Undepreciated Capital Cost (UCC) refers to the remaining balance of a depreciable asset or asset class after accounting for the depreciation that has been claimed over time through the Capital Cost Allowance (CCA). It represents the amount that has not yet been deducted for tax purposes and is used to calculate future CCA claims.
Key Points:
Depreciation Balance:
UCC is essentially the book value of a depreciable asset or class of assets after taking into account the CCA deductions made in prior years.
How UCC Works:
When a business purchases a depreciable asset (e.g., machinery, vehicles, or equipment), it adds the cost of that asset to the UCC of its asset class.
Each year, the business claims CCA, which reduces the UCC for that class of assets.
The UCC decreases as CCA is claimed, and the remaining balance is the amount eligible for future CCA deductions.
UCC and Disposals:
When an asset is disposed of (sold, scrapped, etc.), the UCC of that asset class is adjusted.
If the proceeds from the sale are less than the remaining UCC, it may result in a terminal loss.
If the proceeds exceed the UCC, a recapture of CCA may occur.
Example: Purchase of an Asset
A business purchases machinery for $10,000 and adds it to its Class 8 assets.
First Year CCA:
CCA rate for Class 8 is 20%.
In the first year, the business claims $2,000 as CCA ($10,000 × 20%).
The UCC at the end of the first year is $8,000 ($10,000 - $2,000).
Second Year:
In the second year, CCA is calculated on the UCC of $8,000.
The business claims another $1,600 ($8,000 × 20%).
The UCC at the end of the second year is $6,400 ($8,000 - $1,600).
For more information, please visit the Canada Revenue Agency: Canada Revenue Agency
