Question

1. At the beginning of 2019, Shamarama Inc, has two assets in Class 8. The cost of each asset was was $30,000 and the class 8 UCC balance was $25,000. On July 30, 2019, one of the assets was sold for $40,000. There are no other additions or dispositions prior to the company’s December 31, 2019 year-end.

   . What is the effect of the disposition on the company’s 2019 net business income? What is the company’s January 1, 2020 UCC balance in Class 8?

Answer 1

UCC of the Class at the Beginning of The Year $25,000
Add: Acquisitions During The Year Nil
Deduct: Dispositions During The Year - Lesser of:
*Capital Cost = $30,000
*Proceeds of Disposition = $40,000 (30,000)
Deduct: One-Half Net Additions N/A*
Negative Ending Balance ($5,000)
Recapture of CCA $5,000
January 1, 2020 UCC Balance Nil.

*This adjustment for one-half of the excess of additions over disposal deductions is only made when the net amount is positive.
The effect would be an addition to business income of $5,000 in recaptured CCA. Note that, unlike terminal losses, the fact that there is still an asset in the class is irrelevant.
While there would also be a taxable capital gain of $5,000 [(1/2)*($40,000-$30,000)], this would not be included in business income.

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