Question

The company YYY is selling its classic car in mint condition for $220,000 at a public auction. The car was originally bought for $45,000 and it has been always kept in the inventory for the last 40 years. It is depreciated on the books from its original purchase price at a CCA rate of 30%. The company’s marginal tax rate is 28%. Is the company eligible to receive tax credit (how much?) or does it have tax liability (how much)? Why? What is the net salvage value of the car? (Hint: You have to consider the capital gains tax as well.)

Answer 1

Answer :

No.	A	B	C
1.	Selling price	220000
2.	Original price	45000
3.	CCA Rate	30%
4.	Time	40
5.	Marginal tax	28%
6.
7.	Capital gain
8.	To Calculate your capital gain or loss, you need to know the following three amounts
9.	The proceeds of disposition
10.	The adjusted cost base (ACB); and
11.	The outlays and expenses incurred to sell your property.
12.
13.	Capital cost allowance	40,000
14.	Undepreciated capital cost (UCC) / Salvage value of asset	5,000	=+B2 - B13
15.
16.	Proceed	220,000	=+B1
17.	ACB	45,000	= +B2
18.	Capital gain	175,000	=+B16-B17
19.	The capital gains inclusion rate is 50 percent in taxable income of YYY (a)	87,500	=+B18/2
20.	Terminal loss(b)	5,000	=+B14
21.	Additional Tax liability (a-b)@28%	23,100	=+(B19-B20)*B5
Undepreciated capital cost (UCC) Generally, UCC is equal to the total capital cost of all the properties of the class minus the capital cost allowance you claimed in previous years.If you sell depreciation property in a year, you also have to subtract from the UCC one of the following two amounts whichever is less. The proceeds of disposition of the property (either actual or deemed ) minus the outlays and expenses incurred to sell or the capital cost of the property.