Let's assume CCA exceeds our depreciation (CCA > depreciation) for 2020 by 15,000.
Why do we deduct the difference from accounting income and not add it back?
Answer
The income tax is payable on the taxable income, hence in order to compute the taxable income, accounting depreciation is added back to the accounting income and income tax depreciation is deducted from the accounting income.
In the extant case the CCA exceeds the accounting depreciation, hence if we add back the accounting depreciation and deduct the tax depreciation the net result will be that the excess of CCA shall be a net deduction from accounting income to arrive at taxable income.
The difference between the accounting depreciation and tax depreciation results in temporary difference which leads to creation of deferred tax on the difference.
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