L9 Capital Cost Tax Factors (CCTF)

CCTF = factor used to obtain after-tax cost or benefit of asset

Taking tax savings from depreciation into account

(real after-tax cost of asset)

CCTF obviates need to use more involved tax tables.
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CCTF estimated using two expressions
( )( )
|
|
|
.
|

\
|
+ +
+
=
i d i
i
td CCTF
new
1
)
2
1 (
1
CCTF new Post - 81
t = tax rate

d = CCA rate

i = after tax interest rate
Assumes tax benefits earned forever
(no terminal data on deductions)
2
CCTF estimated using two expressions
CCTF Old Pre - 81
t = tax rate

d = CCA rate

i = after tax interest rate (if before use rule of thumb)
( ) d i
td
CCTF
old
+
=1
assumes tax benefits terminated when asset
is salvaged.
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Consider P = $25000 (vehicle)
t = 43%
d = 30% Capital Cost Allowance (CCA) rate for DB
MARR = 12% After taxes (to obtain from before tax rate use
rule of thumb)

What is tax adjusted true price of vehicle?

CCTF (new) = 0.70931

Adj. Price = 0.7093 (25000) = $17,733

true after-tax cost of vehicle.
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Example: CCTF
Rules for applying CCTF:
First cost of asset - multiply by CCTF new then PW

Savings over time - multiply by (1-t) then PW

Salvage value of asset - multiply by CCTF old then PW



In applying above rules, no need to use Detailed Tax Tables. If

If depreciation is by DB method and depreciation only deduction.
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Example CCTF rule application

Asset = $10000

Savings = $4000/yr for N=5

Salvage value = $2000 at N=5

Tax rate = t = 50%

MARR = 12% after taxes.

t = 20%
In class.
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