Question

On January 1, 2019, Rollin Ltd. acquires real property at a cost of $6400000. Of this amount, $540000 represents the fair market value of the land; the remainder relates to the building. The building is new and will be used 100% for non-residential activity, none of which involves manufacturing, so it will go in a separate class 1 at a 6% CCA rate. This purchase is eligible for the accelerated investment incentive. In order to encourage Rollin's move to this location, the local government has given them $790000 to assist in the acquisition of the building (all of this is for the building). What is the maximum amount of CCA that Rollin can deduct on this building for its fiscal year ending December 31, 2019? ANSWER IS 456300 please SHOW HOW TO GET THIS IS THE ONLY CORRECT ANSWER NO OTHER ANSWER IS CORRECT ONLY 456300 PLease canadian tax

Answer 1

To calculate Rollin Ltd.'s maximum CCA deduction, the government grant is subtracted from the building cost, and the accelerated CCA rate is applied to find the first-year deduction of $456300.

Step-by-step explanation:

The maximum amount of Capital Cost Allowance (CCA) that Rollin Ltd. can deduct for the building for the fiscal year ending December 31, 2019, can be calculated by applying the accelerated investment incentive which allows a higher first-year CCA claim. First, we must subtract the government assistance received from the cost of the building. The initial cost is $6400000, of which $540000 is for the land, leaving $5860000 for the building. Then, deduct the government grant: $5860000 - $790000 = $5070000. Under the accelerated investment incentive, Rollin Ltd. can claim up to 1.5 times the normal CCA rate in the first year on the undepreciated capital cost. The normal CCA rate for class 1 is 6%, so 1.5 x 6% = 9% is the rate for the first year. Therefore, the maximum CCA for 2019 is 9% of $5070000, which is $456300.