Capital Cost Allowance for New Machine and Old Machine Being Sold Off

Question

Your firm purchased a line of computer equipment for $1.5M four years ago. It is assigned a CCA rate of 20% and the firm has a tax rate of 35%.  At the end of this year (year 4 for the machine) you decide to sell the computer equipment and as a result you will terminate the asset pool. Calculate the tax implications under the following scenarios and classify each as a terminal loss, CCA recapture, or neither.

a.You sell the equipment for $691,200.

b.You sell the equipment for $2,000,000.

c.You sell the equipment $1,000,000.

d.You sell the equipment for $500,000.

e.The equipment is worthless.

 

Summary

The question belongs to Finance and it is about CCA or capital cost allowance for a machine for 4 years with tax rate of 35%. The old machine is being sold off and proceeds will into CCA. Resultant tax has to be calculated.

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