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On January 1, 2018, ABC Ltd. signed a five-year lease for retail space for a store....

On January 1, 2018, ABC Ltd. signed a five-year lease for retail space for a store. The lease expires on December 31, 2022, and has two successive renewal options for three years each, In 2020, ABC Ltd. made $60,000 of leasehold improvements to this space. Assuming that ABC Ltd. has a December 31 year end, what is the maximum capital cost allowance claim that ABC Ltd. can make in 2020 in respect of these improvements? Select one: A. $11,250 B. $15,000 C. $18,000 D. $7,500

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Answer #1

Capital cost allowance for leasehold improvements falls under CCA Class 13. Under CCA Class 13, leasehold improvement costs are amortized on a straight line basis for a minimum period of 5 years and the maximum period of 40 years. The Capital cost allowance for leasehold improvements is amortized over a period which should not exceed the period of original lease plus one successive renewal.

ABC Ltd. has the inititial leas period of 5 years and it has two successive renewal options for three years each. But for amortization purpose only one successive renewal can be considered. Hence, the total period over which the leasehold improvement costs should be amortized is 5 years plus 3 years = 8 years.

Therefore, the maximum capital cost allowance that ABC Ltd. can claim in 2020  on a straight line basis is =

60000 divided by 8 = $750

Hence the right answer is D. $7500

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