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Is Cca System Within Canada Meets Fundamental Principles?

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Is CCA system in Canada meets fundamental principles?

1. Introduction
In 1949 the introduction of Capital Cost Allowance (CCA) system was designed to be a simple method to depreciate capital property for tax purposes (Mida and Stewart, 1995). The CCA defined by Canada Revenue Agency (2014) as a tax deduction that Canadian tax laws allow a business to claim for the loss in value of capital assets due to wear and tear or obsolescence. Over time, the system whose aim was to ensure fair and equitable approach to asset depreciation for all taxpayers was significantly amended during tax reforms in 1972 and in 1987. Rock Lefebvre, Vice President of Research and Standards at CGA-Canada (CGA, 2013) argues that due to changes made to the system,
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Among these changes are:
• Substantial increase in the number of CCA classes;
• Frequent change to CCA rate;
• Lengthy description of CCA classes;
• Introduction of CCA rules;
• Use of CCA system as an instrument to achieve economic and policy objectives.
The CCA system consists of 38 declining balance classes, 10 straight line classes and several “additional allowance” provisions. All CCA classes are outlined in 24 pages and similar assets may appear more than once in several classes (FEI Canada, 2008).

2.1. Increase in CCA classes
The chart below illustrates the significant increase in the number of CCA classes since its establishment in 1949 with only 12 classes being present. The number of classes increased to 28 in 1972, grew to 37 in 1987 and reached 56 in present days. The addition of CCA classes can be due for several reasons:
• The description of an asset need to be changed or explained more clearly comprehensible;
• The need to change CCA rate;
• To encourage an acquisition of certain assets;
• To stimulate certain industries;
• To support policy initiatives.
It is believed that the large number of classes adds complexity to the CCA system. For the companies which are using variety of CCA classes requires more time and effort to identify the class for an asset acquisition, comparing to small businesses, which are not affected by addition of classes as
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