By what amount does a capital cost allowance (CCA)deduction reduce income taxes?
A) One minus the tax rate multiplied by the amount of the CCA deduction.
B) The tax rate multiplied by the amount of the CCA deduction.
C) The amount of the CCA deduction.
D) The amount of the CCA deduction divided by one minus the tax rate.

Question

Quizplus · Accepted Answer

The capital cost allowance (CCA) deduction reduces income taxes by the tax rate multiplied by the amount of the CCA deduction. This is because the CCA deduction reduces taxable income, so the tax savings are equal to the tax rate applied to the reduction in taxable income. For example, if the CCA deduction is $10,000 and the tax rate is 30%, the tax savings would be $3,000 ($10,000 x 0.30). Therefore, choice B is the correct answer.

By What Amount Does a Capital Cost Allowance (CCA)deduction Reduce