Question

A proprietorship has a calendar fiscal year and acquires a machine on April​ 1, 2020. The machine has a cost of ​$56,000. The proprietor pays a contractor ​$14,000 to install the machine and pays a​ non-refundable provincial sales tax of ​$9,000. The machinery is Class 8 equipment with a CCA rate of 20​%. Assuming that the opening UCC for Class 8 assets is​ $0, what is the maximum CCA that can be deducted for this machine in fiscal year 2020​?

A. ​$21,000
B. ​$23,700
C. ​$15,800
D. ​$7,900

Answer 1

The maximum CCA deduction for the machinery in fiscal year 2020 is $7,900, after considering the machinery's total cost and applying the Half-Year Rule adjustment for Class 8 equipment with a 20% CCA rate. Thus, the correct answer is D. $7,900

Step-by-step explanation:

To calculate the maximum Capital Cost Allowance (CCA) that can be claimed on the machinery in fiscal year 2020, we need to consider the Half-Year Rule since the equipment was acquired in the year. The total cost of the machinery, including installation and taxes, amounts to $79,000 ($56,000 for the machine, $14,000 for installation, and $9,000 for taxes). Class 8 equipment has a CCA rate of 20%, but due to the Half-Year Rule, only half of the CCA rate applies in the year of acquisition.

Therefore, the calculation for the maximum CCA deduction is:

• Total Cost of the Machinery: $79,000
• CCA Rate for Class 8 Equipment: 20%
• Adjusted CCA Rate (Half-Year Rule): 10% (20% / 2)
• Maximum CCA Deduction: $79,000 x 10% = $7,900

Thus, the correct answer is D. $7,900, which is the maximum CCA that can be deducted for this machine in fiscal year 2020.