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A corporation purchased a photocopier/fax machine for $12,000 and 10 new telephones each costing $3,000. Which of the following options would provide the maximum potential tax benefits?

(A question about the capital cost allowance and tax benefits for different options)
A) The photocopier and 10 telephones would be added to their own, separate Class 8 pool (11 new pools in total), and the maximum capital cost allowance (CCA) claimed in each year.
B) All the purchases would be added to the Class 8 pool, and the maximum capital cost allowance (CCA) claimed in each year.
C) Each of the 10 telephones would be added to their own, separate Class 8 pool, and the photocopier added to the existing Class 8 pool, and the maximum capital cost allowance (CCA) claimed in each year.
D) The photocopier would be added to its own, separate Class 8 pool, and the 10 telephones added to the existing Class 8 pool, and the maximum capital cost allowance (CCA) claimed in each year.

1 Answer

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Final answer:

The maximum capital cost allowance (CCA) for a corporation that purchased a photocopier and telephones can be achieved by adding all purchases to a single Class 8 pool. This approach simplifies accounting and maximizes initial deductions due to combined asset value and the application of the half-year rule.

Step-by-step explanation:

A corporation considering tax benefits from the capital cost allowance should carefully evaluate which assets to place in a Class 8 pool. In this scenario, the corporation purchased a photocopier/fax machine for $12,000 and 10 new telephones, with each costing $3,000.

Looking at the options provided, the most beneficial approach for claiming the maximum capital cost allowance (CCA) would be Option B: adding all the purchases to a single Class 8 pool. This would not only simplify the accounting but also allow taking advantage of the CCA based on the cumulative cost of assets. By pooling the assets together, the corporation would be able to claim a higher initial deduction, since Class 8 assets are subject to a 20% declining balance rate, and in the first year, half of this rate applies due to the half-year rule.

Creating separate pools for each asset, as suggested in Options A, C, and D, could result in lower total CCA deductions initially, because separate pools would each adhere to the half-year rule individually for the year of acquisition.

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