Jambo & Sons, Ltd. purchases equipment to be used in business operations for $23,000. The equipment has a CCA rate of 20%. They intend to sell the equipment in year 10 for a salvage value of $5,000. At the time of sale, they still anticipate having other assets in the class. Tax rate is 34%. The company uses a 9% rate of return. Determine the present value of the incremental tax shields generated. a. $5,393.10 b. $5,665.69 c. $4,675.21 d. $5,170.45 e. $4,400.20

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.