I recall a similar post a few years ago, and a wise practitioner responded - calculate what the depreciated value would have been by the end of 2021, and use that as the cost of acquisition as at the start of 2022. CRA will accept that value. Alternatively, if you have some way to prove the FMV as of Jan 1, 2022, that would be acceptable.
First used for business Jan 1, 2021 (business start date)
First-year CCA calc:
= $25,000 x 30% (CCA rate) CCA =$7,500
Therefore his cost base would be $17,500.00 ($25K - $7,500) for January 1, 2022.
The only other thing I was thinking that may impact this calculation is the half-year rule because 2021 is the year it became available for use which would bring down the $7,500.00 CCA to $3,750.00.
That applies if it is a class 10 vehicle, but not if it is a class 10.1 vehicle. Also remember that you are just trying to calculate a reasonable FMV to use upon acquisition of the asset, so you could document it either way.
I would question if the half year rule needs to apply since this is the second year the vehicle is on the road. But I guess if you bought a used van from a dealer, the half year rule would definitely apply.
Your input is much appreciated, I have a sole proprietorship client, they switched from sole proprietorship to Limited in July 2022 . The previous preparer did not calculate any CCA for equipment and goodwill since 2018- 2021 when the time they purchased the salon. what should I do in this CCA in order to rollover from SP to Ltd?
Can I calculate what depreciated value from 2018 to 2021 by the end of 2022, put three years reduction in one year, then use that cost of acquisition after deprecation three year expense as the beginning of 2023? because they switched their business from sole proprietorship to ltd. Any other instruction for this situation? your input is much appreciated .
agree with @obhorst …
Also, you do not take cca in the year of disposal… .which is what happened when sole proprietorship closed and the corporation "bought " its assets at book value.
Cannot go backwards to capture cca and claim 3 years worth in one year … this is for both sole prop and corp.
Could amend the last 3 years of personal tax to claim the cca in each year… but unless there is a significant reason to do so I would rollover at the higher undepreciated value of the asset as it sits on the books and the corporation beginning balance will be higher.
Per the income tax act, all such transactions MUST be recorded at FMV. I’d have to look up the section/subsection (or maybe it’s in the regs?), but generally, FMV must be used unless there is a provision specifying otherwise.
In this case, Section 85 would be most likely applicable, in which case you could roll the assets into the corp at tax cost (which may be similar or same as book value, as noted by @obhorst ). But, if you are using Section 85, ensure you do all the work required to support your filing of the T2057. Most importantly, get a copy of the legal agreement (i.e. done by a lawyer), which specifies all the details of the sale. Note that the lawyer will likely need your input to establish tax cost of the assets, type and amount of low-PUC shares, and type and amount of non-share consideration. In addition, some other reliable source should be used to establish FMV of the assets - this needs to be done whether using S85 or not.
