Question 1: Taxes (5 Marks): An astute young engineer at Lochardier is examining

Question

Question 1: Taxes (5 Marks): An astute young engineer at Lochardier is examining the tax benefits of buying an aircraft. Since this is a depreciable asset, it will allow the company to realize a tax benefit. The aircraft will cost $800 million. The engineer remembers that aircraft are class 9 items and therefore have a CCA rate of 25%. Lochardier pays tax at a corporate rate of 45%. Print off a copy of the Schedule 8 form (t2sch8-11e)found in the Content->Resources folder on D2L and fill it out by hand, one row per year (rows 1-5) to compute the Capital Cost Allowance (CCA) for the aircraft over the next 5 years (2016-2020). All H's in millions of dollars. Use column 1 to indicate the year instead of the "Class". Columns 4, 10 and 11 should be ignored and left blank. Using the remaining space on the form, rows 6-10, to calculate the yearly tax savings over the same five years (2016- 2020) that result from the CCA deduction from income.

Explanation / Answer

Cost of Aircraft for Lochardier = $ 800 million CCA (Capital Cost Allowance) Year Allowance Tax Savings in $ on CCA $ 2016 200 million 90 million 2017 150 million 67.5 million 2018 112.5 million 50.63 million 2019 84.375 million 37.97 million 2020 63.28 million 28.48 million

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