Payson Company bought $40,000 worth of office equipment at the beginning of Year 1. This equipment has a useful life of eight years and a salvage value at the end of its useful life of $4,000. This equipment is in Class 7 with capital cost allowance (CCA) rate of 15%. The income tax rate is 40%.
- What is the maximum amount of CCA that the company can deduct for tax purposes for Year 1?
A) $2,700.
B) $3,000.
C) $5,400.
D) $6,000.

Question

Quizplus · Accepted Answer

The maximum CCA deduction for Year 1 is calculated using the half-year rule. The undepreciated capital cost (UCC) at the start is $40,000. The CCA rate is 15%, so the full CCA would be $6,000. However, due to the half-year rule, only half of this amount can be claimed in the first year, resulting in a CCA deduction of $3,000.

Payson Company Bought $40,000 Worth of Office Equipment at the Beginning