Financial Statements or the underlying bookkeeping is correct, or maybe not.
I recently took on a new client who purchased a business in 2013. During the review I found a large UCC balance in class 35, since the client owned a food truck and not a railroad I thought this a bit odd. Turns out the PA knew that 75% of the goodwill was written off at 7% (a little knowledge can be dangerous) and therefore picked the first CCA class he could find with a rate of 7% to record the goodwill portion of purchase. He also wrote off the balance of the equipment purchased as “purchases” on the income statement cost of sales. That is just the tip of the iceberg of screw ups… over 20 hours into the review…
Although you should probably verify, if you are sure the assets are class 8 you could just move the UCC balance from class 4 to class 8 as technically the taxpayer has under claimed CCA (use the adjustment line, minus class 4 - plus class 8). alternatively if the balance is large you could reassess the prior returns.
I once had a small Alberta corporation that operated an oil safety consulting practice. There was one shareholder who was the owner-operator. There were NO FIXED ASSETS reported or maintained in his corporation. He had been claiming all receipts as expenses for the past 10+ years. Included in this tossed salad shoebox of crumpled receipts was and “expense” for purchasing another used Mercedes. The Mercedes had been purchased by the operating company and all operating expenses were paid by the same entity. No kms log had ever been maintained. This was the only family vehicle. He used this vehicle to drive to business meetings and personal trips. He got rides to well site from whichever client he was working for. He had done the same thing for all computer equipment, smart phones, and all other assets. Nothing had ever been capitalized. Nothing pro-rated to business use. Consequently, no proceeds of disposition were reported either. There was no payroll. There was no taxable benefit reported as payroll for personal use of a corporate vehicle. When I communicated that he had to report the vehicle purchase as an asset he chose to go elsewhere. His wife had recorded each and every receipt amount in a manually written list with no date, no vendor name, no account number or invoice number, and no GST, just the total amount. Then she had crumpled all the thermal receipts and tossed them into a big blue BIRKS box as supporting evidence. The private purchase receipt of the Mercedes and the purchase amount had stuck out as a big waving red flag. When questionned about this the “client”, his wife, and his son pushed back hard that this had to be valid deduction because everyone before me accepted this methodology and that this is common practice in the field.
I once had a small Alberta corporation that operated an oil safety consulting practice. There was one shareholder who was the owner-operator. There were NO FIXED ASSETS reported or maintained in his corporation. He had been claiming all receipts as expenses for the past 10+ years. Included in this tossed salad shoebox of crumpled receipts was and “expense” for purchasing another used Mercedes. The Mercedes had been purchased by the operating company and all operating expenses were paid by the same entity. No kms log had ever been maintained. This was the only family vehicle. He used this vehicle to drive to business meetings and personal trips. He got rides to well site from whichever client he was working for. He had done the same thing for all computer equipment, smart phones, and all other assets. Nothing had ever been capitalized. Nothing pro-rated to business use. Consequently, no proceeds of disposition were reported either. There was no payroll. There was no taxable benefit reported as payroll for personal use of a corporate vehicle. When I communicated that he had to report the vehicle purchase as an asset he chose to go elsewhere. His wife had recorded each and every receipt amount in a manually written list with no date, no vendor name, no account number or invoice number, and no GST, just the total amount. Then she had crumpled all the thermal receipts and tossed them into a big blue BIRKS box as supporting evidence. The private purchase receipt of the Mercedes and the purchase amount had stuck out as a big waving red flag. When questioned about this the “client”, his wife, and his son pushed back hard that this had to be valid deduction because everyone before me accepted this methodology and that this is common practice in the field.
I find that the asset register and especially the vehicle expense is one of the most commonly audited lines on the T2125 and the T2. Maintaining great asset records and business use supporting documents is a must for the sake of the client’s wallet and the preparer’s health and sanity.
I want to give an update regarding CCA Class issue I raised few days ago. As per CRA agent, I just have to change Class number i.e from Class 4 to Class 8 in Schedule 8 with same UCC bal. He told me to make notes for this change for future reference if needed.
