Final answer:
Miller Co.'s incorporation costs are treated as an eligible capital expenditure, added to the Cumulative Eligible Capital pool, and amortized as Capital Cost Allowance (CCA) over time with a specific rate. For the 2019 year, the correct CCA claim for Miller Co. is $92, and no amount can be deducted as an operating expense in that year.
Step-by-step explanation:
When incorporating a company, the costs associated with the incorporation process cannot be immediately expensed but rather need to be capitalized and then amortized over a period of time. Canadian tax rules allow incorporation costs to be treated as eligible capital expenditures under the Canada Revenue Agency (CRA) regulations. These costs are added to the Cumulative Eligible Capital (CEC) pool at a rate of 75% and then amortized at a rate of 7% on a declining balance, which is known as a Capital Cost Allowance (CCA).
However, not all of the CEC pool can be claimed as a CCA in the first year because of the half-year rule, which allows only half of the annual allowance in the year the expense was incurred. Therefore, if Miller Co. was incorporated in 2019 with incorporation costs of $3,500, 75% of that amount, or $2,625, would be added to the CEC pool. The half-year rule would apply, and thus only half of the 7% CCA can be claimed, resulting in a CCA claim of 3.5% on $2,625 for 2019. No operating expense is allowed for these costs in the year of incorporation.
Calculation:
$3,500 x 75% = $2,625 (eligible for CEC pool)
CCA for 2019 = $2,625 x 3.5% = $91.875 (rounded to 0 decimal places).
Therefore, the correct answer to the question is none of the provided options. The correct CCA allowed for Miller Co. in 2019 would be $92, and since the incorporation costs are capitalized, no operating expense is allowed in the year of incorporation.